Supply Chain CSR

Supply Chain Initiatives

Supply Chain Overview

Epson considers suppliers to be important partners in its business activities. As such, our procurement activities are designed to develop mutually beneficial trusting relationships with our business partners based on fairness, transparency, and respect.

Epson procures goods and services from all over the world. Domestic Japanese procurement accounts for about 41% of our total procurement spend. Asia accounts for the large majority of the remaining 59%.

Our procurement spent for direct materials (production materials and outsourced manufacturing) accounts for about 65% and indirect materials (including factory consumables, machinery, public relations, logistics, and staffing) for about 35%. Epson has business with 1,700 direct material suppliers mainly in Asia where our main manufacturing sites are located, and about half of our indirect materials spend is in Japan.

Procurement Over View

Procurement Over View

Supplier Evaluation Program

Epson evaluates all suppliers, both direct materials suppliers and indirect materials suppliers. Suppliers are evaluated from multiple angles on the basis of a supplier evaluation program. The program consists primarily of an indirect evaluation and a direct evaluation (periodic evaluation). The indirect evaluation is based on information from a credit investigation service. The direct evaluation is a self-check that suppliers do to evaluate their own QCD and other performance metrics.

Epson Group Supplier Evaluation Program Evaluation Frequency

Indirect evaluation

Evaluation based on information from a third-party credit investigation
Evaluation items: Credit score, business history, capital composition, business size, profit/loss, financing status, management, etc.

Twice per year

Direct evaluation (Annual evaluation)

Self-assessment of QCDEM
Evaluation items: Quality management (Q), cost management (C), delivery management (D), environmental management (E) and business management (M)

Once per year

Detailed CSR evaluation

Self-evaluation and check of compliance with the Epson Supplier Code of Conduct (RBA Code of Conduct)
Evaluation items: Labor, safety and health, environmental, ethics, management systems

Once per year

Evaluation of emergency response capabilities

Self-assessment of ability to respond in the event of a natural disaster, fire, or other emergency.
Evaluation items: Management attitudes, risk countermeasures, ability to respond to emergencies, recover from disasters, continue supplying goods, maintain procurement, and manage inventory, etc.

Once per year

Safety management evaluation

Self-assessment of response to fires and other emergency risks
Evaluation items: Management of electrical hazards, hazardous materials, fire prevention, etc.

Once per year

See here for more information about Green Purchasing.

Socially Responsible Procurement Program

Epson's socially responsible procurement program is an annual cyclical activity. It consists of steps in which we ask suppliers to comply with Epson's Supplier guideline and complete self-assessment questionnaires (SAQ). Epson then analyzes and evaluates risks, verifies the facts on site or audits certain high-risk suppliers, and supports and works with suppliers on corrective actions.

Socially Responsible Procurement Program

Direct Evaluation (Annual Evaluation)

All suppliers are required to complete an annual self-assessment. They are asked questions in the categories of quality, cost, delivery, environment, and management systems. Management system questions include the management of hazardous substances in products, the handling of personal data, and compliance with legal requirements concerning things such as international trade control and bribery. Suppliers that receive a score of 60 points or less in the evaluation are considered to be high risk. Epson will be forced to discontinue business with suppliers that do not demonstrate improvement.

Prospective new suppliers are also required to complete the self-assessment. Transactions with those that receive a score of 70 points or less are permitted on the condition that corrective action is taken to resolve noncompliance.

We concurrently survey suppliers to check their information security and defenses against the recent global surge in cyberattacks and information leaks.

Section Number of questions
Q. Quality 12
C. Cost 5
D. Delivery 5
E. Environment 5
M. Management system 15
Total 42

Direct Evaluation Results

  FY2019 FY2020 FY2021
Number of suppliers 942 902 959
Number of accounts 1,525 1,440 1,572
% of completed the self-assessment 100% 100% 100%

Detailed CSR Evaluation

The detailed CSR evaluation is a part of Epson's supplier CSR due diligence program. Every year, Epson evaluates supplier compliance with the Epson Supplier Code of Conduct (RBA Code of Conduct) based on a detailed self-assessment questionnaire (SAQ). Suppliers are asked to take corrective action, depending on the results of the SAQ. We also have a process for verifying supplier answers via audits, field checks, and direct questioning.

Each supplier chooses and answers an SAQ from either RBA online or an SAQ prepared by Epson that is based on the site audit standards of the Responsible Business Alliance (RBA). The Epson SAQ is designed to thoroughly check labor conditions (respect for human rights) and has many questions in the labor section.

As a regular member of the RBA, Epson asks major suppliers (direct material suppliers, on-site service vendors, and HR agents) to complete an SAQ every year.

Suppliers who are deemed high risk are audited in accordance with RBA standards and asked to take corrective action as needed.

