As a key element of our Quality First strategy, sustainability is assigned greater weight during our materials and supplier qualification, performance appraisals, and procurement decision-making. We strengthen cooperation in sustainability with customers, suppliers, and industry organizations. We also employ procurement quotas as a tool to help suppliers become more sustainable. These efforts enable us to minimize supply risks, increase customer satisfaction, and boost the competitiveness of the supply chain. We also actively collaborate with industries and participate in the development of industry standards. We integrate social responsibility as a basic norm into products and the supply chain. The aim is to take on social responsibilities in innovative ways to make the company and wider supply chain more competitive.
We developed the Supplier Sustainability Agreement based on industry standards such as the Responsible Business Alliance (RBA) Code of Conduct, and guidelines from Joint Audit Cooperation (JAC) of the global telecom industry. We have a comprehensive qualification process for all new suppliers, including suppliers' sustainability systems. This qualification process examines suppliers' capacity and their compliance with applicable laws, regulations, and the Supplier Sustainability Agreement. Those who fail the qualification for sustainability systems are not deemed qualified suppliers.
In 2018, we audited 93 potential suppliers in terms of their sustainability performance, and 16 suppliers that failed the audit were denied the opportunity to cooperate with Huawei.
Every year, we audit suppliers, which combined represent 90% of our procurement spending, and assign them one of three priority levels: high, medium, and low. On this basis, we drew up a list of suppliers that require annual audits. In 2018, we assigned priority levels to 1,183 suppliers (more than in 2017), and conducted onsite audits on 194 high- and medium-priority suppliers, 130 of which were audited by third parties.
If we discover a problem during an audit, we help the supplier with Huawei's Check, Root Cause, Correct, Prevent, and Evaluate (CRCPE) methodology to identify common problems, analyze root causes, and take targeted actions to mitigate the issue. Ongoing assessments and improvements are made against established benchmarks. All problems are recorded in Huawei's Supplier Corrective Action Requirement (SCAR) system for follow-up until closure. We are always ready to help our suppliers improve.
We appraise suppliers' sustainability performance annually based on their work performance, onsite audit results, and improvements made over the previous year. The sustainability performance of a supplier accounts for 5-15% of their overall performance assessment. When we appraised the sustainability performance of tier-1 suppliers in 2018, we took into account how they managed their tier-2 suppliers. We encouraged our tier-1 suppliers to gradually establish a procurement CSR management system and regularly appraise the sustainability performance of tier-2 suppliers in line with the IPC-1401 Supply Chain Social Responsibility Management System Guidance. Suppliers are classified into four grades (A, B, C, and D) based on their performance. These grades represent their performance in descending order of acceptability. In 2018, we appraised the sustainability performance of 1,321 suppliers.
The amount of business we do with each supplier depends on their performance, which is also a factor considered in our tendering, supplier selection, portfolio management, and other processes. Suppliers that perform well are given a larger share of procurement and more business opportunities. The reverse is true for low-performing suppliers, especially those who have crossed the line we draw for CSR. Depending on the situation, we instruct low-performing suppliers to fix existing issues within a specified timeframe and may even terminate business relationships with suppliers that display exceptionally poor performance. In 2018, we disqualified two suppliers for new partnerships or had their quotas reduced due to poor sustainability performance.
We provide training and coaching for suppliers on a regular basis. We also encourage them to adopt industry best practices and embed sustainability into their business strategies, helping them reduce business risks and enhance operating efficiency. After years of exploration, we have developed a cost effective "learning by benchmarking" model. We encourage suppliers to learn by benchmarking and competing, and continuously learn to raise their competency. Each supplier has its unique experience and competencies, allowing them to complement each other.
For common issues, we invited experts to share their experiences, held workshops, and set up online and offline learning groups for peer benchmarking. This allowed us to learn about industry best practices quickly through low-cost and localized approaches. In recognition of this practice, Huawei won the Best Practices Award from the United Nations Global Compact Network China.
In 2018, 293 persons from 156 suppliers participated in our training programs on learning by benchmarking. The topics covered in these training programs included fire prevention, environmental compliance, code of conduct for the battery industry, and tier-2 supplier management.
We also worked with professional organizations on three programs to improve environmental protection, fire safety, and the occupational health of suppliers. In total, 96 suppliers benefited from these programs. These programs helped suppliers fully identify potential risks, improve internal management, and develop a professional management team, greatly enhancing their expertise in environmental protection, fire safety, and occupational health.
We see sustainability as a key customer requirement, and embed it into our procurement strategies and processes to increase transparency across our supply chain. We work closely with customers on supplier management. For example, we invite customers to visit supplier facilities, conduct joint supplier audits with customers, and carry out employee surveys and supplier capacity building projects. All these efforts help improve our own sustainability.
