Supply Chain Management

CTCI's Value Chain

CTCI is providing services to various industries such as oil refining, petrochemical, chemical, natural gas, electric power, transportation, steel, and environmental engineering. Moreover, the Group provides its professional and consistent turnkey engineering services, and also turns its customers' factory construction needs into engineering drawings (including design and construction drawings) through evaluation and design by its professional engineering personnel and work with its third-party vendors to complete the construction. EPC turnkey engineering is an industry with extremely high-level techniques and complexity. In the service process, CTCI must have sufficient professionalism in all material and 
equipment supply, construction standards and specifications, and other projects to complete the projejct that meets the customer's specification requirements and the deadline.

CTCI is an EPC turnkey company in the midstream of the engineering industry chain. The Company provides its customers with professional services such as planning, design, procurement services, equipment supply, construction, and commissioning. These services, combined These services combined with those vendors. such as materials and equipment suppliers, and construction vendors, form a complete industrial value chain to win constuction projects at home and abroad

Suppliers Overview

As a global engineering outsourcing company, CTCI Group has been working with over ten thousand vendors worldwide by the end of 2022. In order to effectively manage such a large and complex supply chain, CTCI puts vendors into different categories and levels to better manage the whole supply chain. As CTCI is focus on turnkey engineering projects and has been working with vendors with uniquely 
diverse products on projects with different nature in differetnt locations, the procurement amount by different vendors may vary greatly. Therefore, the Company defines the first tier suppliers as those when their annual transaction amount reach top 95% among all suppliers, so CTCI can manage its suppliers more effectively.

CTCI's suppliers are divided into six categories depending on different procurement products, including equipment,motor, pipeline, instrumentation and control suppliers, etc. and service subcontractors. In 2022, the Company had transactions with a total of 544 suppliers, of which 192 were Tier 1 suppliers. To further manage its suppliers, CTCI conducted a sustainability risk survey to understand the potential risks from the suppliers in terms of economy, environment, and society, and identified suppliers with high-risks. The Group also defined significant suppliers in Tier 1 as those with a transaction amount of more than USD$3 million or high-risk suppliers. CTCI had a total of significant suppliers in Tier 1 in 2022. The overview of those suppliers is shown in the table below.

Sustainable Supply Chain Management Framework and Governance Framework

To establish a responsible and resilient supply chain, as well as understand the risks within the supply chain, CTCI has established a four-step sustainable supply chain management framework. Based on a supplier sustainability strategy, we have set up supply chain sustainability standards and requirements. Moreover, we have implemented a series of measures to strengthen the supply chain, which include supplier risk investigations, 

assessments, improvement, reward schemes, supplier elimination, consultation, and capability training. We then report annually the supply chain performance based on these measures to the Board of Directors (refer to the "Policy and Organization" section of this report). The Board of Directors then makes relevant decisions and supervise the sustainable supply chain to ensure they comply with the CTCI's sustainable development strategy. By doing so, we are leading the way with our suppliers towards sustainability.

Sustainable Supply Chain Development Strategy

CTCI seeks to work and grow with our suppliers through a mutually-benefial partership. To meet the needs of our clients and achieve the goals of quality, HSE, price, and delivery schedule, we have created a sustainable supply chain development strategy that has zero tolerance for breach of integrity, emphasizes on employee rights, puts safety as top priority, and favors local procurement. We engage our suppliers in CTCI's sustainable development strategy, manage supplier data through the CTCI Supplier and Third-Party Vendors Platform, and have a whistleblowing platform in place to ensure ideal communication with our suppliers.

Sustainability Standards and Requirements for the Supply Chain

Code of Conduct for Vendors

CTCI has always been committed to corporate sustainability and expects our vendors to do the same. We have formulated a "Code of Conduct for CTCI Group Vendors," which is based on the international initiatives and requirements on human rights, labor standards, environmental protection, and anticorruption. Such international initiatives include the United Nations Global Compact, Universal Declaration of Human Rights, and the United Nations Framework and Guiding Principles on Business and Human Rights. In addition, our code of conduct includes commitment on biodiversity and zero deforestation. The code of conduct applies to all suppliers (including new suppliers), their subsidiaries, 

affiliated businesses, and contractors, as well as companies that provide CTCI goods or services. We encourage our suppliers to ask their partners to follow the same standards. We hope such synergy force can drive the sustainable development across the entire value chain.

Letter of Commitment for Sustainable Corporate Operations and Net Zero Emissions

To ensure continued improvement of supply chain sustainability, our suppliers who wish to become new partners of CTCI are required to sign a Letter of Commitment for Sustainable Corporate Operations and Net Zero Emissions starting from 2016, as away to work towards net zero and actively create a "green supply chain."

In addition to the two supplier sustainability standards above, CTCI also plans to incorporate the supplier sustainability management procedures into the project service supply chain management guide in 2023. This guide will help us systematically manage our vendors. A new " Sustainability Section" has also been added to CTCI's global supplier information system to ensure the consistency and performance of our vendor sustainability management.