Composition of Questions on the SAQ (2021)

Section Scope & Number of questions
Direct supplier

Indirect material supplier

  A. Labor (human rights) 40 37
  B. Health and safety 29 9
  C. Environment 12 -
  D. Ethics 13 8
  E. Management system 15 9
Total 109 63

Risk Rank by SAQ

Risk Rank by SAQ

Scope of SAQ (2021)

In 2021, we conducted a detailed CSR evaluation of major direct materials suppliers and indirect material suppliers including on-site service vendors, HR agents and logistic warehouse operators at key manufacturing sites.

1) Major direct suppliers
-80% of the Group-wide spend
-Selected by a business unit, including single source suppliers
2) Indirect material suppliers
(a) On-site service vendors
- Vendors on Seiko Epson and production sites, regardless of the value of transactions and number of workers.
(b) HR agencies
- Recruitment agency and HR contractors used by Seiko Epson and production sites, regardless of the value of transactions and number of workers.
(c) Logistics warehouse operators
- Warehousers at Seiko Epson and production sites, regardless of the value of transactions and number of workers

Direct material suppliers

In 2021, we asked 297 critical Tier 1 direct material suppliers to complete the SAQ (Self assessment questioners). We received completed questionnaires from 293 of them (497 facilities). We also asked Tier 2 suppliers to complete the SAQ when the Tier 1 supplier was a trading company.

Epson provides suppliers and vendors with their SAQ score as well as with feedback, including advice on corrective actions. We monitor the progress of critical corrective action items.

SAQ Evaluation Results (Direct material suppliers)

  2019 2020 2021
Number of evaluated suppliers

312 Suppliers

 (358 sites)

222 Suppliers

(391 sites)

293 Suppliers

Epson SAQ

(427 sites)

RBA SAQ

(70 sites)

Mid-term target  (by FY2020)

● Previous target: % of high-risk suppliers: 0% Achieved in FY2020

● Current target: All major suppliers are ranked low risk in terms of CSR by 2025.

Low-risk  (> 85 pts.) 58% 84%

91%

(443 sites)

Medium-risk  (66-85 pts.) 37% 16%

9%

(53 sites)

0%

(1 sites)

High-risk  (=< 65 pts.) 5% 0%

0%

(0 sites)

0%

(0 sites)

SAQ Evaluation Result (FY2018-2020)


Example of SAQ answer (2021)

  • Priority: Using child labor (0%, 0 site)
  • Priority: Using slavery labor or forced labor (0%, 0 site)
  • Worked for 7 consecutive days or more (9%, 40 sites)
  • Working hours exceed the maximum of 60 hours a week (21%, 91 sites)
  • Delayed payment of wages (0%, 0 site)
  • Evacuation drills were not conducted once a year (1%, 3 sites)
  • Suitable PPE was not provided free of charge (0%, 1 site)
  • Safety measures for pregnant and nursing mothers were insufficient (10%, 44 sites)
  • Clean accommodation for nursing mothers was not provided (14%, 61 sites)

*We ask suppliers who have problems and/or issues to take corrective actions.


Indirect material suppliers

Service vendors are essential business partners for running our production operations, so Epson requires them to understand and follow the RBA code requirements. Since 2019, we have asked our major indirect material suppliers, including on-site service vendors, HR agents, and logistics warehouse operators, to complete the SAQ and take corrective action depending on the SAQ results.

In addition to the SAQ, we conduct audits to check the working environment and employment conditions of on-site service vendors, and we request improvements where needed. We provide support until we can verify that issues found in areas such as long working hours, granting time off, consecutive days worked, and paying appropriate overtime have been corrected. SAQ scores have risen because of these efforts.

In 2021, we received a completed SAQ from all 220 companies with operations at Seiko Epson plants and offices and at Epson's key production sites.

SAQ Evaluation Result (Indirect material suppliers)

Type 2019 2020 2021
Number of vendors SAQ average score Number of vendors SAQ average score Number of vendors SAQ average score
On site service vendor Security 7 85 15 84 15 92
Canteen 12 71 18 78 13 89
Cleaning 10 78 16 77 13 89
Facility maintenance 6 84 15 83 16 88
Others 44 78 80 82 71 92
Total 79 78 144 81 128 91
Logistics warehouse operators*     * * 3 91
HR agencies 45 82 89 88 89 93

* 2020 results are included in the on-site service vendors category, under "Others."

Audits, on-site verification, and corrective action support

Epson supports the corrective action efforts of high-risk and medium-risk suppliers.

