Risk Assessment
CSR Procurement Questionnaire
Japan Group uses the Sustainability Assessment Questionnaire of the UN Global Compact Japan to identify supply chain risk factors and performs surveys and to determine the status of ESG activities at its suppliers. The questionnaire examines suppliers’ activities in the areas of corporate governance, human rights, labor, environment, fair corporate activities, quality and safety, information security, supply chains, and coexistence with communities. Conducted once a year for tier 1 suppliers as part of ESG management, this questionnaire is used for managing risk at suppliers and measures to mitigate risk where appropriate.
This questionnaire started on a trial basis in 2018 and was fully implemented in 2019. Questionnaires are sent to companies that collectively account for more than 90% of the raw materials purchased on a cost basis. If a supplier is in the lower 70% of all suppliers ranked, we examine its supply activities and discuss steps for improvements. We will continue to use this questionnaire to mitigate risks and strengthen the supply chain.
| Questionnaire recipients | In 2021, this questionnaire was sent to tier 1 suppliers collectively accounting for 90% of our raw materials purchased by cost. |
|---|---|
| Distribution of questionnaire scores | This graph shows the results of the questionnaire in 2021. |
| Distribution of questionnaire scores at our suppliers |  |
Summary of Results (Average Score by Category)
| Corporate overnance |
Human Rights | Labor | Environment | Fair Activities | Quality and Safety | Information Security |
Supply Chain | Community | Overall Average | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 Questionnaire | 89% | 84% | 93% | 87% | 89% | 90% | 90% | 84% | 79% | 87% |
| 2020 Questionnaire | 85% | 79% | 88% | 83% | 85% | 88% | 87% | 81% | 74% | 83% |
| 2019 Questionnaire | 91% | 85% | 92% | 90% | 91% | 94% | 94% | 85% | 85% | 91% |
New Supplier Risk Assessment
When starting business transactions with a new supplier, Japan Group performs credit checks first to avoid risk. This is followed by opening a business account and signing a basic transaction contract that has been reviewed by the Legal Department. We ask the supplier to read, understand, and agree to the Nippon Paint Group Procurement Policy.
NIPSEA Group evaluates its suppliers every year. This supplier evaluation includes an environmental assessment to ensure that they meet the required Standard Operating Procedures (SOP) for managing environmental matters. In the event that suppliers fall short of the expectations of NIPSEA Group, the group provides solutions and guidance to help improve their processes.
Supplier Audit Plan and Results
The Japan Group regularly sends audit teams with people from design, quality control, and procurement departments to perform on-site audits of factories of important raw material suppliers. There are also audits of suppliers and production contractors where quality issues have occurred. Audit teams conduct on-site audits of suppliers from the perspective of quality control and business continuity as well as environmental protection and safety. The goal is to reduce risk through direct engagement with suppliers at raw material manufacturing facilities. These audits were conducted online in 2021 due to the pandemic. Specifically, we focused on improving operating procedures at low-score suppliers and conducted online interviews and guidance at nine suppliers. In the 2019, 2020 and 2021 audits, no suppliers were found to be conforming with conditions or non-conforming. In the event a non-conformance issue is identified, we request corrective action for improvement with a deadline for compliance.
| Supplier | Number of business sites | Results | |||
|---|---|---|---|---|---|
| Status of audit | Scheduled | Conducted | Conforming | Conforming with conditions | Non-conforming |
| 2021 | 9 | 9 | 9 | 0 | 0 |
| 2020 | 27 | 4 | 4 | 0 | 0 |
| 2019 | 41 | 35 | 35 | 0 | 0 |
Supplier Training
The Nippon Paint Group has been holding training sessions for suppliers since 2020 in order to exchange information and achieve a better understanding of our policies. In 2020, we explained our Group’s ESG management as well as key points for preparing raw material specification sheets.
To explain our ESG management, we discussed the Group’s environmental, social, and governance issues and policies to address our ESG issues throughout the supply chain while building relationships of trust. In our explanation of environmental issues, we talked about initiatives such as reducing our environmental impact throughout the supply chain. In our explanation of social issues, we talked about requirements of various stakeholders. The training sessions were held via webinars due to the pandemic. More than 300 suppliers representing 78% of all our suppliers (based on the number of suppliers) participated. We also archived the session and provided links to all suppliers so those who could not attend can view the video. We will continue to provide training sessions for suppliers.