Supply Chain Management Framework

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

To help ensure 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 compliance promoters share information needed for promoting compliance, such as responses to changes in the sustainable procurement landscape, training programs for procurement personnel, and online training materials.

Regarding affiliated companies outside Japan, NEC works with procurement managers at regional headquarters in North America, Latin America, Europe, China, and ASEAN and major local subsidiaries directly controlled by NEC Corporation to conduct quarterly operational reviews in line with their annual activity policies and plans, and 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 NEC Corporation.

In addition, NEC endeavors to enhance governance both in and outside Japan based on reports at these meetings.

Supply Chain Management Policy

In the course of doing business, NEC endeavors to work not only internally, but also through collaboration and co-creation with suppliers while paying careful 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 for internal control pertaining to sustainable procurement, and rolling it out among suppliers. NEC has established Basic Rules for Procurement, and ensures that all employees comply with these rules. To strengthen this effort, NEC also devised concrete operational rules for its procurement processes and conducts regular training to ensure that the rules are disseminated among procurement-related personnel.

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 Tier 2 suppliers and further upstream, to implement responsible business conduct and identify the following six priority risks:

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 OECD’s guidance process, 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 regulations on chemicals in products in and outside Japan.

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

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

These supply chain management activities help us improve the value we provide to our customers through our business.

Supply Chain Status

Procurement Amount by Region

Critical Suppliers

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

Supply Chain Due Diligence

Due Diligence Steps in a Risk-based Approach

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 outside Japan. With labour in supply chains being identified as a salient human rights issue, NEC improved its efforts in human rights due diligence, in addition to its ongoing initiatives.

Supply Chain Due Diligence

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

Taking into account the results of evaluations of human rights impact by international NPO Business for Social Responsibility (BSR), identify high-priority business domains (human rights risks to workers in manufacturing processes at plants of suppliers outside Japan (including outsourced production), human rights risks to foreign national apprentice interns in technical trainee programs in manufacturing processes at domestic plants of suppliers, risk of long working hours in software development, and occupational safety and health risks during construction, maintenance and inspection).

Step 3

Map suppliers related to the above risks, evaluate the nature and scope of potential impacts, and conduct third-party audits by an external auditing firm specializing in human rights and occupational health and safety for selected suppliers (13 companies from fiscal 2022 through fiscal 2024). Incidents of nonconformance identified in these audits (for example, long working hours or inadequate evacuation routes) are 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. We provide feedback to suppliers and request corrective action.

For suppliers identified in the fiscal 2023 audits as having high-risk items for correction, we provided corrective guidance and followed up until correction was completed.

Supply Chain Risk Assessment Results and Corrective Action

Document Check

NEC conducts document checks in order to evaluate 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.

The sustainable procurement self-check sheets contain questions regarding inspection themes for human rights, occupational health and safety, the environment, fair trade, and other, as well as themes that have been recently identified as important such as foreign national technical intern programs, and human rights measures of Tier 2 suppliers and further upstream.

The questions to be checked are based on expected risks in each procurement category. For example, for suppliers of hardware production identified as high risk with respect to the environment, we conduct environment theme surveys with greater detail than for other procurement categories.

In fiscal 2024, of the 1,294 Tier 1 companies we requested cooperation from, we received responses from 1,194.
We evaluated the initiatives of suppliers, using the evaluation criteria “score rate” and “critical points^”1 to rank them on a five-point scale of A, B, C, D, and Z for each inspection theme.

We issued feedback sheets to all suppliers that responded, indicating their score for each inspection theme and comparison to the average score for each procurement category, and shared the evaluation results with them. In this survey, 26 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 2025. For suppliers identified with high-risk items for correction in the fiscal 2023 surveys, we provided corrective guidance and follow up until correction was completed.

Furthermore, we carried out inspections of three Tier 2 suppliers with the cooperation of two Tier 1 suppliers to enhance our ability to address upstream supply chain risks.

