Percentage of materials purchased from
domestic suppliers in 2022:
93.33%
Support of local suppliers to stabilize
the local economy
At CHS, supply chain management is categorized as follows: raw material suppliers, material and equipment suppliers, subcontractors, and security personnel. Each of the aforementioned suppliers is managed by a different responsible department. Compared to previous years, there were no significant changes in the supply chain structure, supplier locations, and supplier relationships in 2022.
To strengthen supply chain management, supplementary provisions set forth in CHS procurement contracts stipulate that the Company may unilaterally rescind or terminate contracts and request compensation from businesses in material breach of contract obligations such as violation of sustainable development policies, significant impacts on the environment and society, unethical conduct, or impairment of labor rights due to violation of labor-related laws. In addition, CHS has the best interests of contractors and suppliers in mind. If payment is still pending over 30 days after delivery and acceptance, CHS takes the initiative in urging businesses to issue invoices and file for reimbursement. The Company has implemented a rapid payment management mechanism which involves regular payment issuance three times a month with the goal of increasing the desire of excellent suppliers and contractors to cooperate with CHS.
The main products of CHS are hot rolled coils, and their raw materials are slabs, most of which are supplied by foreign integrated steel works. To stabilize the source and quality of our raw materials, we have signed long-term contracts to maintain long-term partnerships. Our major suppliers include Nippon Steel of Japan, China Steel Corporation, Dragon Steel Co., Ltd., and Formosa Ha Tinh Steel Corporation, all of which are internationally well-known companies with legal operations and considerable scales. The human rights conditions of employees, freedom of association, and the prohibition of child labor and forced labor are in compliance with national labor laws and regulations, and have been regularly disclosed in the sustainability report. In 2022, 56.95% of the Company's raw materials were supplied domestically and 43.05% of raw materials were sourced overseas.
For the purpose of reducing operating costs and carbon emissions from long-distance transportation, we try to purchase materials and equipment from domestic suppliers, so as to cultivate domestic suppliers, increase the proportion of local procurement, and fulfill our responsibility of taking good care of local businesses. In terms of amount, 93.33% of the Company's raw materials were supplied domestically and 6.67% of raw materials were sourced overseas in 2022.
According to the nature of the operation, our subcontractors are divided into construction subcontractors, operations subcontractors, repairs subcontractors, and equipment subcontractors. Among these subcontractors, construction subcontractors account for the highest percentage.
To protect the rights and interests of workers and reduce the operational risks of contractors, CHS adopts the following management measures:
Contractors agree to entrust CHS to effect Erection All Risks insurance (including employer’s liability insurance and third-person liability insurance) with coverage of NT$5 million on their behalf with a qualified insurer. The premium is deducted from each payment request by contractors after acceptance of work. If the contract value exceeds NT$50 million, contractors independently effect insurance with the designated insurer.
Contractors are required to provide labor insurance for all hired personnel who enter CHS mills to participate in construction operations. CHS further effects indemnity liability insurance with coverage of NT$2 million to provide enhanced protection for contractor personnel in case of accidents. Contractors are also required to comply with relevant laws governing hiring and employment, including provisions prohibiting illegal overtime work and salaries below minimum wage standards. In 2021, all cooperating contractors conformed to the aforementioned regulations.
In accordance with the "General Standards for Management of Construction and Operations Subcontractors," the labor conditions such as salary payment, labor insurance, pension, and annual leave for the personnel of construction and operations subcontractors working in CHS mills comply with the Labor Standards Act. We check labor conditions every January and July (37 and 36 subcontractors in 2022 respectively, all of which comply with the Labor Standards Act) and retain the results of the checks for reference upon approval.
To prevent the Company's technologies from being patented by contractors, intellectual property protection clauses are included in the contracts with subcontractors for the best interest of the Company.
CHS mills and all security access are handled by China Steel Security Company and Zhengxin Security Company. Presently, the two security companies have a total of 47 personnel on-site. According to the provisions of Article 10-2 of the Private Security Service Act, when a security company hires security guards, it shall offer them pre-service professional training of one week or above. For serving security guards, it shall provide them with in-service training at least four hours every month. Training courses on laws and regulations, skills on duty, human rights, and etiquette were carried out in accordance with the said act (188 hours per month).