Economic Aspect

Supply Chain Management

Issue Date:2020/08/19

We value our relationship with suppliers for offering quality products and services to consumers. Chunghwa Telecom’s suppliers can be divided into three categories: material, labor and engineering. We make enormous purchases from an extensive number of suppliers, from networking equipment, data equipment, cables, marketing design, to waste disposal services. This means that we possess great influence to convince suppliers into supporting our social responsibilities. Chunghwa Telecom utilizes four approaches, namely: contractual terms, questionnaire surveys, Supplier CSR Interchange Meeting, and on-site audits, to raise suppliers’ awareness and understanding towards CSR, as well as the commitments we have made in supply chain management. For suppliers that have just begun to familiarize with the CSR concept, we choose to encourage their participation while at the same time provide them with the proper education and assistance; over time, we hope to engage all suppliers in a win-win relationship.

Supplier Code of Conduct

 “Code of Corporate Social Responsibility for Suppliers of Chunghwa Telecom Co., Ltd.” clearly outlines the Company’s expectations in terms of "Business, Ethics, Labor, Environment, Safety and Health.”

The guidelines apply to all suppliers that provide products or services to Chunghwa Telecom or its subsidiaries or joint ventures, and extends to other participants of the supply chain that the supplier is directly or indirectly related to. We hope that suppliers may commit to our values and take more proactive steps toward maintaining a sustainable business relationship. Please refer to Code of Corporate Social Responsibility for Suppliers of Chunghwa Telecom.pdf

Supply Chain Spend Analysis

The Chunghwa Telecom suppliers fall into three categories: property, labor and engineering. Apart from professional network communications equipment which is mainly purchased overseas, we buy as much from local suppliers as possible to promote local economic development. The domestic procurement percentage was 95% in 2019. Our target is to reach 96% by 2023. With the continuous development of business, our annual purchase amount has also continued to increase, reaching NTD 60.71 billion in 2018, and 2019 maintains the same amount. The number of suppliers of CHT in 2019 is 4,631.

Determining Critical Suppliers

According to the “Procurement Management Regulations”, volume of procurement over NTD $50 million is a major procurement case that need to be proposed to and evaluated by the Head Office. CHT defines suppliers for major procurement volume over 50 million annually as our critical suppliers. As a result, there were 161 critical suppliers in 2019, including 133 critical tier 1 suppliers and 28 critical non-tier 1 suppliers. The 133 critical tier 1 suppliers share 77.97% of total procurement spent.

Supply Chain Management Strategy

The top 5 priorities of CHT’s supply chain management strategy are as follows:

(1) Compliance performance: especially with laws and regulations regarding labor, environment, safety and health legislations, as well as “Social Responsibility Principles for Suppliers” & Execution of “Principles of Corporate Social Responsibility for Suppliers of Chunghwa Telecom.” Other compliances include performance records, experience, performance, user evaluations, schedule compliance efficiency, compliance cost control records, labor employment relationships or human-caused accidents.

(2) Technology: such as functionality of technical specifications, professional or technical manpower, professional expertise, capability of timely contract performance, technical feasibility, equipment resources, training capability, maintenance capability, construction methods, economy, standardization, degree of slimness, requirements on operational environment, degree of environmental protection, etc. 

(3) Functions and quality: such as production capacity, handiness, versatility, expandability, compatibility, adaptability, quality control capability, inspection and testing methods, error detection rate, ease of operation and maintenance, precision, safety, stability, reliability, comfort of use, failure rate, sturdiness, durability, service life, etc.

(4) Management: such as organizational structure, workforce qualifications and composition, work interface handling, schedule management, site management, safety and health management, security maintenance, accounting system, financial condition, project management capability, subcontracting plan, etc.

(5) Commercial terms: such as contract period, term of payment, supplier’s remittance promise to entity, maintenance service schedule, after sale service, warranty period, document preparation, etc.; We also consider price and other matters related to the function or benefit of the procurement.

Formal risk identification process

With 5 steps, Chunghwa Telecom identifies the sustainability risk in the supply chain. Also, the sustainability performance of the suppliers is hooked with procurement contracts, and project-based incentives are offered.

