Supply Chain Management

Basic stance on supply chain management

In light of the increasing spread and complexity of ITOCHU's supply chains due to its business fields expanding, ITOCHU's business further requires risk management concerning human rights, labor and the environment not only in processes under their direct control but also in areas such as procurement of raw materials, production sites, intermediate distribution, and the regions of consumption. We at ITOCHU Corporation pay particular attention to management on the site of suppliers which occupy a fairly high share of our purchasing, and view our consideration and sense of responsibility for these areas as matters of great importance to be addressed with a high priority.
ITOCHU Corporation has set out its Sustainability Action Guidelines for Supply Chains, and implements the following surveys and reviews. Through these activities, it is striving to prevent the occurrence of any problems. When problems are detected, it aims for improvement in the concerned areas through communication with suppliers.

ITOCHU Corporation's Sustainability Action Guidelines for Supply Chains

  1. Suppliers shall respect the human rights of its employees, and shall not treat employees in an inhumane manner including verbal abuse and physical punishment.
  2. Suppliers shall not engage in forced labor or child labor.
  3. Suppliers shall not practice discrimination in hiring and employment.
  4. Suppliers shall prevent unfair low-wage labor.
  5. Suppliers shall respect the rights of employees to organize and bargain collectively to promote smooth negotiation between labor and management.
  6. Suppliers shall ensure that employees' working hours, holidays, and use of leave of absence are properly managed so as to comply with statutory standards.
  7. Suppliers shall strive to provide employees with a safe and healthy work environment.
  8. In the course of their business activities, suppliers shall duly consider the need to conserve ecosystems as well as local and global environments, and strive to prevent the occurrence of any environmental pollution.
  9. Suppliers shall observe all related laws and international rules, and ensure fair transactions and prevent corruption.
  10. Suppliers shall disclose information regarding the above items in a timely and appropriate manner.

Communication of the Sustainability Action Guidelines for Supply Chains to suppliers

We believe it is important to win the understanding and cooperation of all our suppliers for our procurement-related policies. In keeping with this belief, in FY2014, we again made notice of the ITOCHU Corporation's Sustainability Action Guidelines for Supply Chains to the approximately 4,000 suppliers with whom we have continuing transactions. In January 2015, we established a rule to make notice of the guidelines to any new supplier before we start transactions. We are thus endeavoring to deepen communication with them on our sustainability-related policies.

Response to non-compliant supplier

When a case that does not comply with the intent of guidelines has been confirmed, ITOCHU will request the relevant supplier to take remedial action, and will provide support and guidance as needed. If a remedy is deemed difficult despite ITOCHU making continuous requests for remedial action, ITOCHU will reexamine its dealings with the supplier concerned.

Sustainability Survey

Starting from FY2009, in order to check the status of our various suppliers, each of the Division Companies and relevant Group companies of ITOCHU selects significant suppliers based on such parameters as high-risk countries, products handled and transaction amounts. Sales representatives of each Division Company or staff members of overseas subsidiaries and operating companies visit the suppliers and conduct the Sustainability survey by providing interviews or questionnaires (using the Sustainability Checklist) along with the mandatory questions on the seven core fields of ISO 26000.

[Figure]
Conceptual rendering of the promotion of supply chain management

Sustainability Checklist

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The Supply Chain Communication Handbook

The Sustainability Checklist is based on the seven core fields of ISO 26000 (organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, community involvement and development). We have added items that are specific to each field. For example, we added items to be checked related to forest conservation for the Forest Products & General Merchandise Division (lumber, pulp & paper); food safety items for the Food Company; and items related to the protection of intellectual property for the Textile Company. Referring to the opinions of external experts, we have set 19 of the survey questions as important questions. These are mainly related to human rights, labor practices, and the environment, where insufficient response or measures will increase the sustainability risk. Thus we strongly encourage suppliers to make improvements in these sustainability high-risk areas.

In addition, we have also published a handbook on communications with suppliers, and use it to inform employees how to communicate with suppliers. Along with the handbook, we have set up a check system that will enable sales representatives and locally assigned ITOCHU employees to undertake more specific checks of the actual status of how key suppliers manage environmental issues, human rights, labor practices, the prevention of corruption, and other matters, and help them provide suppliers with advice on improvements. Moving forward, we will continue to conduct surveys and communicate with suppliers to raise employee awareness and enhance supplier understanding and implementation.

Example descriptions in the HANDBOOK

Prohibition of forced labor Companies must not force their staff members to work.

Forced labor means labor forced on a person against their will. Examples include restricting the staff member's freedom to leave the job until they repay a debt to the company and restricting their freedom to leave the job under the employment contract.
Forced labor may be identified by asking staff members what their work shifts are like, whether they have break times, and whether they have sufficient time to eat meals, or by checking their facial expressions carefully. In a worst-case scenario, staff members are deprived of freedom for their entire lives, forced to live in a dormitory on the factory premises and prevented from going outside the premises. It is also effective to check whether there are any staff members who have come from rural areas or foreign countries to work for the supplier. Employers must be prohibited from taking the passports of staff members or master copies of their IDs or work permits, because such acts lead to forced labor.