Epson schedules field audits and on-site verification primarily of major suppliers because it believes that it is important, as part of the detailed CSR evaluation due diligence process, to understand the situation. Since 2020, COVID-19 has made it difficult to travel to suppliers' production sites, so we have been performing checks online and doing additional follow-up verification of SAQ answers. We provide corrective action support to at-risk suppliers.

Third-party audits

As a regular member of the RBA, Epson is required to have suppliers that are found to be high risk based on the SAQ undergo a third-party audit (compliant with the RBA's VAP audit). In 2020, no third-party audits were performed, since, in addition to the effects of Covid-19, no suppliers were found to be high risk.

Again, in 2021, no supplier was deemed to be high risk based on the SAQ, so Epson did not ask any supplier to undergo an RBA (VAP) audit. However, the number of suppliers that voluntarily undergo RBA (VAP) audits is growing.

Initial audits often reveal issues in the areas of labor (human rights) and health and safety. We monitor whether suppliers are correcting issues by means of corrective action plans (CAP) and closure audits. Labor (human rights) and health and safety are areas where we are stepping up our supplier CSR initiatives.

* As a regular member of the RBA, Epson is obligated to ask high-risk suppliers to undergo an RBA (VAP) audit.

Third-party audits

Second party audits, on-site verification, and support for corrective action

For suppliers that are not asked to undergo a third-party audit, Epson manufacturing company staff members visit their sites to verify conditions on-site and help them improve. Through these activities, we not only help them address CSR issues but also support them when they struggle in other areas, such as in introducing fire prevention measures or establishing business continuity plans.

For on-site service vendors, Epson employees conducted a second-party audit to improve the working conditions by, for example, closely monitoring working hours, granting time off, paying appropriate overtime, and ensuring that workers are not made to pay hiring fees.

Audit and On-Site Verification (number of facilities, Japan and other areas)

Audit/Verification 2019 2020 2021
3rd party audit Initial audit 1 1 0
Follow-up audit - 1 0
RBA (VAP) audit Initial audit 16 9 16
Closure audit 8 7 6
2nd party audit,on-site verification 323 102 218
Direct supplier 163
Indirect supplier 55

Supply Chain Business Continuity Management

Epson promotes business continuity management (BCM) across the supply chain to ensure that it is able to fulfill its delivery commitments to customers by restoring supplies within a target recovery time in the event of a disaster, accident, epidemic, or other disruption.

Supply Chain Business Continuity Management

See here for more information about Epson's business continuity management.
See here for more information about Epson's business continuity management.

Evaluation of Emergency Response Capabilities

As part of our supply chain BCM program, we ask suppliers to manage their own business continuity so that supplies of products we procure from them are not disrupted. We check their preparedness by having them periodically complete a self-evaluation of their ability to respond to emergencies, and we provide them with feedback on the results as well as with any support they need to make improvements.

Result of Emergency Response Capability Evaluation

  FY2019 FY2020 FY2021
Suppliers asked to complete an evaluation 1,336 1,465 1,233

Suppliers who completed the evaluation

(Sites that completed the evaluation)

1,127
(1,934)

1,245
(1,941)
1,154
(1,879)
Completion rate 84% 85% 94%

* Up to FY2020, we only provided data on the number of sites. This year we broke the data down into number of companies and number of sites to provide a clearer picture.

Safety Management Evaluation

Epson also conducts an annual safety management evaluation to evaluate the ability of suppliers to respond in the event of a fire or other emergency. After suppliers conduct a self-assessment covering things such as electrical hazards, hazardous materials, and fire prevention, members of Epson's safety management staff verify their answers on-site and discuss corrective actions.

Result of safety management evaluation

  FY2019 FY2020 FY2021

Suppliers asked to complete an evaluation

1,402 1,384 1,245

Suppliers who completed the evaluation

(Sites that completed the evaluation)
1,190
(2,139)
1,083
(1,805)
1,184
(1,930)
Completion rate 85% 78% 95%

* Up to FY2020, we only provided data on the number of sites. This year we broke the data down into number of companies and number of sites to provide a clearer picture.

Human Rights Initiatives

Epson has declared in its Human Rights Policy that both Epson and its suppliers shall respect human rights.The policy also states that we shall observe the United Nations Charter of Human Rights and principles of conduct relating to business and human rights. Moreover, we support the purpose of the RBA and, as a member, we seek to ensure that our suppliers also comply with the RBA Code of Conduct.

Through these initiatives, we aim to ensure that workers' rights are respected throughout the Epson product supply chain, and we have a program that covers the entire supply chain and includes the following:

1. Fostering an understanding of human rights and requirements (conferences and education) *1
2. Making suppliers aware of the need to implement a human rights program
3. Checking of human rights performance via self-assessments and audits
4. Requesting corrective action where needed

To foster understanding of human rights, we ask suppliers to read the Epson Group Supplier Guidelines. We also hold supplier conferences and human rights seminars that many suppliers attend.

