SAMSUNG ELECTRO-MECHANICS

Global Purchasing Policy

Samsung Electro-Mechanics strives to produce the highest quality products and strengthen its technological competitiveness by establishing transactions and cooperative relationships with competitive global business partners. To this end, Samsung Electro-Mechanics establishes strategic partnerships with its business partners to practice ethical management and grow together. In addition, Samsung Electro-Mechanics requires its business partners to adhere to ethics/compliance management, fulfill corporate social responsibility, etc. to strengthen a sustainable supply chain, and conducts comprehensive evaluations of sustainable management. In addition, Samsung Electro-Mechanics promotes a localized procurement policy for the development of overseas production sites and social contribution and strives to procure sustainable raw materials that contribute to local communities.

Global Purchasing Status

Samsung Electro-Mechanics purchases raw materials, including semiconductors, semi-finished products,
raw materials and pharmaceuticals, from approximately 226 business partners in 19 countries, with an annual purchase volume of approximately KRW 3.7 trillion. For imported raw materials, we track and manage the origin of raw materials by requiring suppliers to enter 100% of their country-of-origin information when entering supplier information into our purchasing portal system.

Strengthening supply chain management

Samsung Electro-Mechanics manages its supply chain by establishing the Code of Conduct for Business Partners based on the five areas (labor, safety and health, environment, corporate ethics, and management system) of the Responsible Business Alliance (RBA) Code of Conduct to improve the sustainable working environment of its business partners. We apply the Code of Conduct for Business Partners to all business partners and include it as a compliance requirement in our supplier contracts. We also obtain agreements to comply with the Code of Conduct when signing contracts with new business partners to strengthen supply chain sustainability management.

Supply Chain Risk Management

Samsung Electro-Mechanics strives to evaluate the competitiveness of its business partners and manage supply chain risks. We evaluate the financial risks of the supply chain by conducting regular credit ratings for all business partners through professional credit rating agencies and respond effectively to possible risks
such as natural disasters, violations of laws and regulations, and credit rating downgrades based on
a network of representatives from headquarters and each corporate body through the procurement portal system. In addition, we conclude long-term contracts for core components to ensure a stable supply chain, and communicate with key business partners through regular technical review meetings and technical exchange events. In addition, for components with a high risk of supply disruption, we proactively respond to unexpected risks such as natural disasters by diversifying business partners and supply bases.

Employee Training

Samsung Electro-Mechanics provides online training to all employees once a year on the Subcontracting Act and the protection of technical data of business partners. In addition, internal employees who perform tasks related to business partners receive additional training on business etiquette, protection of business partners' technical materials related to fair trade, the Subcontracting Act, and the Mutually Beneficial Cooperation Act to prevent negative risks in the supply chain.

When selecting new business partners, Samsung Electro-Mechanics conducts a general evaluation related to overall management, quality/process evaluation, sustainable management (compliance) evaluation and creditworthiness. Only business partners whose credit rating and financial status meet certain standards are selected for business transactions, and selected business partners are required to submit a CSR Compliance Consent Form covering compliance with the RBA Code of Conduct and a policy prohibiting the use of conflict minerals, and an Environmental Management Warrant covering regulatory responses to environmentally hazardous substances, RoHS, REACH, etc. In addition, on-site compliance management assessments are conducted for new business partners using the same checklist as the self-diagnosis, and registration is restricted for business partners who fail to meet absolute compliance requirements or whose assessment scores fall below a certain level.

Samsung Electro-Mechanics conducts an annual comprehensive evaluation of business partners with whom it has done business for more than one year. The comprehensive evaluation focuses on a total of eight items and includes areas that evaluate the business partner's capabilities (quality, technology, delivery timeliness, transaction size, financial elements, etc.) and areas that evaluate non-financial risks (compliance, environment, responsiveness, etc.). The evaluation results are used as an indicator to determine whether to continue doing business with the partner. For outstanding business partners, we offer programs to strengthen strategic cooperation, such as securing new technologies in advance and joint technology development, and for poorly performing business partners, we offer business strengthening and risk management support, such as training and technical assistance.

Comprehensive evaluation process

Comprehensive evaluation system

Utilization of the results of the comprehensive evaluation

To ensure sustainable supply chain management, Samsung Electro-Mechanics conducts sustainable management (compliance) assessments for key business partners at home and abroad every year. The assessments are conducted through self-diagnosis and on-site inspections, and based on the assessment results, issues and improvement points are disclosed to help business partners implement appropriate improvement measures. Business partners that have difficulty immediately improving problems are asked to develop improvement plans, and we monitor their progress and reassess whether the improvement measures have been completed. In addition, Samsung Electro-Mechanics annually selects and awards business partners for excellence in sustainable management practices to encourage their voluntary participation.

Sustainable management (compliance) assessment process

Sustainable Management (Compliance) Assessment Criteria

Samsung Electro-Mechanics provides funding, training, and consulting to help business partners improve productivity.