In 2018, Huawei and seven customers ran onsite audits on 21 suppliers, and we shared the audit results with the customers.
In 2018, Huawei nominated six suppliers to participate in JAC joint auditing, with expert groups from a third-party auditing firm carrying out onsite audits. The auditing experts and customers expressed satisfaction with the results of the audits on the six suppliers. In particular, the suppliers were found to have incorporated CSR requirements into their internal operations. By making CSR improvements, the suppliers enhanced internal operating efficiency, customer satisfaction, and employee satisfaction.
In 2018, Huawei participated in the JAC Academy pilot project. Our designated experts attended auditing training provided by JAC Academy and were presented auditor certificates issued by JAC Academy. We also nominated five suppliers to be audited by the JAC Academy and submitted the audit reports to JAC, which followed up on their corrective measures. Huawei supported and joined the JAC Academy project, participated in project design optimization, and shared our experiences and best practices. The CRCPE methodology was shared at the 8th JAC CSR Forum as a recommended topic, winning the excellent practice award following a vote by over 200 experts at the forum.
Sustainability problems in supply chains are mostly systemic problems that have accrued over the years. Industry cooperation and standardization are meaningful ways to resolve systemic problems in the industry. Huawei proactively works with industry organizations to promote industry cooperation and standardization. We also work with upstream and downstream companies in the supply chain and convert industry best practices into industry standards to raise the sustainability of the industry to a new level. The IPC-1401 corporate social responsibility management system integrates social responsibilities into products and supply chains as a basic requirement. Through continuous improvement driven by business incentives and supplier improvement driven by sustained procurement, we can effectively mitigate risks and enhance competitiveness. In 2018, Huawei held training and workshops on IPC-1401 to promote it to suppliers and encourage suppliers to establish their social responsibility management system based on IPC-1401.
In 2018, Huawei joined the Alliance of Green Consumption and Green Supply Chain as the vice-chair and attended the China Green Supply Chain Management Innovation Summit. At the summit, we shared our market-oriented green supply chain innovation model, which integrates environmental protection into products and supply chains as a customer requirement, as well as increasing companies' competitiveness through environmental protection innovations.
Huawei takes the problem of conflict minerals very seriously, and has released an open statement announcing that we will not procure or support the use of conflict minerals. We require all suppliers not to procure conflict minerals. We also ask our suppliers to cascade this requirement to their suppliers. As a member of the Responsible Business Alliance (RBA), we work with companies around the world to jointly address this problem through the Responsible Minerals Initiative (RMI). We use the RMI conflict mineral questionnaire and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas to survey the supply chain and share results with our customers. In 2018, we shared the survey results with 17 customers. We are also an active participant in the projects of multiple industry organizations, seeking to jointly work out viable solutions to conflict mineral issues.
Responsible Cobalt Management
More cobalt has been used for lithium-ion batteries in recent years, which is attracting wider attention toward the responsible management of the cobalt supply chain. Huawei attaches great importance to ethical procurement within the cobalt supply chain. As a member of the Responsible Cobalt Initiative (RCI), Huawei engages in due diligence in cobalt management according to the Five-Step Framework specified in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals. We have also released the Huawei Statement on Responsible Cobalt Supply Chain in 2017.
We integrated responsible cobalt management into the Huawei Supplier Social Responsibility Code of Conduct, which requires suppliers to engage in due diligence during cobalt management and pass these requirements on to their upstream suppliers.
In 2017, we completed the first round of due diligence on the supply chain of lithium-ion battery suppliers. After analyses based on the survey results, we identified six major links in Huawei's cobalt supply chain from downstream to upstream: batteries, battery cells, cathode materials, precursors, cobalt smelters/refineries, and cobalt mines.
In the first half of 2018, we reviewed our battery suppliers at each level, and used the Cobalt Reporting Template (CRT) of the Responsible Minerals Initiative (RMI). This allowed us to conduct due diligence on the cobalt smelters in the upstream of the supply chain and preliminarily identify 18 upstream smelters.
During the second half of 2018, we engaged a third-party organization, RCS, to review the due diligence of battery cell suppliers during cobalt management. This review was based on the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals and the Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains. The review aimed to check whether the battery cell suppliers had built a due diligence management system for the supply chain, and whether they are engaged in due diligence management according to the Five-Step Framework.
Moving forward, Huawei will continue to work with industry organizations and upstream and downstream players to encourage upstream smelters to collect, study, and confirm the chain of custody and traceability of information, as well as to identify risks together with the upstream mines. We will also encourage upstream smelters to take measures that ensure due diligence is carried out on suppliers, sources, or situations with potential risks to lower these risks. Additionally, we will continue to provide training on due diligence management for the supply chain to make suppliers more aware and capable of managing their due diligence on cobalt.