Economic Aspect

Supply Chain Management

Issue Date:2019/06/16

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

Each year, Chunghwa Telecom conducts supplier-oriented expenditure analysis, for those procurements’ amount over NT$100,000 in total annually. Analysis criteria include: procurement type, regions and top 10 major procurement categories. Procurements are then processed and bottom prices are assigned. With the continuous development of business, our annual purchase amount has also continued to increase, reaching NTD 60.71 billion in 2018, and 2019 is expected to maintain the same amount. Among them:
•  72.53% are material suppliers, 10.94% are labor suppliers and 16.53% are engineering suppliers.
• Domestic procurements account for 90.08% of total procurements, and will continue to grow gradually in the future.

Please refer to Supply Chain Analysis of Chunghwa Telecom.pdf

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 as our critical suppliers. We’ve further modified the definition of critical supplier from “suppliers with single supply procurement valued over 50 million” to “suppliers with annual supply procurements cumulatively valued over 50 million” in 2017. As a result, there were 171 critical suppliers in 2018, including 143 critical tier 1 suppliers and 28 critical non-tier 1 suppliers.

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.

Supplier CSR Status Survey and Audit

Engineering suppliers and suppliers with high sustainable risk would be the top priority for us to audit. In 2018 audits were conducted on 78 route-engineering suppliers, total 204 times, and 10 suppliers were conducted “third-party audit.” Management and employees were interviewed to monitor production quality through onsite audits (announced and unannounced). From 2012, suppliers with procurement of NT$ 5 million or more must agree to abide by the “Chunghwa Telecom Supplier CSR Guidelines” and “Directions for the Promotion of the Suppliers’ CSR Implementation,” and implement supplier CSR surveys to facilitate our supervision of the sustainability risks of suppliers. Our definition of high sustainability risk is as follows:
● Economic: Occurrence of business ethics violations due to supplier not having formulated a code of conduct or not complying with relevant regulations.
● Environmental: Supplier has yet to formulate a written environmental policy and has not formally requested that suppliers comply with environmental regulations.
● Social: Company has yet to formulate a written labor policy or health safety policy or has not complied with social regulations.
According to our preliminary supplier sustainability assessment plan, suppliers in the equipment and labor category will also be gradually included in the scope of audits to further integrate ESG (environment, social, governance) factors and supplier selection criteria.

KPI: 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 by 2023.
We have planned to expand the SGS-Taiwan on-site audit to 20 suppliers in 2019, and add new review operations, which will be divided into four levels of supplier certifications such as “Gold, Silver, Bronze and Participation.” 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.

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: Maintain 100% of our tier 1 suppliers have received an initial questionnaire to assess their companies’ CSR performance as soon as they enter the bidding process. The original manufacturer of the agent or distributor must also attach a self-assessment questionnaire.

In order to learn about suppliers' management practices, all of CHT’s tier 1 suppliers shall receive the assessment in the form of a hardcopy checklist to assess the current condition of the companies on ethic, health, environment, safety and labor as well as their CSR initiatives. The list will be attached to the actual contract. All of the suppliers need to fill out the self-assessment questionnaire to complete the procurement. CHT will further review and analyze the suppliers’ CSR status based on the information gathered. Also, corrective action plans will be sent when risks are identified.


KPI: Completion of the "Sustainable Partner Certification" program. 
The program will be based on the supplier's category and importance, the suppliers are graded into 4 levels of “Gold, Silver, Bronze, Participation” according to the results of the SGS second party audit. If unqualified, there is also a deadline and improvement mechanism in place. After the grading, the supplier can obtain the corresponding label according to the level, which is a bonus item for the bidding qualification. It is estimated that 170 suppliers will be continuously graded and obtain certification labels by 2025.


Connecting with the international low carbon economy trend, we officially introduced the ISO 20400 Sustainable procurement – Guidelines in 2018 to evaluate supplier's ESG performance with a sustainable structure. It is hoped that through the "assessment, training audit and certification" approach, the "Chunghwa Telecom Sustainable Supply Chain" qualified list will be constructed to lead the supplier partners to move towards a lower carbon sustainable future. 
With the mission and brand spirit of “The Engine of Digital Economy and the Pilot in the Innovation Industry, ” we strive to enhance the sustainability of the ICT industry, enterprises and society. 

