Supply Chain Management
As an EPC turnkey company, CTCI is located in the midstream of the overall engineering industry chain. It combines the needs of customers in the upstream of the industrial chain with CTCI's professional services, including feasibility analysis, planning, design, procurement services, equipment supply, construction, and commissioning. These services, when combined with the collaborating manufacturers of the downstream industrial chain-- such as materials, equipment suppliers and construction manufacturers, form a complete industrial value chain that work together to win projects at home and abroad.
▼ CTCI's Position in the Industry Chain
Sustainable Supply Chain Management
As of the end of 2020, CTCI, a global turnkey engineering company, has worked with more than 10,000 suppliers all over the world. In order to effectively manage so many suppliers from around the world and control such a large and complex supply chain, we categorize and classify our suppliers, so that we can effectively understand the overall supply chain status.
▼ CTCI Group's Supplier Statistics by Region and by Year (including domestic and overseas subsidiaries)
CTCI Sustainable Supply Chain Management Framework
CTCI sincerely hopes to improve the sustainability and resilience of the supply chain as well as reduce supply chain-related risks. For this reason, we set up a four-step supply chain management framework that serves as a sound tool to help us continue to self-monitor and lead our suppliers to advance forward in a sustainable direction. This mechanism helps improve our suppliers’ sustainability performances, and in turn helps us build a responsible and resilient supply chain.
▼ Supply Chain Code of Conduct
CTCI Vendor Code of Conduct applies to all suppliers and their subsidiaries, our affiliates, and our contractors that offer engineering products or services to CTCI. No supplier that has transactions with CTCI may be exempt from following such Code. Furthermore, as an effort to continue to enhance the sustainability of the supply chain, our policy demands all vendors who wish to become our new partners to sign a Statement of Commitment to Corporate Sustainability. From 2016 to 2019, 3,488 suppliers signed the statement, including all critical suppliers. Of all the suppliers that we have conducted businesses with in 2019, 695 suppliers have signed the statement, a signing rate of 83.5%. Please refer to the following table for the statistics of suppliers that have signed the statement in the past 3 years:
▼ The statistics of suppliers that have signed the statement in the past 3 years:
Supplier Sustainability Assessment
Besides requesting suppliers to follow the code of conduct, CTCI also wishes to bring positive influence over suppliers through actual procurement procedures. Take the critical equipment suppliers for example, we would pay visit to vendors to evaluate their performances. We would use an equipment/subcontractor qualification assessment standard documentation chart for reviewing the critical suppliers’ qualifications in terms of their equipment and machinery. We do not just look at quality and HSE requirements, pricing, delivery timeliness, country of origin, production site, and port of origin, but also consider other sustainability factors when evaluating the qualification of suppliers, including the vendors' integrity and management status, as well as whether they have been ISO 14001/ISO 45001 certified. These sustainability factors account for 10% of the total assessment score. CTCI is very committed to business integrity. Whenever we find evidence or records showing a supplier has engaged in bribery, non-paying bids, bid-rigging, or threats, we will terminate the procurement rights of vendors and will no longer carry out transactions with such vendors. Prior to each tender decision, CTCI will again conduct one final discussion internally on the vendors whose bidding prices are close and pick the one whose performance in sustainability issues outperforms its counterpart. In addition, to build a sustainable supply chain, we continue to communicate sustainable practices in the supply chain through Supplier Meeting. During the meeting, we would educate vendors on sustainability concepts and assign basic sustainability criteria for our suppliers as a way to gradually help them increase awareness on sustainability issues.
In addition to the quality, timeliness of delivery, design, and manufacturing capacity, which were originally listed as our supply chain sustainability risk assessment criteria, since 2014 we have added additional supplier CSR assessment criteria that touch on environmental management, employees' working conditions, human rights, and societal impacts. Together they serve as crucial basis of CTCI's procurement strategy. In total, we distributed corporate sustainable management assessment forms to 193 vendors in 2019, and received 158 responses.
To have a deeper understanding on the overall supply chain situation and reduce overall risks, CTCI carried out research on Level 2 critical suppliers from 2016 to 2017, which allowed us to have a basic understanding on how many Level 2 suppliers there actually are. From 2018 to 2019, we then launched a sustainable risk investigation on Level 2 critical suppliers. Given that we do not have direct business relations with our Level 1 suppliers’ subcontractors, what we do is that when we carry out our Level 1 supplier assessments, we ask our critical suppliers to help us give sustainability risk survey questionnaires to their critical subcontractors. This helps us better understand the sustainability risks of Level 2 suppliers and allows us to have a more fully sustainable supply chain as well as control the risks.
