CSC's supply chain management can be categorized by supplier types as follows: Equipment and Material Procurement, Transportation, Security and Contractor, and each of the aforementioned supplier is managed by a different responsible department. The management and assessment of suppliers are handled by each division in accordance with the provisions of the CSC's quality control regulations, the “Steel Quality Manual”, of which coverage controls products and services provided to external parties as well as relevant processes. CSC's regulations pertaining to supply chain management include “Management Guidelines for Contractor”, “Management Guidelines for Safety and Health of Contractor”, “Regulations on Environmental Protection by Contractor”, “Management Guidelines for Surveys on Foreign and Domestic Vendors”, and “Directions for Violation of Integrity Principles by Vendors”.
Furthermore, the Company established the “Supplier Code of Conduct” and requires qualified suppliers to comply with the code of conduct.
In order to enhance supply chain management, the following anti-corruption clause is stipulated in the contract signed between CSC and vendors in its supply chain: “The vendor guarantees that at the tender price will not include bribes, gifts, commissions, remunerations, gratuities or other improper benefits, and the vendor guarantees that no bribes, gifts, commissions, remunerations, gratuities or other improper benefits will be paid to managers, employees, part-time employees appointed by CSC, or their spouses, immediate family members or consultants in connection with the tender.” In case of any violation, the vendor shall be liable for all damages. In the event of any serious violation, CSC may cancel or terminate all other contracts signed with the vendor. CSC shall suspend its dealings with vendors that violate ethical principles and urge these vendors to make improvements before resuming its dealings with them. According to statistics for 2022 Q1-Q4, the Company suspended dealings with 10 vendors for violating ethical principles according to the Purchasing Department Directions for Violation of Integrity Principles by Vendors.
In addition to establishing the Supplier Code of Conduct, CSC has set short-, medium-, and long-term targets for supplier management as follows:
| Short-term Goals (2022) |
Number of suppliers accepting the Supplier Code of Conduct by 2023 ≥ 2,500.
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| Mid-term Goals (2025) |
Number of suppliers accepting the Supplier Code of Conduct by 2025 ≥ 3,000.
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| Long-term Goals (2030) |
Number of suppliers accepting the Supplier Code of Conduct by 2030 ≥ 3,500.
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The hotline for reporting incidents of corruption, bribe and fraud is specified in Article 13 of the “Supplier's Quotation Notice” to be +886-7-8021111 #2191. (URL: https://cs.csc.com.tw/mqz/open/mqzp2)
CSC is a large-scale integrated steelmaking plant and the quality and delivery date of raw material are extremely important. Therefore, based on the supplier's contractual terms, the Purchasing Department has a regular follow-up inspection and management mechanism for commodity return rates and the number of overdue delivery cases. For those suppliers who do not meet the requirements of the contract or fails to deliver on time according to the contract, a written warning, cessation of quotation, and cessation of trading shall be performed respectively according to the seriousness of the situation.
CSC has extreme concern the spheres of social responsibility, environmental protection, corporate ethics, and business management for a long time. We expect our suppliers (“Suppliers”) to adopt similar principles as this Supplier Code of Conduct (“Code”) and to cooperate in accordance with the principles set forth in this Code and in full compliance with the laws, rules and regulations of the countries where work is carried out. CSC expects Suppliers to ensure that this Code of Conduct is communicated to their subsidiary and affiliated entities as well as any subcontractors.
| Country / Region | Number of companies | Percentage accounted for % |
|---|---|---|
| Australia | 27 | 33.48 |
| Taiwan | 1,905 | 33.23 |
| Europe | 190 | 8.90 |
| Japan | 151 | 7.94 |
| Singapore | 30 | 6.6 |
| China | 84 | 2.55 |
| Central & South Americas | 3 | 1.74 |
| North Americas | 52 | 1.55 |
| South Korea | 25 | 0.88 |
| Others | 27 | 3.13 |
| total | 2,494 | 100.0 |
CSC has committed to not using any minerals from Democratic Republic of the Congo, its neighboring countries or any mines controlled by armies or rebel groups, in its products or packing. Through enhancing supply chain management, CSC effectively identifies and traces material sources to eliminate the use of conflict minerals. Any mine that is suspected to be involved in conflict minerals would be disregarded in investment evaluation. CSC also pays attention to human rights conditions in the countries providing equipment and materials and adjusts procurement decisions accordingly. The tender instructions and contract terms stipulate no bribery, no infringement, and environmental and safety in-plant regulations.
In accordance with the “Occupational Safety, Hygiene, Pollution Prevention of Procurement and Contracting Rules”, suppliers were evaluated for indirect risk on environmental aspects for six types of raw materials in 2022. The results were that all suppliers had risks below moderate level except for one with high indirect risk. CSC's relevant units will conduct joint on-site audits and visits to ascertain the supplier's improvement.