1. Policy: “Code of Corporate Social Responsibility for Suppliers of Chunghwa Telecom Co Ltd” stipulates the CSR guidelines for suppliers to follow.
2. CSR Survey and Letter of Undertaking: The CSR Survey has been filled out by tier 1 suppliers 100% to describe the ESG practices at present.
    (1) All tier 1 suppliers are required to fill out the CSR Survey for Chunghwa Telecom to grasp their ESG performance.
    (2) 100% suppliers with a procurement amount NT$5 million is to fill out “CSR Online Survey” on “Chunghwa Telecom e-Procurement System” for Chunghwa Telecom to analyze their ESG risk.
3. Online Risk Assessment Questionnaire: Suppliers with a procurement amount of NT$5 million is to fill out “CSR Online Survey” on “Chunghwa Telecom e-Procurement System” regarding business ethics, labor rights, environment management, and occupational safety and health for the rating of ESG risk of suppliers.
4. On-site Audit: SGS-Taiwan will be commissioned to carry out on-site audit at the office of suppliers at risk in ESG, followed by corrective actions and review thereof.
5. Sustainability Rating: Based on the results of the online assessment and SGS on-site auditing, suppliers’ ESG performance will be rated and awarded with sustainability certificates (Gold, Silver, or Bronze). In our tender mechanism, points will be given, or priority will be granted in line with a supplier’s sustainability rating.

 

Supplier CSR Status Survey and Second-Party Audit

We have initiated a sustainability rating system of suppliers, which divide into four levels of supplier certifications such as “Gold, Silver, Bronze and Participation” base on their sustainability performance. Incorporating the existing procedure of Safety and health on-site inspections, we aim to achieve a 100% assessment rate of critical tier 1 suppliers in the near future. Through the practical implementation of second-party audits by SGS-Taiwan, we encourage our suppliers to strike a balance between economic benefits, environmental protection, and social welfare. We hope that CHT, together with its suppliers, can build a sustainable supply chain system from which all parties involved can benefit.

ESG Integration

Chunghwa Telecom realizes the influence of major enterprise on suppliers, and we think it’s also important to let our suppliers understand how they can change the world step by step, that's one of our supply chain strategy: to lead our suppliers and even the industry to grow. Labor and EHS management standard is another important factor of our supply chain strategy, since we think not only Chunghwa Telecom but also our suppliers should treat employees in a good way, and provide them a safe and well working environment. Employee is a key point for sustainable development as you may find this spirit in “Code of CSR for Suppliers of Chunghwa Telecom.”

Minimum threshold for new suppliers and existing suppliers 
1. Follow legislative requirements
2. Follow CHT’s Code of Corporate Social Responsibility for Suppliers of CHT
3. Complete the "Chunghwa Telecom Supplier CSR Status Self-assessment Questionnaire"

KPI 1: 
We have initiated a sustainability rating system of suppliers, which divide into four levels of supplier certifications such as “Gold, Silver, Bronze and Participation” base on their sustainability performance. Incorporating the existing procedure of Safety and health on-site inspections, we aim to achieve a 100% assessment rate of critical tier 1 suppliers in the near future. Northern Taiwan Business Group, Southern Taiwan Business Group and Mobile Business Group all have health and safety officers assigned to inspect suppliers on-site at least 3 times a week. Any defects discovered were notified to the relevant departments and followed up for improvements, thereby ensuring that none of them are prone to environmental, forced labor or human rights risks, ensuring that supply chain partners can understand and enhance ESG management results.

Target:
Completion of all critical tier 1 suppliers’ CSR on-site visit and audit, thereby ensuring that none of them are prone to environmental, forced labor or human rights risks.

KPI 2:
Except the professional ICT equipment are mainly engaged in foreign procurement, Chunghwa Telecom suppliers tries its best to support the development of commercially viable local businesses by optimizing the value of in-country spend and gradually increase the ratio of domestic procurements.
In 2019, 95% of total procurements are domestic procurements.


Target:
Domestic procurements reach 96% of total procurements

KPI 3:
In 2019, 67% of suppliers replied to CDP questionnaire in response of “CHT CDP Supply Chain Project,” a total 2,330,000 CO2e saved by said suppliers, 63% of suppliers had climate change into long-term business strategy planning, 63% had carbon reduction target set, and 69% of replied suppliers had a climate change related risk assessment procedure. 

Target:
Completion of carbon management education and training for critical tier 1 supplier. Gathering climate change and carbon emission data from the said suppliers at least once a year. The amount of CHT suppliers replying to CDP questionnaire in response of “CHT CDP Supply Chain Project” reaches the total number of 200.

 

Chunghwa Telecom Supplier Management Website