Goals and Strategies
Advantech's business philosophy is to create a win-win situation with suppliers and customers by establishing a sustainable IoT supply chain ecosystem and always ensuring ethical and environmentally compliant supply chain and production principles. The Company belongs to the industrial Internet of Things industry service category, mainly involving the process of purchasing components from upstream component manufacturers, assembling and manufacturing them in the Company, and then delivering them to customers. Due to the characteristics of the industry, the Company purchases a wide variety of items that are highly customized. At present, supply materials in the supplier database number in the tens of thousands or more. Advantech regularly conducts supplier assessments through our procurement and quality assurance units to ensure the stability of the supply chain and supply quality. In addition to regularly evaluating suppliers for their product quality, on-time delivery rates, cooperation, industrial safety management, business conditions, ESG management, and so on, we also engage in instant communications with them as we strive to impart the concepts of Corporate Social Responsibility and Supply Chain Sustainability Management into supply chain assessment standards. In this way, we cooperate with suppliers to create high-quality products and services and create sustainable value. In addition, dvantech's Chief Operating Officer regularly reviews the procurement practices and management performance of the supply chain at the Meeting of Corporate Operations (MCO). The goal of sustainable supply chain management is expected to be achieved
Management Guidelines for Major Topics
Goal of Sustainable Supplier Relationship Management
Short- and Medium-Term Goals of Supply Chain Sustainability Management
Project Highlights / Performance
Supplier Management
Supplier Composition
Advantech's product portfolio is diverse and flexible. Such products are widely used in IoT embedded computing, industrial computers and their peripherals, cloud computing and industrial automation, communication systems and other fields. Therefore, the supply chain is also flexible, diverse and closely related. The raw materials in the supply chain include ICs, printed circuit boards, electronic components, wires, plastic parts, metal parts, packaging materials, etc. Advantech's main suppliers are divided into raw material and packaging material suppliers, as well as contractors for maintenance, cleaning, engineering, and so on. Raw material suppliers thereof have a clear impact on operations and production. Therefore, Advantech further divides raw material suppliers into two categories according to their attributes, encompassing suppliers of direct materials (materials directly related to production) and packaging materials (materials or packaging materials not directly related to production). In order to effectively manage raw material suppliers and resource allocation, Advantech screens suppliers with high annual purchase amounts, key raw materials, and irreplaceable suppliers to make up the Preferred Vendor List. Also, we also identify supplier groups with high sustainability risks through ESG assessment. These two types of suppliers are significant suppliers defined by Advantech. Advantech currently identifies 284 significant suppliers. Its purchase amount accounted for 65.3%.
Prioritize Locally procurement
In order to deepen strategic regional cooperation and reduce carbon dioxide emissions generated from the manufacturing and transportation processes on the environment, Advantech
continues to implement a localized procurement strategy. Over the years, Advantech has prioritized procurement from local suppliers. Overall, Advantech only purchases from its factories
in Taiwan and Kunshan. In 2023, the local procurement amount in Taiwan was NT$11.53 billion, with a ratio of about 89%; Advantech Kunshan's local procurement ratio is about 40%* of
the total due to some electronics and peripheral raw materials are uniformly purchased by Advantech Taiwan. The overall proportion of local procurement increased slightly to 71% in 2023.
The proportion of the Company‘s local procurement amount in recent years is shown in figure.
1 Definition of procurement locally: Advantech Taiwan – transaction counterparty is a manufacturer having a uniform invoice number for a for-profit enterprise in Taiwan; AKMC – transaction counterparty is a domestic manufacturer in mainland China.
2 Kunshan Electronics' decrease in the proportion of local procurement is mainly due to the switch to the self-purchasing strategy in 2020, but most of the self-purchasing suppliers are agents registered in Taiwan.
Supplier Management Strategy
Advantech believes that sustainable supply is an important commitment for corporate sustainability, and is aware of the impact of geopolitical challenges on the supply chain. It aims to deepen our relationships with global customers and partners through consistent global brand power, create sustainable corporate value and jointly establish an industrial chain for mutual benefit and common prosperity. Advantech has a global procurement unit and a supplier quality management unit to implement supplier management and symbiosis to control the supplier selection criteria and process, conduct the risk assessment, performance assessment, audit counseling, education, training, and organize supplier conferences. Implement the continuity requirements in the daily management of the supply chain. Advantech's procurement strategy aims to diversify procurement risks and reduce costs. Therefore, more than two suppliers are used to ensure substitutability and competitiveness with each other; for electronic parts with high commonality, Advantech has established a second source of parts management mechanism; safety stocks are established for major materials to prevent risks caused by material shortages or quality problems. Advantech assigns dedicated procurement staff to analyze market information based on the expected level of availability. Through regular review of market dynamics, a centralized procurement strategy is adopted, and a list of PVL suppliers is established. Paying attention to suppliers' capabilities in cost, quality, delivery, sustainable supply, and improving cooperation efficiency to obtain high quality materials and stable delivery times.
In addition to evaluating the labor, environment, and business ethical management of our operations in accordance with the RBA Code of Conduct, Advantech also actively requests the sustainable management of the supply chain by requiring suppliers to sign the "Consent form for supplier code of conduct." In addition to local laws and regulations, we also regulate business behavior in various aspects such as labor rights and interests, health and safety, environment, business ethics, and management system. At the same time, suppliers must also communicate this requirement to their next-tier suppliers and monitor their compliance. Take practical actions to build a more resilient and influential supply chain.