Moreover, for the inspection themes of human rights and occupational health and safety, we sent sustainable procurement self-check sheets to 15 local suppliers of our regional headquarters outside Japan to confirm actual circumstances.

We implemented document checks for 1,766 companies through a dedicated system using information security check sheets. Information security is essential for NEC, which is responsible for building information systems that are the foundation of society. 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.
Therefore, we have adopted a system in which we classify the information security level of suppliers according to the status of their information security measures based on the results of document checks, and select and entrust appropriate suppliers according to the level required for the business.

On-site Assessment

When the Procurement Division conducts an inspection of compliance with 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 2024, we performed SVR assessments primarily of critical suppliers in high-risk areas. We collected data on 120 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 self-assessment. In fiscal 2024, we carried out online or on-site assessments for 330 companies. We did not observe any major deficiencies during the 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 cybersecurity measures).

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),² 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 2024, CMRT and EMRT surveys were conducted at suppliers representing approximately 60% of consolidated procurement amount.

(Included within Guidelines for Responsible Business Conduct in Supply Chains)

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

Supplier Engagement

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 an exchange meeting with strategic supply chain partners held in June 2023, and at the Sustainability/Information Security Sessions, held in July 2023.

Signing of Declarations by Suppliers

NEC requires suppliers to enter into master contracts and to sign declarations stating their commitment to the Guidelines for Responsible Business Conduct in Supply Chains. As an indicator for the materiality item “supply chain sustainability,” we set a target of having suppliers who have signed declarations account for 75% of our total procurement amount by the end of fiscal 2026. For new suppliers, we require them to submit a declaration prior to commencing any business transactions.

As of the end of fiscal 2024, NEC had received these declarations from approximately 13,000 suppliers in Japan and around the world (accounting for 86% of the total procurement amount). We aim to keep this declaration ratio above 75% of our total procurement amount.

Evaluation Prior to the Start of Procurement

Prior to initiating procurement, NEC Corporation evaluates sustainability risks including those relating to the environment, human rights, labour and occupational health and safety, in addition to the supplier’s operating status, quality, price, delivery time and technical capabilities.

We also proactively check whether the supplier complies with the Guidelines for Responsible Business Conduct in Supply Chains and whether it is able to sign a declaration to that effect. We make a comprehensive judgment based on all of the above before deciding whether to initiate procurement.

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.
A total of 398 members of management at 202 suppliers in Japan and around the world participated in the meeting held in June 2023.

Initiatives for the Environment

NEC has been recognized on CDP’s Supplier Engagement Leader, the highest Supplier Engagement Rating,³ for the fourth consecutive year. We recognize that our various efforts aimed at achieving zero CO2 emissions from supply chains have been highly evaluated.

Supplier Education and Awareness Training Activities

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

Regarding human rights, we asked 144 suppliers to participate in seminars on business and human rights practices hosted by the Japanese government in December 2023.

Furthermore, in February 2024, several advisors at NEC Corporation including a former director-general of the Ministry of Justice’s Human Rights Bureau, presented a lecture for NEC’s critical software suppliers on the impact of human rights violations on companies, global trends relating to respect for human rights, and NEC’s initiatives. A total of 50 suppliers participated, and an exit survey of participants indicated a 98% satisfaction rate with the presentation.

We have also initiated “Human Rights Caravan” activities for dialogue that promotes mutual respect for human rights. These activities involve visiting our suppliers to provide them with information on initiatives required from the perspective of business and human rights, while also checking on their frontline initiatives and points of concern, and sharing examples from other companies as necessary.

Regarding occupational health and safety, in order to help strengthen health management among suppliers, we held a total of three seminars in fiscal 2024 to introduce examples of health management and well-being initiatives within the NEC Group. A total of 65 critical software suppliers participated, and an exit survey of participants indicated a 100% understanding rate, with many participants indicating that the case studies presented in the seminars were helpful.