Supply Chain Management Process

Risks Investigation: Proactive Screening

To understand the sustainability risks of suppliers, CTCI actively conducts review during the initial supplier registration process. The review covers their business licenses, tax certificates, company profiles, engineering performance, work quality, HSE certificates, as well as their 
environmental, social, and corporate governance performance. Goods provided by suppliers from specific regions (such as China and India) require more thorough inspection. Through preliminary proactive risk assessment, we are able to identify potential risks.

We also seek to improve suppliers' performance through our purchasing power. Taking critical equipment suppliers as an example, we conduct on-site qualification assessment based on the Supplier Qualification Assessment Criteria List. Criteria include price, delivery time, country of origin, port of export, and corporate integrity. The sustainability factor accounts for 15% of the total assessment score. We expect our suppliers to consistently improve their sustainability performance.

Risk Investigation: Sustainability Risk Audits

We also use auditing as a means to control the sustainability risks of our suppliers. Type of audits include desk audit, 2nd party on-site audit, and 3rd party on-site audit. All audits follow industry standards. These various measures allow us to expand the scope of management and thus mitigate the sustainability risks of our suppliers.

Desk audit results

According to the sustainable supply chain management framework developed by CTCI, CTCI requires suppliers to complete Self Assessment Questionnaire (SAQ) on sustainability risks and provide supporting evidence. This can help CTCI understand what 
are its sustainability risks. 171 suppliers have completed the questionnaire in 2022.

CTCI uses self-assessment questionnaire to survey the potential economic, environmental, and social risks faced by our suppliers, and identify high-risk suppliers accordingly. For high-risk suppliers, we carry out on-site audits and provide consultational support the following year to ensure that their risks can be effectively controlled and reduced. According to the investigation results in 2022, there are a 2 suppliers with potential economic risks. The main risks are that they have no risk management unit, and no response plans and procedures in place to ensure sustainable operations. 14 suppliers have potential environmental risks, and the main risks are that they have a history of occupational incidents and fail to 
provide their safety performance, fail to have job security and hygiene rules in place, and fail to create ISO 14001 and ISO 45001-based mechanisms. 29 suppliers have potential social risks, and the main risks are that they have high percentage of contracted employees, forced labor, poor promotion of healthy and non-discriminative workplace, lack employees' freedom of association and the right to negotiate with their company collectively. CTCI takes the following measures to make sure that such high-risk suppliers understand the importance of the risks, as well as provide them with improvement suggestions.

Suppliers that have at least one of the three potential risk factors (economic, environmental or social) and fail to establish ISO 14001 and ISO 45001-based mechanisms will be classified by CTCI as high-risk suppliers. Based on such criteria, there were 7 high-risk suppliers in 2022. For high-risk suppliers, CTCI will conduct on-site audit in the following year and provide suggestions with regard to their risks, and track their improvement results to enhance the resilience of CTCI's supply chain.

Improvement and Consultational Support

We coducted on-site audits in 2022 on suppliers who were deemed as highrisk in 2021. There are five audit aspects, which are management system, ethical standards, environment, labor and human rights, and health and safety. For high-risk items, we would make sure the suppliers understand the importance of the risks, and provide improvement suggestions and guidance. If suppliers fail to fulfill labor and human rights, we will ask the suppliers to provide specific measures and practices to mitigate their human rights risks. We also continuously keep track of their performance and ask them to improve all risks. Due to Covid-19, we only conducted audits in 2022 on 7 Taiwanese suppliers who were identified as high-risk suppliers in 2021. All major deficiencies, minor deficiencies, and watch-list items have saw improvement within the deadline with a 100% improvement rate.

Supplier Reward and Elimination Mechanism

To encourage our suppliers to support CTCI's sustainable supply chain management, we have various incentive mechanisms in place, such as priority selection, public commendation, and public disclosure. Suppliers who have previous history in bribery, bid abandonment, bid rigging, or making threats, CTCI will suspend their rights and stop doing business with them. When the bidders have similar bidding prices, CTCI will hold internal meeting to decide who is the winner. Priority will be given to suppliers with outstanding performance in sustainability. To strengthen sustainable supply chain management, CTCI would assess the potential economical, environmental, and social risks faced by our suppliers by reviewing their documents and identify high-risk suppliers. In the following year, CTCI would then conduct on-site assessment and offer support to high-risk suppliers to ensure that their risks can be effectively controlled and reduced. If a supplier fails to improve and has been identified as a high-risk suppier for three consecutive years, CTCI will reduce the amount of procurement from such supplier and stop sending request for inquiry, depending on the risk level, until they show proof of improvement.

