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Supply Chain Management

Supply Chain Management Policy

NEC endeavors to work not only internally, but also through collaboration and co-creation with suppliers to conduct business while giving full attention to its impacts on the environment and society as a whole, with the intention of gaining the trust of society and helping to create sustainable social value.

Specifically, NEC formulated the NEC Group Procurement Policy based on its concept of Management for Sustainability and on the ISO 26000 and ISO 20400 international guidance standards for social responsibility and sustainable procurement. We are developing a policy in internal control pertaining to sustainable procurement and rolling it out among suppliers. NEC has established Basic Rules for Procurement, and ensures that all employees remain in compliance with these rules. To strengthen this effort, NEC also devised concrete operational rules for its procurement processes and ensures that the rules are disseminated among procurement-related personnel by conducting regular training.

In terms of implementation among suppliers, the NEC Group Procurement Policy and the Guidelines for Responsible Business Conduct in Supply Chains require our suppliers, including upstream business partners, to implement responsible business conduct and identify the following six priority risks:

  • Human Rights and Labour Practices
  • Health and Safety
  • Environmental Requirements
  • Fair Trading and Ethics
  • Product Quality and Safety
  • Information Security

With regard to human rights, the NEC Group Procurement Policy clearly rejects slavery and human trafficking, and the Guidelines for Responsible Business Conduct in Supply Chains prohibit forced labour and child labour, while respecting workers’ right to organize. The policy and guidelines also require appropriate wages and management of work hours.

Moreover, we perform due diligence on human rights in accordance with the guidance from the OECD, identify and evaluate risks, and take steps to mitigate risks.

With regard to the environment, our Guidelines for Responsible Business Conduct in Supply Chains call for a combined effort between NEC and its suppliers to realize environmental management. At the same time, we have also set out the Environmental Specifications Pertaining to Procurement Restrictions for the Inclusion of Chemical Substances in Products, which require compliance with industry regulations on chemicals in products.

Regarding information security, NEC sets out security measures to be observed by outsourcers in Basic Rules for Customer-Related Work and has them make a pledge to observe them in order to ensure thorough implementation of countermeasures.

Based on this policy and guidelines, NEC will work to deepen mutual understanding with suppliers and promote procurement activities in close collaboration with them, while evaluating them comprehensively in terms of quality, cost and delivery (QCD) and sustainability, and continuing in efforts to nurture partnerships from a long-term perspective.

Medium- to Long-term Targets, Priority Activities and Progress, and Achievements

Medium- to Long-term Targets, and Priority Activities

(Scope: NEC Corporation unless otherwise specified) Period: April 2021 to March 2026
M: Major non-financial indicators related to materiality

M: Suppliers agreeing to procurement guidelines: 75%1 (by the end of fiscal 2026)

  • 1.
    Ratio based on the total consolidated procurement amount

FY2023 Goals, Progress and Achievements, and FY2024 Goals

FY2023 Goals

Continue acquiring suppliers agreeing to procurement guidelines for 75%

Progress and Achievements

Suppliers agreeing to procurement guidelines: 83% (by the end of fiscal 2023)

FY2024 Goals

Continue acquiring suppliers agreeing to procurement guidelines for 75%

Supply Chain Management Framework

Sustainable procurement activities of the entire NEC Group are the responsibility of the Chief Supply Chain Officer (CSCO). Decisions are made by the Procurement Steering Committee chaired by the Senior Director of the Sourcing and Purchasing Department.

In the course of ensuring compliance with purchasing-related laws and regulations, NEC has appointed compliance promoters who specialize in purchasing-related laws and regulations at NEC Corporation and its major consolidated subsidiaries in Japan. These compliance promoters rigorously enforce legal compliance within their divisions and their companies. Compliance promoter conferences are held twice a year, during which they share recent information needed for promoting compliance, such as trends in reinforcement of control by competent authorities, training programs for procurement personnel, and online training materials.

Regarding international affiliated companies, NEC works with procurement managers at regional headquarters in North America, Latin America, EMEA, China, and ASEAN and major local subsidiaries directly controlled by head office to conduct quarterly operational reviews in line with their annual activity policies and plans to promote sustainable procurement in accordance with the culture and business practices of each country, as well as with the basic policies and guidelines mandated by the head office in Japan.

Such meetings receive regular reports and endeavor to enhance governance for both Japan and around the world.

