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 39% of our total procurement spend. Asia accounts for the large majority of the remaining 61%.

Our procurement spend for direct materials (production materials and outsourced manufacturing) for about 63% and indirect materials (including factory consumables, machinery, public relations, logistics, and staffing) for 37%. Epson has business with1700 direct material suppliers and mainly in Asia where our main manufacturing site located, and about an half of indirect materials spend in Japan.

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

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.

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)
A green purchasing agreement is required.

Detailed CSR evaluation (CSR-SAQ)

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

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.

Safety management evaluation

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

See here for more information about Green Purchasing.

Socially Responsible Procurement Program

Epson's sustainable procurement program is an annual cyclical activity. It consists of steps in which we ask suppliers to comply with Epson’s procurement guidelines 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.

Direct Evaluation (Annual Evaluation)

All suppliers are required to perform an annual self-assessment. They are asked questions in the categories of quality, cost, delivery, environment, and management systems. Among other things, the management system questions are designed to check the management of hazardous substances in products, the handling of personal data, and compliance with legal requirements concerning things such as international trade and bribery. Suppliers that receive a score of 60 points or less in the evaluation are considered to be high risk. Epson engages these suppliers to help resolve incidents of noncompliance. Suppliers that do not demonstrate improvement are excluded.

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 remedy noncompliance. 

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

  FY2017 FY2018 FY2019
Target (KPI) % of suppliers completing the self-assessment 100%
Result % of completed the self-assessment 100% 100% 100%
Number of suppliers 880 994 942
Number of accounts 1,413 1,481 1,525

Detailed CSR Evaluation (SAQ)

Epson evaluates supplier compliance with the Epson Supplier Code of Conduct (RBA Code of Conduct) based on a detailed self-assessment questionnaire (SAQ). We work with suppliers to make improvements as appropriate depending on their score and the gravity of noncompliance incidents.

The SAQ is based on site audit standards of the Responsible Business Alliance (RBA). Major direct material suppliers (those representing 80% of the Group-wide spend and selected by a business unit), on-site service vendors, and HR agencies are required to complete an SAQ as Epson critical suppliers. Suppliers deemed high risk based on their SAQ scores are asked to undergo an RBA VAP audit under the RBA’s Validated Audit Program to foster improvement. Epson evaluates supply chain CSR annually.

Self-assessment Questionnaire (SAQ) Contents

Section Scope & Number of questions
Direct supplier

On-site service vendor

HR agent / Contractor

  A. Labor (human rights) 27 26
  B. Health and safety 24 12
  C. Environment 12 -
  D. Ethics 12 10
  E. Management system 17 15
Total 92 63

Risk Rank by SAQ

Results of Detailed CSR Evaluation

In 2019, we evaluated direct material suppliers as well as on-site service vendors and HR agencies at major production sites. We asked 233 critical Tier 1 direct material suppliers to complete the SAQ. We received completed questionnaires from 222 of them (391 facilities). We also asked Tier 2 suppliers to complete the SAQ when the Tier 1 supplier was a trading company.

For critical Tier 1 direct material suppliers that were deemed to be high risk, we verified the facts on-site (including third party CSR audit) and supported corrective actions to help them improve to medium risk or better. As a result of these actions, the average score of suppliers who fell into the high-risk rank on the 2018 SAQ improved by 24 points on the 2019 SAQ to attain middle risk or better.

We asked on-site service vendors and HR agencies at 10 key production sites to complete an SAQ and received completed SAQs from 124 of them. Service vendors are essential business partners for running our production operations, so Epson requires them to understand and follow the RBA code requirements.

Epson provides suppliers and vendors with their SAQ score and with feedback, including advice for corrective actions.

SAQ Evaluation Results (Direct material suppliers)

  FY2016 FY2018 FY2019
Number of evaluated suppliers

274 Suppliers

 

312 Suppliers

(358 sites)

Epson SAQ RBA SAQ

207 Suppliers

(354 sites)

15 Suppliers

(37 sites)

Mid-term target  (by FY2020) % of high-risk suppliers: 0%
Low-risk  (> 85 pts.) 60% 58% 84%
Medium-risk  (66-85 pts.) 32% 37% 16% 0%
High-risk  (=< 65 pts.) 8% 5% 0% 0%

*1 2018 SAQ includes 29 of HR agents and on-site service providers.


SAQ Evaluation Result of HR Agency and On-site Service Vendor

Type FY2019
Number of vendors SAQ average score
Recruitment agency / HR contractor 45 82
On site service vendor Security 7 85
Canteen 12 71
Cleaning 10 78
Facility maintenance 6 84
Others 44 78
Total 79 78

Audit and Corrective Action

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

Audit

In 2019, Seiko Epson retained an experienced and qualified organization to audit a key supplier in Japan. (This third-party audit conformed to the Validated Audit Program of the RBA.) The auditors found the supplier to be high risk. The supplier responded by establishing a corrective action plan and have completed improvement actions.

On-site Verification and Support for Corrective Action

For suppliers that are not asked to receive 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. In 2019, we conducted two third party audit including one follow up audit to verify supplier condition which were received third party audit in 2017, and 323 on site verification.

Audit / Verification FY2018 FY2019
Japan Other area Japan Other area
3rd party audit Initial audit 0 1 1 0
Follow up audit - - - 1
On site verification 38 210 9 314

Evaluation of Emergency Response Capabilities

Epson is working to improve its ability to effectively respond to threats and to ensure business continuity. When a natural disaster or other unforeseen event strikes an Epson production site, the first thing we do after securing the safety of personnel is to act to restore the supply of products to our customers. It is essential for the entire supply chain to be able to effectively respond to emergencies so that we can fulfill our responsibility to customers by restoring the supply of goods within the target period if the supply should be interrupted by a disaster, accident, or epidemic. Epson therefore evaluates the emergency response capabilities of suppliers every year and helps them remedy issues as needed.

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

Supply Chain Business Continuity Management

To help manage business continuity and improve resilience throughout the supply chain, Epson operates in line with supply chain BCM guidelines. These guidelines are consisted of the five function, which are supplier, production, sales, logistics, and procurement.


Epson is working with suppliers to ensure that they establish their own BCM systems so that the supply of parts to Epson is not disrupted. We ask Tier 1 suppliers to evaluate their own BCM capabilities every year, provide feedback, and help them remedy issues as needed.

  FY2017 FY2018 FY2019
Target 319 companies 250 companies 1,136 companies
Result

490*2 companies

154%

228 companies

91%

945*3 companies

71%

*2 In FY2017, as a special action, self-assessment was conducted by Tier 1 and critical Tier 2 suppliers.
*3 In FY2019, self- assessment was conducted by direct material suppliers, but, some of them have not answered due to the novel coronavirus pandemic.

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.

Safety Management Evaluation Result

  FY2017 FY2018 FY2019
Target 1,353 companies 481 companies 1,384 companies
Result

1,906*4 companies

141%

449 companies

93%

1,025*5 companies

74%

*4 In FY2017, as a special action, self-assessment was conducted by Tier 1 and critical Tier 2 suppliers.
*5 In FY2019, self- assessment was conducted by direct material suppliers, but, some of them have not answered due to the novel coronavirus pandemic.

Supply Chain Environmental Initiatives

As declared in the Epson 25 Environmental Statement, Epson seeks to contribute to the development of a sustainable society by leveraging its technologies to reduce the environmental impact of products and services across their life cycles. 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.

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.

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 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

Epson is a member of the following organizations that promote sustainable procurement through industry cooperation:

  • Responsible Business Alliance (RBA)
  • The Japan Electronics and Information Technology Industries Association (JEITA), CSR Committee