Supply Chain Management

Goals and Strategies

Advantech’s operations philosophy is to create a win–win situation with its suppliers and consumers and to establish a sustainable IoT supply chain ecosystem where all supply chain partners adhere to principles that promote an ethical and environmentally friendly supply chain and production management practices. Advantech provides services in industrial IoT sector. Our main manufacturing process involves purchasing components from upstream suppliers, assembling and manufacturing devices, and then delivering products to our clients. Because of the characteristics of our industry, the products we purchase vary considerably and are highly customized. To date, we have more than 10,000 items listed in our supplier database. Procurement and Quality Assurance teams regularly assess our suppliers to ensure supply chain stability and supply quality, and to understand the processing ability of suppliers. Items of consideration when evaluating suppliers include product quality, timeliness of delivery, degree of cooperation, industrial safety management, and CSR management, and we constantly communicate with all of our suppliers on these matters. We have “Corporate Social Responsibility and Supply Chain Sustainable Management” in our supply chain assessment regulations to ensure that any cooperation will be at minimal cost. Our goal is to achieve the highest level of quality and sustainable value in our products and services.

Advantech industry value chain

Management Policy

Suppliers are required to comply with the Advantech Supplier Code of Conduct. We ensure this by clearly informing our suppliers on the standards we require them follow.

We establish short- and mid-term critical goals as well as concreate measures to effectively promote and consolidate them.

We regularly identify high-risk ESG suppliers. We conduct auditing and require them to improve any shortcomings within a certain period of time, thereby reducing their risk level to medium or low.

Item

2020 results

Goals for 2021

Goals for 2025

Key suppliers

2020 results

100% of our PVL met our CSR commitments.

100% of our suppliers signed that they do not use conflict minerals.

Goals for 2021

100% of suppliers to meet the Advantech Supplier Code of Conduct

100% of our suppliers to not use conflict minerals.

Zero environmental pollution, violation of human rights, and major occupational hazard incidents.

Goals for 2025

100% of suppliers to undergo a complete ESG risk assessment.

High-risk ESG suppliers

2020 results

Performed assessments and planning to identify and manage high-risk suppliers.

Goals for 2021

100% of high-risk ESG suppliers to pass ISO 14001.

Goals for 2025

Defect improvement rate to reach 70%.

Annual Performance Highlights

All key suppliers on our PVL have signed the Supplier Code of Conduct Agreement

All new suppliers in 2020 have passed the environmental code assessment

All key suppliers on our PVL have signed a declaration to not use conflict minerals

Advantech’s local procurement ratio reached 82%

Supplier Management

Supplier Composition

Our products and services are designed largely for IoT, automation, and embedded computing. This requires us to cooperate with more than 1,000 suppliers worldwide. Major supplier categories for Advantech are raw materials and packaging, in addition to contractors for engineering, security, and cleaning. Raw material suppliers in particular have a substantial influence on our operations and production. We divide these suppliers into two categories: direct material suppliers (whose materials are directly related to production) and packaging material suppliers (whose materials are either related to packaging or not directly related to production).

To effectively manage raw material suppliers and allocate resources appropriately, we screen all suppliers for those whose annual procurement amount is high, those who offer key raw materials, and those whose materials cannot be replaced. We categorize these suppliers as key Level 1 suppliers. Our key raw material suppliers are identified though an integrated management approach.

Level 1 suppliers

Suppliers who provide Advantech with direct or indirect materials.

Key suppliers

High-volume suppliers and those who provide critical raw materials that cannot be replaced. These are our PVL suppliers.

2020 Key and Non-key suppliers
2020 distribution of raw material suppliers
Cultivate Local Suppliers

Advantech continues to utilize its local procurement strategy to establish close relations with local partners to create local job opportunities while working to reduce CO2 emissions from manufacturing and transportation. Over the years, we have prioritized local suppliers of products that meet RoHS/HSF regulations. Overall, in 2020, Advantech Taiwan’s local procurement ratio was approximately 88%, while that for Advantech Kunshan was 63% (the lower percentage is attributed to some electronics and peripheral raw materials having been procured by Advantech Taiwan1). Below figure illustrates the local procurement figures for the past two years.

Local procurement statistics for Advantech Taiwan
and Advantech Kunshan
*Note 1: (1) Local procurement is defined as trading with manufacturers in Taiwan for Advantech Taiwan and trading with manufacturers in China for Advantech Kunshan. (2) Despite the switch to a self-procurement strategy, the local procurement ratio of electronic materials in Kunshan was lower in 2020 because most of their suppliers were operating in Taiwan.
Supplier Management Strategy

When we onboard new suppliers, we require them to sign a procurement contract to ensure that delivery dates, quality, and warranty regulations are met. Of particular importance, we require suppliers to immediately inform us in the event of a natural disaster or any humanmade difficulties that may delay deliveries.