Supply Chain Status

Overview of Suppliers

Procurement Amount by Region2

  • 2.
    Based on location of suppliers’ headquarters

Critical Suppliers

NEC designates critical suppliers as suppliers that account for a large procurement amount, suppliers of rare products and suppliers that cannot be easily replaced, and focuses on engaging in sustainable procurement measures. We are strengthening initiatives to deal with identified risks in each region, sector and procurement category.

Measures Related to Suppliers

Dissemination

NEC presents the NEC Group Procurement Policy, the Guidelines for Responsible Business Conduct in Supply Chains, and various other guidelines to its suppliers. We also hold exchange meetings with strategic supply chain partners and Sustainability/Information Security Sessions, where we explain our policies and guidelines directly to suppliers and ensure dissemination of the latest measures.

NEC disseminated information to suppliers about its sustainable procurement policies and measures at exchange meetings with strategic supply chain partners held in June 2022 and at the Sustainability/Information Security Sessions, held in July 2022 with 1,777 companies participating.

Acquisition of Supplier Sustainability Declarations

NEC enters into basic contracts and obtains declarations that demonstrate suppliers’ commitment to responsible business conduct in supply chains. These declarations were formulated in response to the Guidelines for Responsible Business Conduct in Supply Chains. As a metric for the materiality “supply chain sustainability,” we aim to acquire declarations from suppliers accounting for 75% of the total procurement amount by the end of fiscal 2026. We ask our new suppliers to submit their declarations prior to the commencement of business transactions.

As of the end of fiscal 2023, NEC has received these declarations from approximately 11,000 suppliers in Japan and around the world (83% of the total procurement amount). We aim to keep this declaration ratio above 75% of the total procurement amount.

Strategic Supply Chain Partner Exchange Meetings

NEC holds exchange meetings with its main strategically important supply chain partners each year. We require these suppliers to understand and cooperate with the NEC Group’s sustainable procurement activities, centered mainly on human rights, labour, occupational health and safety, the environment and information security. Moreover, during the meetings, NEC presents Sustainability Awards to suppliers that make significant contributions to advancing sustainability initiatives.

The meeting in June 2022 was held online as a preventive measure against the spread of COVID-19. A total of 418 members of the management at 204 suppliers from around the world participated.

Initiatives for the Environment

Through the CDP Supply Chain Program run by the CDP, an environmental NGO that NEC partnered with in 2019, NEC surveyed the climate change initiatives of 68 companies, mainly hardware suppliers, in fiscal 2023, and provided feedback on the results of the survey.

NEC has been recognized on CDP’s Supplier Engagement Leaderboard, the highest Supplier Engagement Rating,3 for the third consecutive year.

We recognize that our various efforts to aim for zero CO2 emissions from supply chains have been highly evaluated.

  • 3.
    The Supplier Engagement Rating is given by CDP based on an examination of a company’s initiatives for climate change and reduction of greenhouse gas emissions across the entire supply chain.

Supplier Education and Awareness Training Activities

NEC provides training opportunities and information to help suppliers promote sustainability.

Regarding human rights, in February 2023, NEC invited an external lecturer to lead a Business and Human Rights seminar for members of suppliers’ management, of whom 254 attended. An exit survey of attendees indicated 98% comprehension and 95% satisfaction.

Furthermore, in March 2023, an external lecturer made a presentation titled “Business and Human Rights: Responses Required of ICT/Software Companies” for critical suppliers of software. Attended by 110 suppliers, the presentation also included case studies. An exit survey of attendees indicated 91% satisfaction.

Regarding the environment, we continue to hold briefing sessions and provide information on our climate change countermeasures.

Supply Chain Risk Assessment

Risk-based Approach

In September 2022, the Japanese government formulated and published the Guidelines on Respect for Human Rights in Responsible Supply Chains, and legal frameworks for preventing human rights abuses in supply chains have been updated abroad. With labour in supply chains being identified as a salient human rights issue, NEC improved its efforts at due diligence in human rights, in addition to its ongoing initiatives.

Respecting Human Rights

NEC is taking the following steps in accordance with OECD Due Diligence Guidance for Responsible Business Conduct.