Regarding the environment, we continue to hold briefing sessions and provide information on our climate change countermeasures. We have also begun providing materials that suppliers can use in environmental training for their employees.

With regard to information security, we hold Sustainability/Information Security Sessions for our suppliers, where we share the latest trends in information security and personal information protection, along with key considerations for addressing them. We also provide awareness training activities to prevent security incidents.

Engagement with Employees

In accordance with internal procurement regulations, NEC Corporation and its consolidated subsidiaries regularly implement various training programs for procurement personnel. In addition, to maintain appropriate business execution we address new laws and regulations and emerging risks by conducting training on particular themes.

For All Employees of NEC Corporation

In November 2023, we provided online training to raise awareness of the importance of sustainable procurement. A total of 21,505 people took the course, and an exit survey of participants indicated a 98% understanding rate.

For All Employees of Consolidated Subsidiaries in Japan

We have initiated sustainable procurement training with the same content as our online training for all NEC Corporation’s employees. Approximately 15,000 people were eligible for the course from fiscal 2023 through fiscal 2024.

For Procurement Managers of NEC Corporation and Consolidated Subsidiaries in Japan

In November 2023, an external instructor presented an online lecture titled “Sustainable Procurement (Environmental Aspects),” providing an opportunity to deepen understanding of new issues including biodiversity.
A total of 356 procurement personnel from and outside Japan took the course, and an exit survey of participants indicated an 85% understanding rate.

Participation in Stakeholder Engagement Initiatives

Participation in Activities with Other Companies

As a member of the Supply Chain Subcommittee of Global Compact Network Japan, 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. The Supply Chain Subcommittee’s activities in fiscal 2024 included the publication of a practical manual, Practical Manual on Human Rights Due Diligence—Responsible Business Conduct in the Human Rights Field , to support human rights due diligence for all companies regardless of industry, business type, or size. The subcommittee also conducted awareness training activities through seminars for companies and other channels.

NEC is participating as a leader company in the Sustainable Procurement Partnership Vision Task Force established within the CSR Committee of JEITA. The taskforce encourages understanding and initiatives among small- and medium-sized enterprises, and discusses solutions to issues (such as enhanced policy efficiency and standardization) that are relevant throughout the electrical and electronics industries.

Grievance Mechanism

NEC has set up a whistle-blower hotline for supplier inquiries regarding responsible procurement ranging from compliance to human rights, labour, and occupational health and safety. Hotline users are able to make reports anonymously, and we have established mechanisms for addressing business-related grievances and inquiries while protecting the privacy of whistleblowers. In fiscal 2024, we enhanced multilingual support.

In fiscal 2024, a total of six reports regarding procurement issues were made via the NEC whistle-blower hotline. After verifying the relevant facts, all six reports were dealt with appropriately.

Every year, NEC Corporation send a written Request for Cooperation toward Thorough Compliance and Responsible Procurement to our suppliers to request their cooperation in reporting potential compliance violations by NEC employees so that violations can be detected early and corrected, and to let them know NEC is available to provide consultation on responsible procurement in general.

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

Conducting Dialogues to Strengthen Efforts to Respect Human Rights

In accordance with the United Nations Guiding Principles on Business and Human Rights (UNGP), NEC continues to engage in dialogues with stakeholders to promote respect for human rights within the supply chain.
In February 2024, we held dialogues with NGOs, international organizations, and legal experts working on human rights issues.

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

Medium- to Long-term Goals, and Priority Activities

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

M: Percentage of suppliers agreeing to procurement guidelines⁴: 75% (by the end of fiscal 2026)

FY2024 Goals and Progress, Achievements, and FY2025 Goals

FY2024 Goals

Suppliers agreeing to procurement guidelines: Maintain above 75%

Progress and Achievements

Percentage of suppliers agreeing to procurement guidelines: 86% (as of the end of fiscal 2024)

FY2025 Goals

Suppliers agreeing to procurement guidelines: Maintain above 75%