Supplier Relationship Management
Supplier Management
To implement Advantech's procurement and supply chain policy, Advantech has established a four-stage supply chain sustainability management process. Through the annual rolling improvement, circular, and exit mechanism, we ensure that suppliers meet Advantech’s standards and improve their sustainability performance.
Supplier Sustainability Evaluation
Advantech has established ESG thresholds for its suppliers (including new suppliers and existing suppliers). To become an Advantech supplier, in addition to signing the supplier code of conduct, PCB suppliers are also required to pass ISO 9001 and ISO 14001 certifications. In addition, in order to understand and identify potential risks in the supply chain, Advantech refers to the Supplier Selection Criteria when conducting supplier screening. During the screening process, factors such as sustainability or business operations are also considered to conduct a supplier survey and evaluation. The ESG screening for but not limited to governance, environmental, social, country, industry, and product collaboration, product and business operation relevancy accounted for 26.7% of the overall procurement evaluation, and was listed as priority conditions of Advantech suppliers. The overall supplier screening items include the following:
Supplier Risk Identification and Audit Counseling
Significant suppliers ESG audit deficiencies and improvement actions in 2023
Supplier Evaluation and Elimination Mechanism
Supply Chain Sustainability Improvement Plan
Starting from 2023, Advantech expanded the scope of ESG sustainability risk assessment from PVL suppliers to tier 1 suppliers. A total of 1,127 suppliers were identified to capture the sustainability risk of suppliers. In order to implement supplier sustainability risk management, we audit the concerned suppliers. The sustainability audit includes written audit and on-site audit. In 2024, we expect to complete supplier online counseling in a two-phase method and conduct on-site audits if necessary to optimize the core competitiveness of the supply chain.
Supply Chain Improvement and Empowerment Plan
In terms of the supplier improvement plan, Advantech has planned supplier counseling, training, and supplier innovation cooperation. After 2023, we continue cultivating and training suppliers, providing supplier resources, developing collaboratively with the supply chain, and driving innovative technology through cooperation. Incubation and application of new materials; in addition, we also cooperate with 6 suppliers to assist suppliers in introducing third-party suppliers/validate inventory consultation counseling to establish new system management, and purchase new highperformance equipment after diagnosis and verification by energy-saving experts to achieve the purpose of energy saving and improvement. To jointly achieve the goals of energy conservation and emission reduction, and reduce energy consumption and environmental impact.
Conflict Mineral Procurement Management
Tantalum, tin, tungsten, and gold are all 3TG minerals required for the operation of electronic devices. A significant portion of our global product portfolio (such as industrial computers and peripherals, cloud computing and industrial automation, communication systems, IoT intelligent systems, and embedded platforms) relies heavily on these materials, particularly electronic components. For example, tin is used in solder, tantalum is used in capacitors, tungsten is used in electronic contacts, and gold is used in electrical connection coatings. These are all crucial components in many of our products. To avoid using minerals from conflict-affected and high-risk areas (CAHRAs), Advantech follows the “Responsible Business Alliance (RBA) Code of Conduct” to implement a policy of not using conflict minerals. The Company not only declares and pledges not to use metals from CAHRAs, but also requires suppliers to comply with and make commitments to it to ensure that Advantech's supply chain respects human rights and does not involve participation in conflict activities. By 2023, 100% of Advantech's key suppliers
have signed the “Declaration of non-use of conflict minerals.” Furthermore, none of Advantech‘s own products uses conflict minerals. As a brand-name company, Advantech does not directly purchase raw ores or unrefined 3TG minerals. We have multiple supply chains with mines. Once raw ores are smelted, refined, and converted into ingots, bars, or other mineral-containing derivatives, it is impossible to determine the source of 3TG minerals. SORs are the focal point of ore and are at the best point of the supply chain to understand the source of ore. Suppliers who have a direct relationship with Advantech and influence procurement decisions are considered tier-one (PVL) suppliers, therefore rely on them to help Advantech identify and assess risks in our supply chain and provide information on the SOR for supplying 3TG contained in our product.
Advantech continues to follow the OECD Due Diligence Guidance as the basis for the “Conflict minerals management plan”. The Conflict Minerals Reporting Template (CMRT) is used to investigate the source of minerals used by suppliers and identify whether the 3TG smelter has passed the independent third party audit verification, such as RMI/LBMA/RCJ. If there are any noncompliant smelters in the supply chain, and their use is not essential, suppliers are required to cease procurement and use of conflict minerals and to select new mineral sources, providing valid evidence that the new minerals are conflict-free and meet RBA requirements. If the use of these smelters is essential, suppliers must submit a removal plan or ensure that the smelters pass an independent third-party audit verification. Advantech conducts due diligence based on the OECD Five-Step Framework:
According to the conflict minerals due diligence results for 2023, we identified 232 smelters in our supply chain. 226 smelters have been certified as meeting the Responsible Minerals Assurance Process (RMAP) standards (or equivalent cross-recognized assessments). There are currently 6 smelters in the certification process, with qualified smelters achieving a compliance rate of 97.4%.
*Note: 3TG refers to minerals extracted from the Democratic Republic of the Congo and surrounding countries, such as: tantalum, tin, tungsten, and gold.