A self-assessment questionnaire (SAQ) is used to ascertain how closely suppliers are adhering to the RBA Code of Conduct in the areas of human rights. We provide feedback to each supplier site regarding issues that need to be addressed, and we request that they take corrective action.

The RBA Code of Conduct (the RBA CoC) covers a wide range of human rights issues, particularly the Labor section. Taking into account the ILO core labor standards and the principles of the United Nations Global Compact, we have identified the following priority human rights issues and have made improvement in these areas mandatory:

- Child labor (A2 in the RBA CoC)
- Forced labor (A1 in the RBA CoC)
- Suitable working hours (a 60-hour maximum workweek and at least one day off every seven days) (A3 in the RBA CoC)
- Proper payment of wages (payment of the legal minimum wage and overtime, and timely payment of wages) (A4 in the RBA CoC)
- Humane treatment (no harassment) (A5 in the RBA CoC)
- Non-discrimination (A6 in the RBA CoC)
- Freedom of association and the right to collective bargaining (A7 in the RBA CoC)
- A safe and healthy work environment (B. Health and Safety in the RBA CoC)

When we become aware of a human rights issue through an audit or a report by a whistleblower employed by a supplier, we provide support until the issue is resolved. Issues have been resolved in cases involving things such as working hour records, payment of overtime and holiday allowances, and granting of time off.

Epson encourages the reporting of human rights issues so that it can provide relief and protection to suppliers and their employees.

See here for more information about Respecting Human Rights.

Supply Chain Environmental Initiatives

Epson is pursuing ambitious environmental initiatives under the Epson 25 Renewed corporate vision. We are looking to decarbonize and close the resource loop. We are also developing environmental technologies and providing products and services that reduce environmental impacts. Reducing the environmental impact early in the life cycle, at the procurement stage, is a particularly important issue, and one that Epson is addressing in cooperation with suppliers.

Supply Chain Environmental Initiatives

GHG Emissions Targets

Epson has set greenhouse gas (GHG) emissions targets in line with an approach championed by the Science Based Targets initiative (SBTi). The SBTi has validated Epson's 2025 targets for scopes 1, 2, and 3 GHG emissions measured in accordance with the GHG Protocol. Epson's validated target for scope 3 emissions, which are emissions from an organization's value chain, is to reduce GHG emissions as a percentage of business profit out to 2025.

Epson joined the international initiative RE100, which aims to drive a transition on the part of corporations to the use of 100% renewable electricity for their business activities by 2050, and we have set a goal of switching to 100% renewable energy to meet the electricity needs at all Epson Group sites*1 around the world by 2023. In the future, we will switch to a more ambitious reduction target that is in line with the 1.5℃ scenario and will endeavor to reduce emissions throughout the supply chain.
*1 Excludes some sales sites and other leased properties

Response to Climate Risk

There is a shared global awareness that climate change poses serious and urgent business risks that must be addressed. Epson has suppliers across Asia, including in Thailand, where severe floods are a regular occurrence, and in China, where there is high potential water risk. Epson recognizes that interrupted or delayed deliveries from suppliers due to floods and droughts, two typical climate risks, could seriously impact the manufacture and sale of Epson products and need to be addressed to avoid inconveniencing customers.

Supplier Support Initiative

Under its supplier engagement program, Epson asks suppliers to complete a self-assessment questionnaire (SAQ). Suppliers are sorted by risk level based on their SAQ score and given feedback on the results. Epson helps high-risk suppliers improve through on-site verification and audits. Moreover, to encourage the pursuit of environmental sustainability, Epson selects the suppliers who account for 80% of the value of Epson's procurement spending and, in conjunction with a detailed CSR evaluation, asks them to report the policy and initiatives for renewable energy use, the amount of water and the amount of electricity, gas, and other sources of CO2 emissions actually consumed for parts they sell to Epson. Epson shares this data with its suppliers and engages them to help drive production line improvements that reduce the amount of electricity and water used and improvements that will reduce the environmental impact of transport.

See here for more information about Epson's environment initiatives.

Partnerships with External Organizations

In addition to our own initiatives, Epson supports and actively participates in alliance activities in order to resolve CSR issues, including human rights issues in the supply chain. We have joined the RBA and JEITA to work on solving social issues around the world and improving supply chain CSR through industry collaboration.

【Global initiative】

Responsible Business Alliance (RBA) regular member

Responsible Business Alliance

【Domestic Japanese industry initiative】

The Japan Electronics and Information Technology Industries Association (JEITA), CSR Committee

Example activities:
Issuing and promoting the Responsible Business Conduct Guideline
Study of human rights due diligence and grievance mechanisms
Study of the global regulatory situation