Shared Growth Fund

Samsung Electro-Mechanics has been operating the KRW 78 billion win-win fund with Woori Bank since 2010 to support the financial liquidity and investment of its business partners. In 2021, Industrial Bank of Korea(IBK) joined the fund, and together with the two banks, we are providing low-interest loans of up to KRW 4 billion to our primary and secondary business partners.

Supporting smart factories

A smart factory is an intelligent production plant that applies information and communication technology (ICT) combined with digital automation solutions to production processes such as design, development, manufacturing, distribution, and logistics to improve productivity, quality, and customer satisfaction.
Samsung Electro-Mechanics collaborates with external organizations to improve the competitiveness of
our business partners by supporting the cost of building smart factories and on-site innovation activities of our business partners.

Support for Secondary Business Partners

Samsung Electro-Mechanics supports payment terms, cash payments and the establishment of a consultative body to facilitate shared growth support for secondary business partners.
In addition, Samsung Electro-Mechanics strives to provide direct support such as funding for the win-win fund and free training for business partners to help them improve their management.

Support for business partner training

Since 2020, Samsung Electro-Mechanics has been operating the Win-Win Cooperation Academy to support the systematic human resource development of primary and secondary business partners. In accordance with the characteristics of our business partners, we provide job-oriented specialized technical subjects such as productivity, facilities, quality, and safe environment, as well as leadership subjects for each position,
from executives to practitioners, online and offline in collaboration with internal and external experts.

Management doctorate consulting program

Samsung Electro-Mechanics provides management doctorate consulting programs, including management strategy, technology and productivity improvement, in collaboration with external expert consulting teams to help business partners improve management and secure mid- to long-term growth strategies.

Supporting win-win cooperation and disaster prevention

Since 2013, Samsung Electro-Mechanics has implemented a win-win cooperation program to help business partners prevent disasters and improve safety and health management and has supported them in obtaining safety and health management system certification free of charge. In addition, for business partners that use hazardous substances, Samsung Electro-Mechanics sends environmental and chemical experts to help them respond to relevant laws and regulations and prevent disasters, such as inspecting handling facilities and checking usage facilities. In addition, Samsung Electro-Mechanics has signed safety diagnosis agreements with property and casualty insurance companies to help business partners prevent industrial accidents by providing free fire/explosion safety diagnosis and dispatching fire experts to provide safety diagnosis and guidance.

Energy conservation consulting

Samsung Electro-Mechanics, in cooperation with the Korea Energy Agency, provides free energy saving consultations to business partners to help them improve their energy efficiency. In addition, from 2022, Samsung Electro-Mechanics sends experts in energy-related fields to business partners to actively support them in energy diagnosis and identifying ways to reduce energy consumption.

Samsung Electro-Mechanics conducts regular surveys of its business partners and handles complaints or requests for assistance through various communication channels. Samsung Electro-Mechanics uses the Samsung Electro-Mechanics website and purchasing portal system as regular communication channels, and listens to the voices of business partners and reflects them in decision-making through the person in charge of each work. In addition, we communicate with our primary and secondary business partners through the annual communication forum held in the first and second half of each year, and produce and distribute brochures to communicate Samsung Electro-Mechanics' joint growth policy and support for win-win cooperation.

Samsung Electro-Mechanics manages through its purchasing portal system to ensure that all business partners do not use conflict minerals (3TG: tantalum, tin, tungsten and gold), cobalt and mica that are unethically mined in 10 neighboring conflict-affected countries, including the Democratic Republic of the Congo in Africa.
To this end, we have established and are continuously improving our responsible minerals management process and are working to improve the reliability of our operational data. All Samsung Electro-Mechanics business partners do business with Responsible Minerals Assurance Process (RMAP) certified smelters,
and if we find smelters of unclear origin or that are not RMAP certified, we encourage them to become RMAP certified. We prohibit placing orders with business partners who have used minerals from non-RMAP certified smelters, and we continue to investigate alternative sources to ensure that our supply chain is not disrupted in the event of such an issue.

Responsible mineral management system

Samsung Electro-Mechanics has established and operates a responsible mineral management system for its business partners to provide customers with products that have gone through the normal distribution process.

Investigating the use of minerals from conflict and high risk areas

Samsung Electro-Mechanics conducts regular responsible mineral use surveys at least once a year for the entire supply chain. From January to April of each year, we use the latest versions of the RMI Conflict Minerals Reporting Template (CMRT) and the Extended Minerals Reporting Template (EMRT) to verify the status of our business partners' use of conflict minerals, cobalt and mica, and smelter information in the supply chain.
We verify the information submitted by all business partners to increase the transparency of our findings,
and where additional verification is required, we conduct on-site inspections to assist them in remediating non-compliance.

Samsung Electro-Mechanics develops and shares educational materials on its responsible minerals policy and responsible minerals management with its business partners and conducts training on transitioning to
RMAP-certified smelters and entering smelter information to raise awareness of responsible minerals issues.