Carbon Management of the Supply Chain (Aligned with SDGs 13: Climate Action)

The responsibilities and mission of Chunghwa Telecom are “Green of ICT and Green by ICT.” This implies facilitation of the greenness of the ICT industry (Green of ICT) and overall greenness of society through ICT (Green by ICT). The trend towards greenness in enterprises is propelled by two forces: “market and non-market.” Non-market forces come from government regulations, the market forces from supplier management. To co-exist with the environment, businesses must implement “green practices” throughout the entire supply chain. In 2018, we proposed the “Sustainable Supply Chain” initiative, inviting suppliers to join CDP and report climate-related data. We hope to empower suppliers with the ability of carbon management through scientific and quantitative mechanism, and thus reduce carbon emission year by year. In the future, we plan to include carbon reduction into tender documentation and develop a green supply chain by using control banding.

To establish a green operation, we use professional energy saving technology and services that help industrial companies easily manage energy conservation. With our own Environmental Sustainable Development and Management System (EARTH), we can control environmental resources and the effectiveness of energy conservation to increase efficiency in environmental management, as well as reduce spending on energy consumption. Green supply chains will entail more than just supplier commitment to environmental protection and the life cycle of green products. Chunghwa Telecom will continue to explore value-added applications of ICT, and introduce robust systems to facilitate better coordination and management, as well as complete monitoring of the supply chain.

After “The Paris Agreement” took effect, we entered an age of low-carbon economy. Chunghwa Telecom is a carrier in the information and communications industry, and this is a crucial issue of great urgency. We need to understand and respond to the impact of climate change and plan appropriate response strategies and actions at once.  According to the 2018 CDP supply chain report, 66% of our suppliers have conducted energy saving measures with a total of 1.79 million tons of CO2 conduction. Besides, 76% of suppliers have incorporated climate change into long term business plan, while 62% of suppliers have established related risk assessments and 48% of suppliers have already set carbon emission reduction targets.

KPI: 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” accumulate to a total number of 200 by 2023.

At the end of 2017, Chunghwa Telecom joined the Carbon Disclosure Project “CDP Supply Chain Project” and formally launched supply chain carbon management, becoming the first telecom industry and the second domestic company to join the international platform. We aim to conduct trainings program of CDP questionnaire related topics for 100% of our critical tier 1 suppliers. In order to help them with a better understanding of how CDP relates to their specific organization, how it applies to daily business scenarios and how it can help with strategic planning. In addition, we ask our suppliers to submit climate change and carbon emission data of their companies at least once a year. In 2018, 66% of suppliers replied to CDP questionnaire in response of “CHT CDP Supply Chain Project,” a total 1,790,000 Co2e saved by said suppliers, 76% of suppliers had climate change into long-term business strategy planning, 48% had carbon reduction target set, and 62% of replied suppliers had a climate change related risk assessment procedure. 

 

Creating Win-Win Cooperative Relationships

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: Maintain 100% of our tier 1 suppliers have received an initial questionnaire to assess their companies’ CSR performance as soon as they enter the bidding process. The original manufacturer of the agent or distributor must also attach a self-assessment questionnaire.

In order to learn about suppliers' management practices, all of CHT’s tier 1 suppliers shall receive the assessment in the form of a hardcopy checklist to assess the current condition of the companies on ethic, health, environment, safety and labor as well as their CSR initiatives. The list will be attached to the actual contract. All of the suppliers need to fill out the self-assessment questionnaire to complete the procurement. CHT will further review and analyze the suppliers’ CSR status based on the information gathered. Also, corrective action plans will be sent when risks are identified.


KPI: Completion of the "Sustainable Partner Certification" program. The program will be based on the supplier's category and importance, the suppliers are graded into 4 levels of “Gold, Silver, Bronze, Participation” according to the results of the SGS second party audit. If unqualified, there is also a deadline and improvement mechanism in place. After the grading, the supplier can obtain the corresponding label according to the level, which is a bonus item for the bidding qualification. It is estimated that 170 suppliers will be continuously graded and obtain certification labels by 2025.

Connecting with the international low carbon economy trend, we officially introduced the ISO 20400 Sustainable procurement – Guidelines in 2018 to evaluate supplier's ESG performance with a sustainable structure. It is hoped that through the "assessment, training audit and certification" approach, the "Chunghwa Telecom Sustainable Supply Chain" qualified list will be constructed to lead the supplier partners to move towards a lower carbon sustainable future. 
With the mission and brand spirit of “The Engine of Digital Economy and the Pilot in the Innovation Industry, ” we strive to enhance the sustainability of the ICT industry, enterprises and society. 


Download:

Code of Corporate Social Responsibility for Suppliers,Code of Corporate Social Responsibility for Suppliers of Chunghwa Telecom.pdf

Directions for the Promotion of the Suppliers’ CSR Implementation, Directions for the Promotion of the Suppliers’ CSR Implementation.pdf