CSC has a total of 50 business partners associated with the AEO supply chain spanning across seven industries, including manufacturing; import and export; customs brokerage; sea freight forwarding, freight forwarding or shipping agency; warehousing and storage; and road transportation. The selection standard is the business partners need to comply with CSC ESG-related policy and must have AEO certification and verify its effectiveness (16 in total); business partners without AEO certification (34 in total) are required to sign the Statement of Supply Chain Safety, and their financial soundness, credit rating, ability to comply with safety requirements set forth in contracts, and ability to detect risks and correct deficiencies must also be taken into consideration. A total of 4 companies were audited in 2022.
For the importation of raw materials or exportation of products, CSC often engages in chartering vessels or utilizes its own ships through China Steel Express Corporation (CSE). CSE is an AEO-certified company that meets the high standards of supply chain security management required by CSC. Furthermore, the company has implemented a Planned Maintenance System (PMS) to ensure proper maintenance and upkeep of the vessels, ensuring their optimal condition for stable transportation of imported raw materials. Stringent control measures are implemented to mitigate risks associated with transportation suppliers. While exercising strict control over risks associated with transportation suppliers, CSC not only requires transportation suppliers to participate in and obtain ISO 45001 certification, but also steps up accident risk management during transportation in order to minimize the risk of occupational accidents.
With a view to maintaining environmental sustainability while holding fast to its commitment to preventing the impact of accidents and emergencies on the environment, CSC minimizes the impact of its transportation operations on the environment and devotes itself to fulfilling corporate social responsibility. For instance, CSE holds environmental control-related certificates for its own ships. As far as ship design is concerned, CSC pays particular attention to energy conservation and environmental protection in the design of its newly built ships and ensures that its ships travel at economical speeds to substantially reduce fuel consumption and carbon emissions. In addition, CSE has required all its self-owned and chartered ships to switch to low-sulfur fuel for the entire voyage according to the International Maritime Organization (IMO) regulations since 2020 for the purpose of complying with environmental regulations. CSE also recycles waste fuel and wastewater from their own fleet, and delivers to CSC's Coke Oven Plant to reduce diesel consumption and avoid air pollution. CSE's MV Hwa Lien Express that carries stone materials from Hualien comes with automatic unload design that operates faster than the traditional shore cranes and reduces air pollution effectively.
Requirements on the age of vehicles transporting finished products were first stipulated in 1999. Vehicles were required to meet stage 4 and above environmental protection standards from January 2017 in coordination with environmental protection issues, and old vehicles were gradually retired. From October 2019, all vehicles for delivering products are in compliance with the stage 4 or stage 5 emission standards and the vehicle age may not exceed 15 years. Rail transportation is used for transportation at Hualien Yard to reduce the pollution caused by road transportation. Starting from January 2020, CSC requires drivers to fill out information on the Safety and Health Self-management app before reporting for duty, pushing drivers to run a quick physical and mental examinations and fully understand occupational hazards before work, thereby improving road traffic safety and protecting other drivers. A total of 22 violations were found during on-site supplier audits in 2022, and all suppliers involved were immediately interviewed and required to make improvements.
An environmental impact assessment was conducted for all 1,743 machinery of suppliers in 2022, none were found to be non-compliant with environmental protection standards, and all vehicles for transporting products complied with stage 4 and 5 emission standards. We conducted a social impact assessment on all 119 suppliers, and none were found to be non-compliant with labor safety risks this year. We placed greater emphasis on the social responsibility of suppliers in 2022, and included external violations of suppliers into evaluation, none were found to be non-compliant this year. We hope to grow together with our suppliers in shouldering our corporate social responsibility.
Owing to the industrial characteristics of steel manufacturing, a large number of manpower would be required for equipment revamping or periodic/annual/major repairs at the production units for a short period of time. CSC uses contracted workers to cope with the fluctuating demand. Due to the time constraints for production equipment maintenance tasks, contractors located in nearby areas are preferred, thus creating a vast amount of stable job opportunities locally. This is yet another example of CSC fulfilling corporate social responsibilities while maintaining sustainable business operations.
| CSC Improves Working Conditions of Contractor: |
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According to “Management Guidelines for CSC Operations, Maintenance, and Environmental Protection Contractors”, operations, maintenance, and environmental protection contractors are to enter long-term or case-by-case contracts with CSC, providing manpower, equipment, and technical support for CSC in maintenance, operations and environmental protection related tasks. These contractors are categorized based on the nature of the tasks, amongst which the ones related to maintenance are the majority.
| Category | Maintenance Contractors | Operations Contractors | Environmental Protection Contractors and other |
|---|---|---|---|
| Job Description | Responsible for repair and maintenance of equipment; or repair, manufacture and process of spare parts or test samples in production and technology divisions. | Responsible for operations-related tasks that require basic technical skills and have only indirect access to production equipment, or involved in non-technical labor works in production and technology divisions and transportation department. | Responsible for the disposal of industrial waste produced during production. |
| Number of Contractors in 2022 | 4,372 | 2,849 | 500 |
| % in 2022 | 57% | 37% | 6% |
Contractor employees working in CSC must have insurance mandated by the government, and comply with CSC's safety and health work rules. A penalty would be imposed for any violation, and the fine will be designated exclusively to a fund for supervision, correction, and improvement of the safety and health of contractor employees. New contractors must fill out evaluation forms, disclosing information including primary business activities and verified certifications (ISO45001/ISO 14001) to prove that they are legally registered, adequately insured, tax-paying companies with healthy financial status. Also, they must genuinely report on the critical occupational safety and/or environmental protection issues for the past three years to allow respective departments to classify and evaluate as well as arrange on-site inspections.
