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22 May 2020

Value Chain Management

Value Chain Management

For SCG, sustainability in the supply chain from upstream to downstream is essential to its sustainable business operations. Therefore, it creates Sustainable Value towards suppliers. SCG intends to the selection process of suppliers with the capacity to conduct business ethically, with professionalism and preparedness to adapt to changes that impact sustainability under the risk management plan. We also value co-generation of opportunity with our suppliers, under an efficient assessment program.

Target

  • 90% of the procurement spend comes from suppliers who commit to comply with Supplier Code of Conduct by 2020.
  • 100% suppliers of the procurement spend pass the annual environmental, social and governance (ESG) risk assessment every year.
  • 100% of operation contractors certified under SCG Contractor Safety Certification every year since 2012.

Strategy

 1. Select and assess suppliers with the capability for sustainable business

Select suppliers on the basis of commitment to comply with SCG Supplier Code of Conduct, and capacity for sustainable business. Conduct for assessment and certification of suppliers annually and continuously in order to mitigate risk in the supply chain.

 2. Assess risks and classify suppliers into groups

Conduct spend analysis and business risk assessment, taking into account Environmental, Social and Governance (ESG) factors. Prioritize risks that may affect SCG business. The results are then used to classify suppliers and frame a strategy and supplier development plan corresponding with the risk.

 3. Develop supplier’s capability towards sustainability

Organize and plan a development program aligned with the risk, while seeking to strengthen the supplier’s competitiveness to facilitate their grow alongside SCG.

 4. Raise awareness, knowledge and people’s competency

Establish a Procurement Sub Academy Steering Committee to enhance the knowledge and competency of employees. Share knowledge, information, operational guidelines with procurement entities in both public and private sectors with an emphasis on procurement and sustainability. This is to ensure that our people work effectively in line with targets.

Supplier Risk Assessment and Segmentation

SCG conducts assessment of supply chain risk management on an annual basis. The supplier segmentation is align with risk and significance by applying an enterprise risk management framework and spend analysis with increase clarity in considering factors impact to business to classify Critical Supplier and incorporating details on Environmental, Social and Governance (ESG) risk factors to identify High Potential Sustainability Risk Supplier. To ensure effectiveness of supplier management, SCG conducts various approaches such as Diversified Source of Supply, Supplier Assessment, Corrective Action by providing supplier advice to improve their work processes to in line with Green Industry standards (Go Green Together) as well as Supplier Development for Sustainability Program with Focused Suppliers or potential suppliers who have capacity and commit to work and grow sustainably with SCG.

Supplier Segmentation 4 Groups

Supplier Segmentation 4 Groups

Critical suppliers refer to manufacturers and distributors of products and services that are significant to SCG’s business operations, such as high purchasing volume, critical component, or non-subsumable products.

Critical Supplier is considered on the basis of:

  1. High Volume. (High Volume purchase classification is defined by individual business unit/company) and/or
  2. Critical Component. The supplier sells products/services that are critical to the production processes or business and/or
  3. Non-Substitutable/ Oligopoly/ OEM
  • Non-Substitutable: Any suppliers that sell products/services that cannot be sourced elsewhere/other suppliers cannot substitute
  • Oligopoly: suppliers deal in products/services where there are very few players
  • OEM (Original Equipment Manufacturer): suppliers are commissioned to make products labelled House Brand/Private Brand

High Potential Sustainability (ESG) Risk Suppliers refer to manufacturers and distributors that are likely to cause negative impacts from their improper operations in the social (e.g. human rights, employee and labor care), environment (e.g. waste management) and governance (e.g. legal compliance) aspects.

High Potential Sustainability (ESG) Risk Supplier is considered on the basis of:

  1. Severity Rating ranks severity of supplier’s impact in three levels: low, medium and high risk, in tandem with ESG criteria.
  • Environmental Risk. For instance, on water management, waste, energy, chemicals, air pollution, Green House Gas emission, efficient resource use
  • Social Risk. These include labor practice (use of child labor, forced labor), human rights, health, safety, complaints, non-compliance with relevant laws and regulation.
  • Business/Governance Risk. Legal compliance, corporate image, and compliance with permit/license.
  1. Likelihood Rating. This will consider likelihood at three levels: low, medium and high while taking into consideration risk control measures.

Example of Risk Assessment Metric

Supplier Segmentation

Apply the result of Spend Analysis and Supplier Assessment for Supplier Segmentation, to manage suppliers efficiently, and aligned with materiality and risk.

  • Critical Supplier. Perform audit and plan risk management
  • High Potential Sustainability (ESG) Risk Supplier. Conduct Supplier Assessment, along with planning of long-term collaboration to enhance the suppliers’ capability.
  • General Supplier. Supplier is a signatory to SCG Supplier Code of Conduct. Or the supplier has an existing business code of conduct/regulations/business guideline that is compatible with SCG Supplier Code of Conduct.
  • Focused or High Opportunity Supplier. One should weigh in opportunity to collaborate in developing products or services, by co-planning with the supplier for co-generation of new business opportunity

Segmentation and Strategic Approach

Supplier Segmentation & Strategic Approach

Supplier Segmentation & Strategic Approach