Supply Chain Management
Approach to the procurement of raw materials
Our Group’s businesses depend on a steady and reliablesupply of raw materials, equipment, supplies, information services and various other products and services. Maintaining healthy cooperative relationship with suppliers is therefore essential to our sustainable growth. Our Group has established and disclosed the procurement policy that is aligned with our basic approach to business transactions. We also have programs for everyone at our Group, as well as at our suppliers, to make sure that they understand and follow this approach and policy.
To ensure that procurement activities are performed responsibly, we established procurement guidelines based on a policy that further clarifies the definition of the items that must be observed by suppliers and members of our Group.
The guidelines accord with major international frameworks and standards for social activities, including frameworks for promoting respect for human rights, such as the Universal Declaration of Human Rights, the Ten Principles of the UN Global Compact, the United Nations Guiding Principles on Business and Human Rights, OECD Guidelines for Multinational Enterprises, the Modern Slavery Act of the United Kingdom, and the International Labour Organaisation’s Core Labour Standards. We specifically prohibit forced labor, discrimination, and inhumane treatment, and seek to eliminate child labor, protect young workers, provide fair wages, provide appropriate working hours(without excessive working hours), and support employee rights to organize through freedom of association and collective bargaining rights.
The guidelines also outline our environmental activities to promote understanding and the practice of environmental measures, including complying with all local country and regional regulations and implementing measures to manage chemical substances, minimize environmental impact (prevent pollution of the air, water, and soil), reduce greenhouse gas emissions, conserve biodiversity, save and reusing water, use energy resources efficiently, and reduce waste. The procurement activities of our Group also place priority the environment, society and governance (ESG). Our goal is to further emphasize the sustainability of our supply chains.
ーGroup Procurement Policy－
In accordance with the management philosophy of the NipponPaint Holdings Group, Procurement Department complieswith and promotes the following policy in its procurementactivities with the suppliers, which are our precious partners:
- Legal compliance and respect for human rights:The Nippon Paint Holdings Group will conduct procurement incompliance with laws and international rules, with respect forhuman rights, and without any abuse of human rightsincluding discrimination or unfair labor practice.
- Fair transaction:The Nippon Paint Holdings Group will conduct fair and equitableprocurement based on free competition and make efforts toeliminate personal interests from the selection of suppliers.
- Selection of suppliers:The Nippon Paint Holdings Group will select suppliers in arational manner based on management policies, ESG activities,promotion of environmental conservation and resourceprotection, continuous commitment to the control of safety andhealth risks, etc., in addition to quality, price competitiveness,stable supply, technical capabilities.
- Establishment of a trust relationship with suppliers:The Nippon Paint Holdings Group will place emphasis ondialogues with suppliers, work to establish a trust relationship,and promote sustainable procurement together. We will alsopromote the reduction of risks in procurement activities incooperation with suppliers.
In fiscal 2021, the Group combined Nippe Trading and the procurement departments of Nippon Paint Holdings into Nippon Paint Materials Co., Ltd., with the aims of generating group synergies and optimizing the procurement of raw materials. Integrating raw material procurement and sales makes it possible to formulate procurement strategies and plan logistics from the sourcing the raw materials to the point of consumption. It also enables economies of scale of raw material procurement at overseas bases. Both of these will contribute to ensuring cost effective and stable procurement for the whole Group.
The Purchasing Heads of our regional partner companies are part of a Group Purchasing Committee where they share information about cost reduction efforts and decide the procurement strategies for the Group. The committee discusses and identifies specific issues to address, and Group Purchasing Teams made up of experts from partner companies and local regions discuss and form strategies in each area. We also bring in various business representatives and other to meetings with suppliers to discuss and negotiate prices with the Group and our strategic suppliers.
CSR Procurement Questionnaire
The Group uses the Sustainability Assessment Questionnaire of the UN Global Compact Japan to identify risks to the supply chain and examines and seeks to know the state of ESG at its suppliers. The questionnaire examines the level of efforts in the areas of corporate governance, human rights, labor, the environment, fair corporate activities, quality, safety, information security, supply chain, and coexistence with local communities. Conducted once a year for tier 1 suppliers as part of ESG management, the questionnaire’s purpose is to manage risk at suppliers and, if needed, to devise risk reduction measures.
Implemented on a trial basis in 2018 and fully adopted in 2019, the questionnaire now covers over 90% of the raw materials purchased on a cost basis. If a supply activity receives a score under 70%, the operation content is examined and steps for improvement are discussed.
The questionnaire will continue to be an important management tool for reducing risk and strengthening the supply chain.
In 2020, the questionnaire was completed by tier 1 suppliers representing 90% of our raw materials purchased by cost.