Step 1

Gather and evaluate information about risks specific to the ICT sector, regions, and NEC companies based on the ICT Sector Guide on Implementing the UN Guiding Principles on Business and Human Rights, the International Trade Union Confederation (ITUC)’s 2020 ITUC GLOBAL RIGHTS INDEX, other external research reports, and internal analysis of our procurement structure

Step 2

Identify high-priority business domains while referencing results of international NPO Business for Social Responsibility (BSR)’s evaluations of human rights impact (human rights risks to workers in manufacturing processes at overseas plants of suppliers, including outsourced production, human rights risks to foreign national apprentice interns in technical trainee programs in manufacturing processes at domestic plants of suppliers, and overtime work risks in software development)

Step 3

Conduct third-party audits by an external auditing firm that specializes in human rights and occupational health and safety. We have selected five suppliers based on evaluation of scope and nature of potential impacts, while mapping the aforementioned risks across suppliers. Nonconformance incidents identified in these audits (for example, no human rights policy; no emergency exit signs; and not using proper protective equipment such as safety glasses) will be evaluated and ranked according to the following four categories from the viewpoints of human rights and occupational health and safety under Japanese law and global standards to provide feedback to suppliers and request corrective action.

Supply Chain Risk Assessment Results and Corrective Action

Document Check

NEC conducts self-assessments in order to assess the status of supplier compliance with requirements and initiatives relating to the fields of human rights, occupational health and safety, the environment, fair trade and ethics, and information security.

Document checks are implemented through two inspections: sustainable procurement self-check sheets (human rights, occupational health and safety, the environment, fair trade and ethics, and other) and information security check sheets, which utilize a special system.

In the sustainable procurement self-check sheets, in addition to the inspection themes for human rights, occupational health and safety, the environment, fair trade and other, we newly added important inspection themes for foreign national technical intern programs and human rights measures of suppliers at tier 2 and further upstream. We received responses from 1,009 of the 1,081 companies we queried, and evaluated the status of each supplier, ranking them on a five-point scale of A, B, C, D, and Z for each theme in light of the following evaluation criteria: “score rate” and “critical points.”4

We issued feedback sheets to all of the suppliers that responded, indicating their score for each inspection theme and comparison to the average score for each product type, and shared the evaluation results with them. In this survey 15 suppliers received a Z rating, indicating the existence of potential risks.

Through supplier engagement, such as promoting an understanding of the conditions and providing correctional guidance, we will support suppliers that received the Z rating, with the aim of correcting identified issues during the first half of fiscal 2024.

NEC conducted document checks on 1,785 companies using the information security check sheet. Information security is an essential issue for us as a system integrator of information systems that serve as social infrastructures. In our collaborations with business partners, we believe it is important to ensure that the technology capabilities and information security level of the business partners meet our required standards. To this end, NEC categorizes its suppliers by information security level according to the implementation status of their information security measures based on the results of document checks. We then select suppliers for a project appropriately in accordance with the required level for the project when outsourcing tasks.

  • 4.
    Critical points are questions that NEC has identified as potential risks, in light of the Guidelines for Responsible Business Conduct in Supply Chains, issued by NEC in July 2020, and other regulations, if initiatives remain unaddressed.
The list of Evaluation Categories, Criteria, and Description

On-site Assessment

When the SCM, Environment, TQM and Hardware Strategy Division makes an inspection of sustainable procurement requirements during regular visits to suppliers, we assess sustainable procurement requirements related to human rights, occupational health and safety, and the environment. In fiscal 2019, we started the “Supplier Visit Record” (SVR) initiative to compile records of these inspections.

With regard to information security, it is important to disseminate instructions and requirements even to employees of suppliers. Information security incidents may occur if these instructions and requirements are not followed by workers on the front line; therefore, NEC representatives visit supplier operation sites to conduct interviews, check supporting documents and carry out inspections.

For both kinds of on-site assessment, NEC shares the items that require improvement with its suppliers and supports them in implementing improvement measures.

In fiscal 2023, we performed SVR assessments primarily of critical suppliers in high-risk areas. We collected data on 67 on-site assessments to confirm that there were no issues.

For information security, suppliers are selected for on-site assessment based on comprehensive criteria that include not only the scale of transactions but also the criticality of handled information, the level of confidentiality, and results of selfassessment. In fiscal 2023, we carried out online on-site assessments at 202 companies. We did not observe any major deficiencies during the on-site assessments; however, we gave improvement guidance to suppliers that required improvement on minor issues (main areas for improvement: regulation of private possessions, designation of confidential labeling, management of disposal and return of confidential items, and cyber security measures).

