Supply Chain Responsibilities
Sustainability plays a vital role in our procurement strategy and is a key part of our supplier management process, from supplier qualification and selection to performance appraisals and day-to-day management. We regularly appraise suppliers' sustainability performance and continuously set new benchmarks. We work closely with customers, suppliers, and industry organizations on sustainability, and we steer our suppliers towards sustainable development through procurement quotas and business opportunities. Our "Learning by Benchmarking" model enables suppliers to learn from each other to enhance their sustainability. These efforts help minimize supply risks, increase customer satisfaction, and boost the competitiveness of our supply chain. Huawei also actively collaborates with industries and participates in the development of industry standards. In 2019, Huawei led efforts to modify the IPC-1401 standard for CSR management systems. Social responsibility is not just a basic requirement for our products and the supply chain. We are also finding new ways to fulfill this responsibility to make our company and wider supply chain more competitive.
New Supplier Qualification
We require all suppliers to sign our Supplier Sustainability Agreement, which is based on industry standards such as the Responsible Business Alliance (RBA) Code of Conduct, and guidelines from the Joint Audit Cooperation (JAC).
We have a comprehensive qualification process for all new suppliers, including their sustainability systems. This process examines suppliers' capacity and compliance with applicable laws, regulations, and the Supplier Sustainability Agreement. Those who fail the qualification are not deemed qualified suppliers.
In 2019, Huawei audited 111 potential suppliers in terms of their sustainability performance, and the two that failed were not allowed to work with us.
Supplier Risk Rating and Auditing
Every year, we audit suppliers. Combined, they represent 90% or more of our procurement spending. We assign them one of three ratings: high, medium, or low. On this basis, we draw up a list of suppliers that require annual audits. In 2019, we assigned risk ratings to 1,335 suppliers, and conducted onsite audits on 169 suppliers that posed medium or high risk. We also worked with some suppliers to help them audit their own suppliers' sustainability. By doing this, we were able to evaluate our suppliers' CSR system maturity and their suppliers' risks.
In 2019, Huawei entrusted a third party to audit 107 suppliers. For suppliers that were rated as medium- or high-risk, we performed onsite reviews and urged them to improve until they reach the low-risk level. We also commissioned a third-party auditor to examine 28 suppliers on their environmental impact, fire safety, and occupational health capabilities.
If we discover a problem during an onsite audit, we help the supplier resolve the issue by using our Check, Root Cause, Correct, Prevent, and Evaluate (CRCPE) methodology to identify common problems, analyze root causes (Man, Machine, Material, Method, and Mother Nature [5M] and Plan-Do-Check-Act [PDCA] management system), and take targeted actions. Ongoing assessments and improvements are made against established benchmarks. All problems are recorded in Huawei's Supplier Corrective Action Request (SCAR) system for follow-up until closure.
Note: There were no instances of child or forced labor discovered during our 2019 supplier audits.
Supplier Performance Management
Every year, Huawei appraises suppliers' overall performance based on their sustainability performance, onsite audit results, and improvements made. When we appraise the sustainability performance of our suppliers, we take into account how they manage their suppliers. We encourage our suppliers to gradually establish a CSR management system based on 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 supplier performance in descending order of acceptability. In 2019, we appraised the sustainability performance of 1,502 suppliers.
The amount of business we do with each supplier depends partly on their sustainability 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 quota 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 resolve existing issues within a specified timeframe, reduce their quotas of procurement or business opportunities, and may even terminate business relationships with those that display exceptionally poor performance. In 2019, we disqualified five suppliers from new partnerships or reduced their quotas due to poor sustainability performance.
Supplier Capability Development
Huawei regularly provides training and coaching for suppliers, and encourages them to adopt industry best practices and integrate sustainability into their business strategies. This lowers their risk and enhances their efficiency. Each supplier has their own experience and competence that can benefit their peers. After years of exploration, Huawei has developed a cost-effective and efficient "Learning by Benchmarking" model that inspires suppliers to learn by benchmarking and by competing to further improve their skills. Under this model, the first step is to collect issues that concern most (if not all) suppliers and industry best practices. This is followed by face-to-face workshops and online or offline meetings where suppliers can share their own best practices and benchmark themselves against the industry best practices.
In 2019, 341 suppliers participated in our training programs on Learning by Benchmarking. The topics of these programs included fire prevention, environmental compliance, and tier-2 supplier management.
Improving Suppliers' CSR Management Capabilities
Huawei attaches great importance to suppliers' CSR capability improvement and has taken a series of measures to help them more efficiently manage their CSR, reduce risks, and become more competitive. These measures include holding supplier conferences, organizing CSR management workshops, evaluating and coaching suppliers, rolling out targeted programs to improve suppliers' CSR capabilities, and implementing a strategic supplier development program.
In 2019, Huawei invited executives from 196 suppliers to attend our Consumer BG's Supplier Conference, aiming to get buy-in of leadership in CSR efforts and raise their awareness of CSR. Huawei also required the executives of high-risk suppliers to report all of their CSR improvement plans and progress directly to Huawei.
Huawei arranges for professionals to evaluate and coach potential and new suppliers. This helps them understand and meet Huawei's CSR requirements as well as establish or improve their CSR management systems. Huawei regularly holds workshops on supplier CSR management, and provides guidance to suppliers on how to adopt industry best practices and incorporate CSR requirements into business strategies to reduce business risks and improve efficiency. In 2019, Huawei's Consumer BG worked with specialist agencies on programs intended to improve capabilities in domains like labor rights and interests, environmental protection, fire safety, and occupational health, benefiting more than 150 suppliers.