Questionnaire Score Distribution
Results of the 2020 questionnaire.
Summary of Results (Average Score by Category)
||Corporate Governance||Human Rights||Labor||Environment||Fair Activities||Quality, Safety||Information Security||Supply Chain||Community||Overall Average|
New Supplier Risk Assessment
When commencing a business relationship with a new supplier, the first steps to avoiding risk are conducting a credit check, opening a business account, and concluding a basic transaction contract that is reviewed by the Legal Department. At that time, we ask the company to agree to and comply with the Procurement Policy.
Supplier Audit Plan and Implementation Results
The Group regularly sends members from the design, quality control, and procurement departments in teams to conduct audits of important material suppliers and of manufacturers and contracted manufacturers where quality issues have occurred. On-site audits of suppliers are intended to reduce risk and cover quality and business continuity audits, environmental and safety audits, and direct dialogues at the material manufacturing facilities. Although 27 supplier audits were scheduled for 2020, due to COVID-19 pandemic, only four were conducted.
In 2018, 2019 and 2020, no suppliers were audited as conformance with conditions or non-conforming. In the event a non-conformance issue is identified, we request corrective action for improvement and set a deadline for conformance.
Training for Suppliers
In 2020, the Group began holding training sessions for suppliers to share information and deepen understanding of our policies. The sessions introduced the Group’s ESG management and explained key items for creating raw material specification sheets.
We explained our ESG management and shared the Group's environmental, social, and governance issues and policies to garner support for our ESG efforts throughout the supply chain and to build relationships of trust with our suppliers. Discussion about environment issues included our ambition to reduce the supply chain's overall environmental burden, and discussion of social issues included sharing requests we have received from stakeholders. Conducts as a webinar due to the pandemic, the sessions were joined by over 300 people representing 78% of our supplier companies. We also archived the session and provided links to all suppliers so those who could not attend can watch the recorded video. Training sessions for suppliers will continue to be standard activities in the future.
Examples of Recent Activities
Responsible Procurement of Raw Materials
We have examined and updated the safety data sheets and product specifications in compliance with new and revised laws and regulations for the chemicals contained in all raw materials used to manufacture our products. We utilize this information to provide customers with the information they require to use our products in compliance with regulations inside and outside Japan. Our Group also participates in the initiative of Japan Chemical Industry Association to promote the development of a mechanism to share relevant information on risk assessment of chemical substances in the supply chain, and supplies information at the request of customers.
Improving the impact of products on sustainability throughout their life cycles is an important issue. In particular, it is extremely important to manage risks associated with hazardous chemical substances used in products from the phases of raw material adoption and design. To manage these risks, our Group has established rules for prohibition and restriction of use in accordance with the local legal systems for risk mitigation. They include “Green 30” in Japan, “Chemicals of concern” in Australia, and “Negative substance list” in China.
Inspection for Conflict Minerals
The Group seeks to prevent funds from going to organizations that violate human rights or conduct unjust activities to produce raw materials. With that intention, the Group gathers information about smelters of the conflict minerals of tin, tungsten, tantalum, gold (3TG), and cobalt throughout the supply chain. We confirm that the metal used in a raw material is supplied by a registered smelter and upon request provide that information to users.
In 2020, we conducted our annual inspection based on the Conflict Minerals Reporting Template by extracting substances containing 3TG and cobalt from raw materials used our products. The inspection results were provided to customers that requested information.
In 2018, 2019 and 2020, no issues were found with the raw materials.
Materials inspected in 2020: tantalum, tungsten, tin, gold, cobalt
Materials inspected in 2019: tantalum, tungsten, tin, gold, cobalt
Materials inspected in 2018: tantalum, tungsten, tin, gold
Conflict Mineral Reporting Template
|Result||Number of raw materials||Purchase amount ratio||CMRT recovery rate||Result|
Formulation of a Business Continuity Plan
The Group seeks to reduce the risk of supply interruptions by engaging in dialogue with suppliers through inquiries with all suppliers and by using multiple sources for raw materials. As part of our Business Continuity Plan, the Group seeks to know a supplier’s status of preparation for a natural disaster or major chemical plant accident and if an issue is found, works with the company to formulate and implement countermeasures. In 2020, the comprehensive inquiry system for identifying serious risks was used 11 times, including to survey the impact of the COVID-19 pandemic and supplier status following typhoons and earthquakes.
Response to the Modern Slavery Act
DuluxGroup strives to manage modern slavery risk by establishing policies intended to prevent slave labor and human trafficking in its business and supply chain in its operating regions. The Group annually publishes a Modern Slavery Statement concerning its status and commitment to the Modern Slavery Act.