For common electronic components, we have mechanisms in place to procure components from secondary sources. For major materials, we maintain safety stock to prevent shortages or quality problems. For different materials, we have dedicated procurement personnel monitoring market information for weekly and monthly review at supervisor meetings. To centralize procurement, we have established a preferred vendor list (PVL) of outstanding suppliers. In addition to achieving highly efficient cooperation with PVL suppliers, this approach to risk management ensures that the materials we procure are of high quality and delivered on schedule.

Advantech is proactively involved in developing our supply chain to realize the goal of sustainable development together with our suppliers. Our procurement strategy is to have multiple suppliers so that we not only have an alternative source for materials, but because this approach also promotes market competition. It diversifies our procurement risks and reduces costs. years.

Advantech Supplier Management Strategy

On the topic of environmental management, Advantech incorporates strict environmental protection principles in our supplier management mechanism. Since 2010, we have been following the Responsible Business Alliance (RBA) management system (previously the Electronic Industry Citizenship Coalition). We have since expanded our scope and called on our suppliers to promote CSR values by adopting such measures as regulations prohibiting the use of conflict minerals. To date, our management of selection indicators for all suppliers has included critical CSR indicators such as RoHS (HSF) QC080000, ISO14001, ISO 45001, and RBA, which regulate the localization of suppliers. We also require all suppliers to maintain basic human rights and comply with labor regulations. The aforementioned index is listed under new supplier audit items via the Supplier Audit Table.

Our Purchasing and General Affairs departments manage our suppliers and contractors (including security companies) to ensure they follow the equality principle in the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy of the International Labor Organization. For the overview of the management principles we apply to our suppliers, please refer to Ch2.2 , Advantech CSR Report.

Advantech Supplier Code of Conduct

We require suppliers to sign an agreement that they will comply with the Advantech Supplier Code of Conduct. To establish a sustainable line of procurement, it is critical that they adhere to all laws and regulations in the country or region where they operate, and this extends to labor rights, health and safety, the environment, corporate ethics, and their management model. Suppliers are also required to ensure that these requirements are also met by their suppliers further down the supply chain.

For 2021, we plan to regulate material suppliers to complete an ESG sustainability risk assessment questionnaire. The content of the questionnaire will cover law compliance, sustainable management, supplier management, conflict minerals management, environmental protection, health and safety, labor rights, and human rights. This will help us better understand our suppliers’ sustainability risk. As necessary, we will conduct on-site audits to ensure that suppliers meet our sustainability standards. We also expect suppliers to continuously work toward improving their sustainability performance by encouraging (and in some cases requiring) both existing and new suppliers to obtain certification for international standards such as ISO 9001, IATF 16949, ISO 14001, ISO 45001, and ISO 14064-1.

Advantech Supplier Code of Conduct

Sustainable Supply Chain Management

Advantech hopes that through its international influence, we can deepen relations with global clients and cooperating partners to create value in corporate sustainability. In addition to complying with the RBA code of conduct to assess labor, environmental, and ethics management in our operations, we are proactive in ensuring the sustainable management of our supply chain. Our efforts to promote sustainable development throughout the supply chain including prohibiting our suppliers from engaging in forced labor or child labor, and we will cease cooperating with any supplier who severely violates these regulations. In 2020, there was no instance of having to terminate our cooperation with any supplier due to them engaging in forced labor or child labor.

Advantech’s Sustainable Supply Chain Management Framework

Sustainable Supply Chain Management

Sustainability regulations

Supplier Business Conduct

Restriction of hazardous substances in green products

Conflict materials management strategy

Management mechanisms

New supplier assessment

Supplier classification

Existing supplier assessment

Supplier onsite audit and counselling

Supplier Sustainable Management Procedure

To consolidate Advantech’s procurement and supply chain policy, we have established a four-stage procedure for managing supply chain sustainability. Through annual roll refinement and circulation, we ensure that our suppliers meet our standards and in doing so we help them improve their sustainable performance.

To better understand the sustainable development situation and suitability risk within the supply chain, in addition completing the existing supplier assessment, we will also commence conducting supplier ESG risk assessments from 2021.

To ensure that we can effectively control and minimize any risk, the ESG survey will be used to identify suppliers with potentially high economic, environmental, or societal risk. When necessary, we will conduct on-site audits to ensure that suppliers comply with our standards on sustainability.