Helping Suppliers Better Manage Hazardous Substances
Huawei urges suppliers to completely ban the use of hazardous substances (e.g., chlorinated flame retardants and brominated flame retardants) in smartphones, tablets, wearables, and other devices. Huawei also helps suppliers improve how they manage hazardous substances. During a 2019 sampling inspection on the environmental attributes of devices on the market, there were no reported violations or customer complaints for Huawei products.
Huawei has developed a Declaration of Non-use of Restricted Substances in accordance with international environment protection laws and regulations (e.g., Restriction of Hazardous Substances [RoHS] and Registration, Evaluation, Authorisation and Restriction of Chemicals [REACH]). Suppliers must sign this declaration and are only qualified after passing the required product environmental certification. All of our suppliers have developed and implemented their certification programs based on the QC 080000 specification. In addition to examining environment risks, Huawei also entrusts third parties to audit all high-risk suppliers, and requires them to resolve the issues identified within a predefined timeframe.
In 2019, Huawei hosted multiple salons on product environmental protection with more than 150 suppliers and over 280 experts present. This type of communication helps suppliers manage the environmental attributes of their products better. In the same year, Huawei also expanded communication with environmental experts to reinforce the green supply chain.
A salon on product environmental protection with suppliers
Deepening Cooperation with Customers and Industry Organizations
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. This collaborative approach enhances sustainability management across the supply chain. In 2019, Huawei and five customers ran onsite audits on 14 suppliers, and we shared the audit results with the customers.
STORY-Driving Suppliers to Improve Through JAC
In 2019, Huawei chose three suppliers for a JAC joint audit, with onsite audits by a third-party auditor commissioned by our customers. A specialist agency was commissioned to collect feedback from the suppliers' employees. The customers and third-party auditor were satisfied with the audit results. We also communicated with suppliers about the issues that were found in the audits and employee feedback, and we shared industry best practices with them.
In 2019, Huawei continued to participate in the JAC Academy pilot project and designated experts to attend its seminar. We chose five suppliers to be audited by the JAC Academy. Huawei auditors performed onsite audits using JAC's models, and submitted audit reports to JAC. In January 2020, three suppliers who had performed well in JAC audits were presented medals at the 9th JAC CSR Forum.
Huawei representatives at the JAC CSR Forum
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 entire industry to a new level.
In 2019, Huawei was active in setting standards and sharing experience in organizations such as the China Electronics Standardization Association (CESA), China Association of Communication Enterprises (CACE), and Association Connecting Electronics Industries (IPC). As the chair of the IPC-1401 Technology Group, Huawei led efforts to modify the IPC-1401A standard so it could be expanded from procurement to all activities along the value chain (e.g., marketing, R&D, manufacturing, post-sales, logistics, facilities, human resources, and finance). The revised standard defines CSR as a customer requirement, and CSR innovation as a competitive edge. It stresses the importance of benchmarking against industry best practices. As businesses fulfill their CSR, they should consider compliance and risk management as the means and competency improvement as the end. Following expert peer review, the revised standard is estimated to be released in 2020.
Prohibiting the Use of Conflict Minerals
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 2019, we shared the survey results with 13 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.
Huawei Statement on Conflict Minerals:
Due Diligence on the Cobalt Supply Chain
Lithium-ion batteries are using increasingly more cobalt in recent years, which is attracting wider attention towards due diligence on the cobalt supply chain, and Huawei attaches great importance to ethical procurement. As a member of the Responsible Cobalt Initiative (RCI) and RMI, Huawei exercises due diligence on our supply chain according to the Five-Step Framework specified in the OECD's Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. We have released our due diligence policy for the cobalt supply chain, mapped out supply chain risks, commissioned third-party audits, and disclosed the status of cobalt due diligence. Through these efforts, Huawei has driven the development and improvement of due diligence systems on the cobalt supply chain.
In November 2019, OECD and RCI launched an onsite survey covering the cobalt supply chain in the Democratic Republic of the Congo (DRC) to learn about the current state of the cobalt mines there. As a downstream player of the cobalt supply chain, Huawei participated in the survey, provided training on cobalt due diligence, and held a multi-stakeholder conference with large cobalt mine owners.
In the future, Huawei will work more closely with industry organizations, governments, and companies throughout the supply chain. We will take concrete measures to responsibly manage the cobalt supply chain, making it more stable, organized, diversified, responsible, and sustainable.
A delegation with DRC government officials
Due diligence training for DRC cobalt mining companies
Engineering Supplier EHS Management
Huawei takes a series of measures to continuously enhance engineering suppliers' EHS management. More specifically, we use digital technologies to manage EHS risks, and AI to identify EHS violations. By monitoring major risks in real time, deploying alerts based on preset parameters, and taking preemptive measures, we are able to prevent numerous risks. To improve the EHS awareness and skills of operating staff, we have released an EHS training video covering multiple scenarios. In addition, we nurture our EHS culture to improve the awareness of all employees. In 2019, more than 108,000 Safety Passport holders were registered in Huawei's online system.
Huawei encourages its engineering suppliers to build and optimize their EHS management systems and to pass the occupational health and safety management system certification. So far, more than 700 engineering suppliers are OHSAS 18001 or ISO 45001 certified. In 2019, Huawei held 13 regional supplier conferences with EHS as a key topic, sharing our approaches and best practices in EHS. To drive suppliers to improve their EHS capabilities, Huawei launched a supplier EHS capability development program, covering EHS leadership improvement, process management, capability assessments, reward and accountability systems, and so on.
Engineering suppliers at an EHS conference Informing suppliers of EHS requirements
Engineering suppliers at an EHS conference
Informing suppliers of EHS requirements