The agreements between CSC Plant Engineering & Maintenance Department and service providers are in compliance with regulations. Also, in accordance with the ISO 9001 regulations on contractors, CSC assesses new contractors and reevaluates them every three years to ensure that all contractors abide by national regulations, and no child labor is used or no regulation breaching the right to freedom of association and collective bargaining is in place. CSC also dedicates to the supervision of contractors to enhance the working conditions of their employees and to ensure the compliance with the Labor Standards Act by carrying out inspections on the labor conditions of contractors in general performance evaluations. No incident was reported on use of child labor, forced or compulsory labor, or violation against labor conditions in 2021.
Significant suppliers in Plant Engineering and Maintenance Department are the suppliers holding long-term contracts, and conducting EPC projects while committing to mutual prosperity and growth with CSC. It is a common practice in steel manufacturing company to develop a strong bond with its significant suppliers, whose stability in both performance quality and safety practices is vital and therefore highly valued. As a result, supplier screening is more focused on evaluating and minimizing potential ESG risks of existing suppliers through documentation and on-site audits.
According to “Management Guidelines for CSC Operations, Maintenance, and Environmental Protection Contractors”, evaluation units must provide annual evaluation reports of contractors two to four months prior to the expiry date of contract, based on regular evaluations and daily performance, as part of the supporting documents for contract renewal (the evaluation items of ESG spirit such as labor conditions, safety, health and environmental protection have been covered.).The “Management Guidelines for Contractor” also states that contract executing units must conduct a monthly evaluation based on contractor's performance and compile the results in the “annual evaluation report”, in which a score below 70 would result in disqualification for contract renewal. No contractors with a score below 70 were reported in 2022.
Moreover, with the intention of motivating contractors to improve management and maintenance quality as well as making up for additional costs incurred by contractors when dispatching additional management staff to work sites, CSC implements monthly performance assessments in four categories - “access control and traffic regulations, work quality and personnel management, occupational safety and environmental protection, and outstanding performance” - in accordance with the “Management Guidelines for CSC Operations, Maintenance, and Environmental Protection Contractors.” Incentives equivalent to 0.5% to 2% of monthly project payments will be given to contractors based on assessment results in order to reward them for their engagement and efforts in work quality, occupational safety, and environmental protection.
The industrial safety performance assessment scores of the contractors in the first three months are counted quarterly, and rewards are given according to their ranks. The rewards are 3,000 TWD ~10,000 TWD; A total of 50,000 TWD is provided as an incentive for manufacturers
Contractor Evaluation Categories
| Access Control and Traffic Regulations | Work Quality and Personnel Management | Occupational Safety and Environmental Protection | Outstanding Performance |
|---|---|---|---|
| 8% | 45% | 35% | 12% |
| Contractor Safety and Health Propaganda | Gather contractors every month to announce new safety and health related information and regulations by CSC. |
|---|---|
| New Contractor ID Issuing Assessment | New contractors must attend mandatory safety trainings and be interviewed by managers of ID issuing organization. (Listed in the Industrial Safety & Hygiene Department's system) |
| Safety Care | Conduct on a monthly basis. (Listed in the Industrial Safety & Hygiene Department's system) |
| Report of Near Misses | Reporting near misses is encouraged with rewards. |
| Implement and Promote Inherent Safety | Urge contractors to comply with CNS 4750, and reinforce by frequent inspections to reduce scaffolding related safety hazards. |
| Safety Inspections | All levels of management personnel regularly conduct safety inspections at contractors' workplace and keep records. (Listed in the Industrial Safety & Hygiene Department's system) |
| Year | 2020 | 2021 | 2022 |
|---|---|---|---|
| Industrial Safety & Hygiene | 104 | 1,083 | 919 |
| Electrical Maintenance | 481(I) | 596(I) | 566(I) |
| Equipment Maintenance | 6,360(II) | 7,596(II) | 10,026 |
Note I: In 2021 & 2022, the main direction of emphasizing audits on post-accident improvements and effective prevention of serious deficiencies was horizontally expanded to each project in line with CSC's audit effectiveness project. Compared to blast furnace project audits in 2020, the frequency of audits increased slightly while the depth and duration of audits remained unchanged in 2021.
Note II: With CSC's ongoing efforts to increase manpower in auditing aimed at increasing the depth and breadth of audits in conjunction with the industrial safety improvement program, the number of audits rose in 2021 compared to 2019 and 2020.