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 about 1,400 suppliers around the world. Domestic Japanese procurement accounts for about 23% of our total procurement spend. Asia accounts for the large majority of the remaining 77%.

Supplier Evaluation Program

Epson evaluates all suppliers, both direct materials suppliers and indirect materials suppliers such as logistics, construction, and staffing companies. 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 (SAQ)

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

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

  FY2016 FY2017 FY2018
Target (KPI) % of suppliers completing the self-assessment 100%
Result % of completed the self-assessment 100% 100% 100%
Number of suppliers 1,009 880 994
Number of accounts 1,422 1,413 1,481

Detailed CSR Evaluation (SAQ)

Epson evaluates supplier compliance with the Epson Supplier 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 criteria of the Responsible Business Alliance (RBA) but also includes criteria that are unique to Epson. Major suppliers (those representing 80% of the spend) and single-source suppliers are required to complete an SAQ as Epson critical suppliers. Suppliers deemed high risk based on their SAQ scores are audited by an independent organization under the RBA’s Validated Audit Program to foster improvement. To ensure that evaluations are fair and efficient, Epson created the Epson Group Detailed Supplier Evaluation Guideline to clarify SAQ and audit procedures.

Since 2015, Epson has evaluated direct suppliers (suppliers of product materials) and indirect suppliers (suppliers of supplies, services, etc.) in alternate years but plans to evaluate them annually starting in 2020.

Self-assessment Questionnaire (SAQ) Contents

Section Number of questions
G. General 1
A. Labor (human rights) 28
B. Health and safety 22
C. Environment 14
D. Management system 16
E. Ethics 12
F. Additional items (Epson original) 7
Total 100

Risk Rank by SAQ

Risk rank Assessed points Explanation
Low risk 86-100 pts. Low risk supplier basically meets the requirements of the Epson Supplier Code of Conduct.
Medium risk 66-85 pts. Medium risk suppliers does not meet all the requirements of the Epson Supplier Code of Conduct but is deemed to be able to take corrective action to weaknesses.
High risk 65 pts. or less High risk supplier does not meet many of the requirements of the Epson Supplier Code of Conduct, and needs to be monitored based on an improvement plan for corrective action.

Results of Detailed CSR Evaluation

In 2018, we evaluated direct suppliers. We asked 333 critical Tier 1 suppliers (those representing the top 80% of spend and single-source suppliers) to complete the SAQ. We received completed questionnaires from 312 of them. We also asked Tier 2 suppliers to complete the SQA when the Tier 1 supplier was a trading company. A completed SQA was returned by 132 of Tier 2.

For critical Tier 1 suppliers that were deemed to be high risk, we verified the facts on-site 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 2016 SAQ improved by 15 points on the 2018 SAQ.

SAQ Evaluation Results

  FY2016 FY2017 FY2018
Intended suppliers Direct suppliers Indirect suppliers Direct suppliers*1
Number of evaluated suppliers

274 Suppliers

 

66 Suppliers

 

312 Suppliers

(358 sites)

Mid-term target (by FY2020) % of high-risk suppliers: 0%
Low-risk (> 85 pts.) 60% 55% 57%
Medium-risk (66-85 pts.) 32% 36% 38%
High-risk (=< 65 pts.) 8% 9% 5%

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

Audit and Corrective Action

Epson supports the corrective action efforts of high-risk and medium-risk suppliers. In FY2018, support took the form of audits and on-site verifications.

Audit

In 2018, Seiko Epson retained an experienced and qualified organization to audit a key supplier in the Philippines. (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 is now working to improve conditions.

Two suppliers who were audited in 2017 were found to have met their corrective action commitments.

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.

Japan Other area
Third Party Audit 0 1
On-site verification 38 210

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.

(Suppliers)

FY2016 FY2017 FY2018
Target 436 319 250
Result 414
95%
490*2
154%
228
91%

*2 In FY2017, as a special action, self-assessment was conducted by Tier 1 and critical Tier 2 suppliers.

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

(Suppliers)

FY2016 FY2017 FY2018
Target 357 1,353 481
Result 328
92%
1,906*3
141%
449
93%

*3 In FY2017, as a special action, self-assessment was conducted by Tier 1 and non-Tier 1 suppliers.

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
  • The Global Compact Network Japan, Supply Chain Subcommittee