Internal Engagement

Internal Education and Awareness Training Activities

In accordance with internal procurement regulations, NEC Corporation and its subsidiaries conduct regular training for procurement personnel, as well as timely training on individual topics to address new laws and regulations and emerging risks, in order to maintain appropriate business operations.

For All Employees of NEC Corporation

In November 2022, we provided online training to raise awareness of the importance of sustainable procurement. A total of 21,035 people took the course, and an exit survey of participants indicated 98% understanding.

For All Employees of NEC Group Companies in Japan

In fiscal 2023, we initiated sustainable procurement training with the same content as our online training for all NEC employees. Approximately 6,200 people were eligible for the course in fiscal 2023.

For Personnel in Charge of Procurement at NEC Corporation and NEC Group Companies in Japan

In April 2022, an external instructor presented an online lecture titled “Human Rights Due Diligence in Supply Chains.” A total of 250 people took the course, and an exit survey of participants indicated 99% understanding.

For Personnel in Charge of Procurement at Consolidated Subsidiaries abroad

Training for sustainable procurement was conducted at overseas regional headquarters and major local affiliated companies. In fiscal 2023, a total of 265 people took the course, and an exit survey of participants indicated 99% understanding.

Grievance Mechanism

NEC has given access to its Compliance Hotline, a means of reporting incidents and seeking consultation, to suppliers since 2003. In August 2021, NEC changed the hotline to include consultations about responsible procurement, including human rights, labour, occupational health and safety, and other topics. The privacy of the hotline users is protected by third-party involvement, while allowing for the voicing of grievances in business transactions and other consultations.

In fiscal 2023, a total of seven reports were issued via the Compliance Hotline about procurement issues. After verifying the relevant facts, all seven reports were dealt with appropriately.

Since fiscal 2018, with the objective of rapidly identifying and rectifying compliance violations by NEC employees, NEC has disseminated to its suppliers a “Request for Cooperation toward Thorough Compliance,” seeking their cooperation in reporting any suspected violations. In fiscal 2022, we updated this to a “Request for Cooperation toward Thorough Compliance and Responsible Procurement,” seeking the cooperation of suppliers, thereby clarifying that the hotline can be used for issues related to responsible procurement in addition to compliance issues.

From fiscal 2023, NEC is participating in an industry-wide initiative for a collective grievance mechanism (JaCER) and is improving the effectiveness of the system in accordance with UNGP requirements.

Participation in Stakeholder Engagement Initiatives

Participation in Activities with Other Companies

One of our activities with other companies is participating in the Supply Chain Subcommittee of Global Compact Network Japan, where we frequently discuss the ideal form of sustainable procurement with various members, such as companies in different industries and NGOs, and carry out activities aimed at creating output that contributes to improvement.

We initiated a new activity in August 2022. NEC is serving as a leader company in the Sustainable Procurement Partnership Vision Task Force newly established within the CSR Committee of the Japan Electronics and Information Technology Industries Association (JEITA). The task force encourages understanding and initiatives among small and medium-sized enterprises, and discusses solutions to issues including enhanced policy efficiency and standardization that are relevant throughout the electrical and electronics industries.

Conflict Minerals

Addressing the Issue of Conflict Minerals

NEC seeks the understanding and cooperation of its suppliers for dealing with the problem of conflict minerals based on its Responsible Mineral Procurement Policy. Using the Conflict Minerals Reporting Template (CMRT) and the Extended Minerals Reporting Template (EMRT),5 NEC conducts surveys of its suppliers to verify information about smelters and their use of tin, tantalum, tungsten and gold (3TG), cobalt and mica. In fiscal 2023, CMRT and EMRT surveys were conducted at 81% of the top-ranked suppliers in terms of procurement value in 2022 (excluding transactions with affiliates).

  • 5.
    Survey and report templates of the Responsible Materials Initiative
  • Note:
    Included within Guidelines for Responsible Business Conduct in Supply Chains

NEC continues to collaborate with industry as a member of the Responsible Mineral Trade Working Group led by JEITA. NEC participates in the working group’s Education and PR Team. In this capacity, we work to promote the understanding of conflict mineral issues among our suppliers.