*Definition of high-risk ESG suppliers: suppliers (PCBs, panels, PSUs) with a high risk of contaminating the environment
Supplier assessment

Each year, Advantech conducts on-site inspections of high-risk ESG suppliers in accordance with our procurement procedure. The Supplier Inspection Table is used to check their manufacturing processes, quality, environmental health and safety, labor conditions, and CSR management. Using the supplier management platform, we review suppliers quarterly on the basis of their quality, timeliness of delivery, and level of cooperation. For suppliers who score lower than 80, our procurement team will immediately search for new suppliers and cease procuring from them once substitutes have been found. We will consider working with them again in the future if they are able to demonstrate their improvement. Following inspection of high-risk component manufacturers, we provide supervision or coaching on any suitability problems we identify in the previous year. For common electronic parts, we have established backup suppliers. For major materials, we maintain a safety inventory to prevent material shortages or quality problems.

Advantech supplier assessment item category

quality system

customer service

environmental health
and safety system

hazardous substance management

social responsibility

Advantech has a diverse product portfolio and works with over 1,500 raw material suppliers. In 2020, based on trading volumes and quality risk, we selected 72 existing suppliers (60 in Taiwan and 12 in China) for on-site inspection. We provided coaching to suppliers where shortcomings were identified, and this was fundamentally aimed at improving their quality. These suppliers were required to demonstrate improvement within a given time period. Further analysis revealed that most deficiencies were related to quality and manufacturing process control. Most suppliers did not have any major deficiencies in their CSR performance.

Regarding new supplier selection, suppliers whose products are widely adopted in the industry and whose quality systems demonstrably meet international standards may be listed as qualified manufacturers if sufficient proof is provided. Other supplies must undergo on-site inspections. Key inspection points include quality, environmental health and safety, and CSR performance. In 2020, we inspected 21 new suppliers, 12 of which were approved (8 in Taiwan and 4 in China).

Supplier auditing deficiencies and improvement actions (2020)

Category

Major deficiencies discovered

Improvement

EHS management

Major deficiencies discovered

Improvement

One supplier had established appropriate environmental health and safety directions for activities, products, and services, but they did not promote and implement them.

We requested the supplier to reinforce the promotion of its environmental health and safety policies.

One supplier had established environmental health and safety goals and indices that considered major environmental factors, such as its activities, products, and services, but they were not certified by a third party.

We requested the supplier to apply for ISO-14001 certification.

Social responsibility

Major deficiencies discovered

Improvement

One supplier had established a mechanism for the identification, assessment, and control of worker safety hazards, but they did not implement it.

We requested the supplier to conduct regular assessments pertaining to worker safety hazards.

Management of zero HSF

Major deficiencies discovered

Improvement

One supplier had established a zero HSF policy and goals, but they did not regularly assess them.

We requested the supplier to regularly assess their policy and goals to reinforce their HSF management.

One supplier had appropriately labelled machines, working tables, equipment, and fixtures used for producing HSF products, but they did not regularly conduct inspections to ensure that hazardous substances were correctly categorized.

We requested the supplier to regularly conduct inspections to ensure that hazardous substances were appropriately classified and stored.

Conflict Mineral Procurement Strategy

Advantech complies with the RBA Code of Conduct. Through our actions, we wish to demonstrate that our entire supply chain respects human rights. As such, we have a strict policy of not using conflict minerals in our products. We declare and guarantee that we do not use metals procured from conflict mines, and we require our suppliers to comply with this standard and guarantee that will not use such materials themselves. As of 2020, 100% of Advantech’s key suppliers have signed the Declaration of Not Using Conflict Minerals.

Our policy and demand for our suppliers to not use conflict minerals is communicated via our green procurement website. Key suppliers must comply and forward our policy to their suppliers along the supply chain. In addition, suppliers must conduct to a reasonable extent a reasonable country of origin inquiry (RCOI) for any minerals they use, so as to ensure they do not purchase conflict minerals (3TG*). The RCOI survey consists of the following steps:
Conduct inventory: Through the Conflict Minerals Reporting Template (CMRT), we survey the source of minerals used by suppliers and identify those from a 3TG smelter.
Sign an agreement: Key suppliers must sign an agreement that they will comply with Advantech’s conflict mineral policy and ensure that they correctly and comprehensively disclose the source of their smelters.

Note: *3TG: minerals mined from the Democratic Republic of Congo and its peripheral countries, such as tantalum, tin, tungsten, and gold.