Reference

Forced labor needs to be checked for not only at factories in emerging countries, but also at those in Japan. In recent years, the Technical Intern Training Program (TITP) of Japan has been criticized by some overseas countries. You should therefore also check whether suppliers in Japan employ any foreign staff members, and whether there are any problems with the work hours and wages of such staff members.

Sustainability Surveys in FY2018

In FY2018, ITOCHU surveyed 333 companies, including suppliers of overseas offices and Group companies. No serious problems requiring immediate response were found in the survey results.
Even when surveys have revealed problems that are cause for apprehension, we confirm the initiatives for prompt improvement or countermeasures taken by the supplier. We will continue to communicate with suppliers to seek their understanding of our thinking.

Surveys conducted in FY2018 Inclusion criteria Survey subjects Survey items
Textile Company
  • ・High-risk countries
  • ・Countries with specific transaction amounts
  • ・Countries where specific products are handled
46

Main questionnaires that are the same for all division companies:

  1. Organizational governance: Responsibilities. Establishment of a whistleblowing system.
  2. Human rights: Assessment of the risk of human rights violations: Child labor, forced labor, and harassment. Prohibition of discrimination. Payment of appropriate wage amounts.
  3. Labor practices: Management of working hours. Management of health and safety. Management of employee health.
  4. The environment: Waste, treatment of discharged water, handling of hazardous substances, climate change, approaches to the conservation of biodiversity
  5. Fair operating practices: Prevention of corruption, information management, prevention of the infringement of intellectual property rights, sustainable procurement policies
  6. Consumer issues: Quality control system, traceability
  7. Community involvement and development: Dialogue with local residents and general consumers

・Product-specific questions

  • Textile Company: Control of chemical substances, and protection of intellectual property
  • Food Company: Food safety, and checking traceability
  • Forest Products & General Merchandise Division (Paper, wood chips, and wood products): protection of forests, and obtaining or enhancing third-party certification
Machinery Company

9

Metals & Minerals Company

20

Energy & Chemicals Company

45

Food Company

103

General Products & Realty Company

105

ICT & Financial

5

Total

333

 

For significant suppliers, personnel from the Sustainability Management Department of ITOCHU Corporate Communications Division make visits as necessary to undertake on-site surveys together with external experts.

ITOCHU conducted a survey of PT. SANKYO INDONESIA, an associated company in Indonesia that operates the manufacturing business for electric blankets. The survey covered labor safety, labor management, human rights and environmental aspects based on the ILO Constitution, the standards of major global apparel brands and the laws and ordinances of Indonesia.

On-site report: a fact-finding survey at an electric blanket factory in Indonesia

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On November 14, 2016, ITOCHU and an external expert conducted an on-site survey of the electric blanket factory of PT. SANKYO INDONESIA, an associated company of ITOCHU. The factory is located in an industrial park that is a one-hour drive from the city center of Jakarta, and 500 employees including temporary workers manufacture electric blankets on a double shift basis during peak periods. In the morning, the survey team interviewed the president and personnel and general affairs manager, and checked documents concerning human rights and labor management. In the afternoon, the team reviewed, in the presence of the factory director, the production lines, the evacuation routes, management of chemicals and the rest of the factory. The external expert complimented the factory that the ages of employees were properly checked with official IDs when hired, that the working hours and payroll were systematized and managed appropriately, and that the documents were well organized. The expert also provided some advice from a labor safety and health standpoint to take further measures such as conducting disaster drills and health checkups on a regular basis and the factory immediately carried out these measures in effect. The factory continues to strengthen the production system with consideration for occupational safety and the environment with increased quality control and production efficiency.

Regular on-site surveys of food processing plants

Since FY2012, the Food Company has regularly visited and surveyed the food processing plants of overseas suppliers for imported food, under the initiative of the Food Safety and Compliance Management Office. In FY2018, we visited 186 overseas suppliers and implemented preventive measures for securing the safety of the food we trade with them. In January 2015, we set up the Food Safety Management Office in the Beijing office and established an auditing system for Chinese suppliers. In FY2018, such periodic or follow-up audits were made to a total of 54 companies.

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Fact-finding investigations of Group companies

To prevent environmental pollution and related problems among the ITOCHU Group companies, personnel from the Sustainability Management Department have been making on-site visits for the purpose of survey work from a third party stand point, together with external experts.

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Surveys conducted in FY2018 Subject region Number of companies visited for on-site surveys Survey items

Food hygiene audits by the Food Company*
(suppliers from which products are imported directly)

Overseas

186

Food hygiene, food defense

Fact-finding investigations of Group companies conducted as on-site fact-finding surveys of suppliers as well

Japan

4

Soil pollution, water and air discharge control, waste disposal, labor safety, quality control

  • Of those overseas suppliers, 7 were also the subjects of Sustainability surveys.