▼ Supplier Sustainability Risk Assessment
CTCI's 2019 supply chain risk investigation results indicate that our primary “economic risks” are lack of risk control bodies and lack of control over the operations and governance of Level 2 suppliers. There are 17 suppliers with high economic risks. Our major environmental risks include lack of statistical data for safety performance and lack of evaluation over environmental performance management of Level 2 suppliers. There are 18 suppliers with high environmental risks and 37 suppliers without ISO 14001 or OHSAS 18001 certification. Moreover, 83 suppliers have been identified with high social risks, with the main risks coming from high ratios of contractual workers, forced labor, and lack of healthy workplace improvements. If a supplier has one of the three potential risk factors-- either economic, environmental, or social-- and does not have ISO 14001 and OHSAS 18001 certification, the n such supplier will be seen as a supplier with higher risk in sustainability. Following these criteria, we came to identify a total of 20 suppliers that are considered as having higher risks, among which 19 are Level 1 suppliers, and one is a critical Level 2 supplier. Among the 19 Level 1 suppliers, of them is a critical Level 1 supplier.
▼ Supplier Sustainability Risk Assessment Result
Enhance Supplier CSR Awareness
To control and manage sustainability risks of our suppliers, we have drawn up the supplier sustainability auditing procedures and have conducted auditing training for sustainability auditors. Suppliers are requested to fill out self-assessment forms. For suppliers with higher risks in previous year's survey results, we carry out on-site audits the following year. Audits are carried out on management system, ethical standards, environment, labor and human rights, and health and safety. We comprehensively review suppliers' risks with sustainable standards and help suppliers understand why these higher-risk items matter to them. We would further offer improvement recommendations. For instance, in the case of incompliances related to employees and human rights, we would ask the supplier to propose substantial measures to reduce their risks in human rights violations. Then we would continue to follow up on their improvement progress until the problem has been 100% rectified. A total of 10 suppliers were randomly sampled for audit in 2019, five of which were identified as suppliers with higher risks in 2018. The major and minor incompliances and observation matters that were found during audits have all been rectified on time, thus achieving an improvement rate of 100%.
▼ Five Aspects of Auditing
Enhance Supplier CSR Awareness
We wish to increase CSR benefits through Supplier Meetings and work towards a brighter and more sustainable future together with suppliers. The COVID-19 pandemic forced CTCI to hold an online Supplier Meeting in 2021 for both domestic and foreign vendors. This not only continues to improve the suppliers' CSR awareness, but also minimizes risks and reduces carbon emissions caused by traffic.
▼ Overview of Supplier Meeting over the Years
Sustainable Supply Chain Development Strategy
CTCI has always attached great importance to cooperation and growth with suppliers, and aims for common growth through mutual partnership and mutual support. In order to meet our proprietors' needs and quality, HSE, price and schedule delivery objectives, we have established a sustainable development strategy for the supply chain, which includes zero tolerance for damages to integrity issues, full focus on employee rights, safety first and local procurement, among others.
To ensure that CTCI's suppliers and contractors provide materials, engineering designs, construction, and manufacturing works that meet our clients' demands in terms of quality, HSE, pricing, and delivery schedule, our project procurement managers evaluate machinery and equipment suppliers/ contractors based on the ""Evaluation of Suppliers and Subcontractors Procedure"" as soon as an engineering project begins In response to adjustments in the evaluation procedures, online evaluations have begun since 2020. A total of 215 completed projects have been evaluated, among which suppliers (orders) account for 126, and subcontractors (contracts) account for 89.
These meticulous evaluation tasks indicate CTCI's integrity and unbiased treatment towards all vendors, displaying our goal to create seamless partnerships and synergistic growth together with our vendors. Vendors who score well on the evaluation will receive letters of recognition. Only those firms who have scored at least 8 points in HSE and total evaluation score will they receive a chance to become a candidate for the recognition. Alternatively, vendors who do not pass the evaluation will be reported to receive relevant punitive actions. When a vendor wishes to appeal, it must go through our internal review and have its case submitted to managers of relevant business departments.
In all of our engineering projects, local procurement is always top priority, for it can allow us help the economic development of each area where our operations are located, and can also help reduce carbon emissions from the transportation of materials. However, since engineering projects are carried out at different areas in each year, and procurement occurs at different stages throughout the project, the procurement and contracting ratio is also prone to changes.
▼ CTCI's Percentage of Local Procurement at Key Project Locations, from 2018 to 2020
▼ Supply Chain Management Key Performance Indicators (KPI)