Creation of a System for Comprehensive Assessment of Suppliers

Backdrop of changes in the assessment system

Cooperation with suppliers is becoming imperative for companies in their efforts to solve social issues such as increasing poverty and inequality, environmental problems, and deteriorating labor conditions.
In this context, Chugai reexamined how it should cooperate with suppliers to respond to the changes and needs of society, and is working to build a system for comprehensive assessment of suppliers.

We have added the categories of environment, health and safety (EHS) and compliance (including corporate ethics and human rights) to our assessment criteria for suppliers in addition to the five categories that we previously assessed – financial condition, supply, quality, contracts, and intellectual property and security – to establish a more comprehensive assessment system. These additions reflect the fact that Chugai, as a pharmaceutical company, engages in many scientific and specialized activities in which it deals with materials that require handling precautions because of their potential effects on the human body; that the scope of environmental protection and health and safety management extends across the value chain; and that human rights problems such as child labor and forced labor are becoming serious global issues.

A flow chart showing the comprehensive assessment system that has been established to determine whether business can be conducted with a supplier. The category of environment, health and safety (EHS) and compliance has been added to the previous five assessment criteria of finance, supply, quality, contracts, and intellectual property security.

EHS and Compliance Risk Evaluation

We have established the Chugai Group Supplier Code of Conduct as a set of behavioral standards we expect of suppliers (including subcontractors) to do business with us, and we request that they comply with that code of conduct.

Based on the “Pharmaceutical Industry Principles for Responsible Supply Chain Management.” issued by the Pharmaceutical Supply Chain Initiative (PSCI), an organization made up of global pharmaceutical companies, the Chugai Group Supplier Code of Conduct delineates the items we want supplier to comply with in the areas of ethics, labor, health and safety, environment and related management systems.

PSCI (Pharmaceutical Supply Chain Initiative)
https://pscinitiative.org/home

  • * Please visit PSCI website for details of “Pharmaceutical Industry Principles for Responsible Supply Chain Management.”

In addition, we have established the Guideline for EHS and Compliance Risk Evaluation of Suppliers and categorize our suppliers by analyzing risks to workers, local residents, and the surrounding environment using chemical substances and biological samples that are indispensable for pharmaceutical manufacturing, and conduct the following assessments according to the risks of suppliers.

  • Assess the supplier’s reputation online
  • Assess the results of supplier self-assessments of compliance with the Supplier Code of Conduct
  • For major suppliers, conduct the on-site inspection of supplier compliance with the Supplier Code of Conduct, including employee interviews
  • Settle on Corrective Action Plan and monitor them

We re-evaluate EHS and Compliance Risks at minimum once every three years.

The result of supplier*1 EHS/compliance risk evaluation

2019 2020
Number of suppliers which have agreed with SCC 45 143
Number of suppliers evaluated for EHS/Compliance risks 13 31
- Number of suppliers evaluated by SAQ 13 31
- Number of suppliers evaluated by SAQ and site audit*2 3 9
Number of Suppliers discontinued based on audit results 0 0
  • *1: Including contractors, e.g. Contract Manufacturing Organization(CMO) etc.
  • *2: Due to the COVID-19 pandemic, we audited a few sites by remotely.

The findings issues and corrective actions of supplier*3 EHS/compliance risk evaluation

Assessment Issues Findings (2019) Findings (2020) Corrective actions
Ethics 0 0 NA
Human Rights and Labor 8 0 100%*4
Safety and Health 38 11 100%*4
Environment 12 5 100%*4
Management System 7 6 100%*4
  • *3: Including contractors, e.g. CMO etc.
  • *4: These corrective actions are in progress.

Cooperation with PSCI

Chugai became a member of the PSCI in November 2018.
PSCI is building a platform for member companies to cooperate in conducting supplier assessments. For a pharmaceutical company, assessing the EHS and compliance risks of suppliers on its own is costly and time-consuming. Therefore, the PSCI is setting up a framework that will enable member companies to use each other’s evaluation results. This framework will allow assessments to be conducted in a way that is efficient and effective for both pharmaceutical companies and suppliers.

A diagram showing how the efforts of suppliers in ethics, labor, health and safety, the environment and their management systems can be assessed to create a triple-win relationship between society, the supplier and the pharmaceutical company which provides the products.

EHS and Compliance Risk Evaluation Results and Future Targets

During the three years from 2019 to 2021, we focused on implementing EHS and Compliance Risk Evaluation with contract manufacturers as “major suppliers” due to the impact of EHS and Compliance risks and the degree of difficulty in selecting alternative suppliers. We plan to complete the evaluation of all contract manufacturers by the end of 2022. We plan to complete the evaluation of major suppliers, including secondary suppliers, by 2030.

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