Improving the Capacity of Suppliers

CTCI conducts on-site assessment and provides consultational support for suppliers with potential high risks in economic, environmental, and social aspects to ensure that they can effectively control and reduce such risks. In addition, we hold CTCI Supplier Meetings once every two years. The most recent meeting was held online in 2021, joined by domestic and foreign suppliers. In 2023, we resumed offline meeting which saw 125 participants from 8 countries and 76 suppliers (63 in Taiwan and 13 from overseas). 31 outstanding suppliers received commendation based on the score in their respect industries, such as piping, equipment, E&M, instrumentation and control, contracting, safety, sanitation, and environmental protection. In resonation to CTCI's commitment to support the SBTi initiative, the theme of this year's Supplier Meeting was named "Win-Win for Net Zero." During the meeting, we announced our sustainable supply chain management strategy as well as the launch of "Supplier Net Zero Alliance." We encouraged our suppliers to join the alliance and sign a declaration of the Net Zero Alliance. Through alliance, CTCI seeks to work together with suppliers to reduce carbon emissions based on the Alliance's goals and implementation procedures. Beginning in 2024, we will classify our suppliers based on their business scope and encourage carbon emissions reduction in stages. Moreover, we invited top-performing suppliers to the Supplier Meeting toshare their plans and insights on sustainability and net zero. We look forward to increase the ESG impact through the Supplier Meeting, and work with our suppliers to achieve sustainable operations.

In addition to holding Supplier Meetings, CTCI also seeks to raise the suppliers'awareness of sustainability by sending them CTCI ESG Newsletters, creating a publicly-accessible engineering online knowledge base called CTCI Learning, and uploading ESG videos. We also hold lectures for our suppliers to exchange ideas and enhance their sustainability and net zero awareness and capability, such as the 2022 Taiwan Sustainable Engineering Symposium organized by CTCI Group and CTCI Education Foundation

Overview of the Supplier Meeting in 2023
•The theme of this year's Supplier Meeting is "Win-Win for Net Zero ". We also launched the
"Supplier Ne
•31 suppliers received trophies for their excellent performance.

2nd Taiwan Sustainable Engineering Symposium 2022
In response to the latest trend in global sustainable development, CTCI Group and CTCI Education Foundation jointly held the "2022
Taiwan Sustainable Engineering Symposium on Net Zero Carbon Emissions" on December 9, 2022. Experts, scholars, industry peers, CTCI executives, and CTCI employees gathered at the event to discuss net zero and carbon emission issues. The three main topics covered in this event are: 1. Green Engineering 2. Sustainable Governance (ESG) 3. Decarbonized supply chain. 18 suppliers joined this event.

Capacity Building

To effectively and substantially enhance the sustainability and net zero capabilities of our suppliers, CTCI has developed a new supplier cooperation model that aims to improve the greenhouse gas (GHG) management capabilities of suppliers and maintain long-term and stable relationship with them. We also create and upload tutorial videos on the CTCI Education Website that teach suppliers how to take inventory on their GHG emissions. We also train some of our staff to conduct on-site audit and assist our suppliers to take inventory on their GHG emissions. In 2023, we will provide consultational support for 48 significant suppliers among the Tier 1 suppliers as our priority. In the future, we will classify our suppliers and urge them to reduce GHG emissions in stages.

Supplier Evaluation

To ensure that the equipment supplied by CTCI's suppliers and subcontractors, as well as the design, construction, and fabrication work undertaken by them meet client requirements in terms of quality, safety, environmental protection, price, and delivery time, CTCI's project procurement manager and procurement engineers would conduct evaluations after project kickoff on equipment suppliers and subcontractors in accordance with the "Project Supplier and Partner Performance Evaluation Procedure. " In 2022, CTCI conducted 177 evaluations, among which 130 were related to suppliers (orders) and 47 related to subcontractors (contracts).

Through these meticulous evaluation tasks, CTCI has fully demonstrated its honest and fair treatment of all suppliers, displaying the goal of seamless partnerships and synergistic growth with our suppliers. Suppliers who score well on the evaluation will be added to a recommendation list for issuing letters of appreciation. They will only be added to a recommendation list if the contract order evaluation score and HSE score both exceed 8 points or above. Alternatively, suppliers who fail to pass the evaluation will be added to a list for punitive actions. In case of an appeal, it will be reviewed and needs to go through the approval process by managers at relevant business departments.

Local Procurement

To contribute to the local economic development where we operate, as well as to reduce carbon emissions from transportation of materials, CTCI gives priority to local procurement in every engineering project. The number of procurement contracts fluctuates because CTCI's engineering projects are carried out at different regions each year, and the materials are procured in various phases throughout the project. In 2022, the local procurement percentages for the main projects were as follows: Taiwan: 89.92%, India: 98.51%, and Vietnam: 81.71%. Among these top three countries where procurement occurred in 2022, Taiwan's local procurement proportion reached 89.92%.

Supplier Integrity Management Mechanism

CTCI runs its business with integrity and enforce integrity policies when managing its supply chain. Based on fairness, impartiality, and openness, CTCI has multiple guidelines and letters of commitment in place to ensure the suppliers keep honest business operations and anticorruption behaviors. These guidelines are also publicly disclosed in our sustainability report, management policy, so that our suppliers understand CTCI’s integrity management philosophy and standards. Suppliers who do not sign the commitment letter or meet the qualifications cannot participate in bidding and will not receive purchase orders from us. If the suppler violates our regulations, CTCI will terminate the contract and cease all commercial activities with the supplier.