Supplier Management

◆ New Supplier Assessment
        Our procurement department requires all suppliers to complete "Supplier Profile," "Supplier Internal Management Questionnaire," "Supplier Environmental Management Questionnaire," "Supplier EICC Self-assessment Worksheet" and provide documentary proof for ISO certification. Each supplier is assessed for performance on a number of aspects including environment, safety, product liability, human rights, social involvement etc.

        The procurement department distinguishes suppliers between Type A and Type B. Type A suppliers consist of foreign manufacturers, locally renowned companies, IC design companies and suppliers designated by customers, whereas Type B suppliers consist of local manufacturers.

        Type A suppliers are surveyed by way of documentary review. The procurement department first consolidates "Supplier Internal Management Evaluation Worksheet" and then informs RD, SQE, GP and environmental assessment departments to verify and approve the worksheet. The approved document is forwarded to the engineering IT department, where suppliers are assigned official ID and included in the "Qualified Suppliers List."

        Type B suppliers: An investigation panel comprising representatives from procurement, RD, SQE, GP and environmental assessment departments is assembled to inspect suppliers on-site according to the investigation plan. Suppliers that receive grade "A" (with a score of 76 or above) may have overall assessment reports produced by the procurement department and forwarded to the engineering IT department, where suppliers are assigned official ID and included in the Qualified Suppliers List. Suppliers that receive grade "B" (with a score of 60-75) will be instructed to make improvements. The improvement progress will be tracked by the department that awards the "B" grade, with improvement reports submitted to Compal's relevant departments. If a supplier is still unable to achieve grade "A" after improvements are made, a re-assessment will be arranged by the QC department. Grade B suppliers that fail to achieve the "A" grade within the given time are disqualified.

        As a member of EICC, we request all our suppliers to fulfill their duties with respect to the environment, labor, management, ethics, safety and health. We have also demanded our suppliers to sign commitments to EICC standards so they can understand and pursue our steps and mission in regards to the environment, labor, health, safety and social issues.

        Since 2009, Compal has been requesting all new suppliers to sign a letter of commitment to EICC rules and regulations concerning labor, environment, health and safety, management system, and ethics. Today, several hundred suppliers have signed this commitment to join Compal's effort on related issues.


 ◆ Supplier Assessment
        Compal adopts the policy of signing procurement agreements with every new supplier it engages with. The purposes of such agreement are to prohibit any unfair, unjust or discriminative behaviors in the procurement process, and to reiterate that: all products supplied to Compal must conform to international, national, and regional environmental regulations. Suppliers would be held responsible for any violations against the agreement.
        For qualified suppliers, Compal continues to introduce green product policies and requirements and conducts field audits to ensure compliance.
        Our production centers have assembled individual CSR audit teams since 2009, and have been taking turns to audit suppliers on-site each year. These audits mainly target suppliers that exhibit higher transaction sum, higher risk of supply disruption, and those that are located near the production center. A preliminary list of suppliers is generated using the above criteria, from which the Company randomly samples the subjects to be audited on-site during the year. Because the Company's major suppliers are located near production centers, they are adequately covered under the rotating audit system. All supplier self-assessment documents will be updated to conform to the latest version of EICC's self-assessment worksheet.
         In 2016, Compal's audit efforts were mainly focused on its production center in Kunshan. 13 suppliers that presented higher transaction sum and a higher risk of supply disruption were chosen for the audit; 10 (76.9%) of which were completed during the year. The audit found 11 defects mostly in the "Labor" and "Safety and Health" aspect, along with 49 and 43 counts of non-compliance representing 41.5% and 36.4% of total counts of non-compliance, respectively.

        Each audit finding is classified into 1 of 4 levels: Priority, Major, Minor, and Obs (observation). Priority findings present significant and immediate impact on factory operation, which is why Compal requires all suppliers to rectify Priority findings first, in addition to making improvement plans on all other levels of audit findings. Compal's 2016 on-site audits found a total of 118 defects in its suppliers; 9 of which were considered Priority and mostly involved: excessive work hours, an absence of 1 day's break in a 7-day period and social insurance.


 ◆ Information and Communication Platform
With respect to green products and parts, Compal has introduced a system that connects suppliers for effective tracking, communication and management of quality requirements. Each supplier and its third party can look

 up the latest "Compal Management Standard for Environment-Related Substances to be Controlled in Parts and Materials" in SDCP (Supplier Design Collaboration Portal)/GPMS (Green Product Management System), and ensure that all raw materials supplied are free of substances that are harmful to the environment.
Compal has created a Supplier Opinion section on CPS (Compal Procurement System) since 2015 to serve as a communication channel with its suppliers. The CPS is also being used to make major announcements to suppliers.
Compal has also established a grievance mailbox: ethics@compal.com that suppliers may use to communicate with Compal regarding any doubts or complaints.