Supply Chain Management

Central Retail promotes and evaluates supply chain risks in accordance with the Supplier Code of Conduct, placing a high priority on sustainable supply chain management in the areas of governance, economic, social, and environmental concerns. For Central Retail, supply chain management is crucial since it ensures cost-effectiveness and operational efficiency by creating resilience from the upstream phase. To achieve supply chain resiliency, Central Retail refers to the commercial contract obligation of suppliers and the Supplier Code of Conduct; as well as encourages all suppliers to integrate ESG in their business practices.

Target

100% of Suppliers Acknowledge Supplier Code of Conduct

50% of Significant Suppliers Trained on ESG Programs in 2030

Impact to Business, Stakeholders, and Human Rights

Central Retail’s supply chain management system is designed to ensure that all stakeholders receive a fair share of Central Retail’s benefits and value creation. Central Retail is the party that will govern, encourage, and assure that all stakeholders in the supply chain are able to integrate ESG principles into their business. As a result, employees, either of Central Retail or its suppliers, can have well-being, safety, and positive working conditions, such as well-balanced working hours, fair wages, and appropriate numbers of leave days and holidays. In short, promotion of human rights protections in the workplace can create an overall better work environment for everyone.

Commitment to transparent and ethical business practices allows Central Retail to gain confidence from suppliers and business partners. Sustainable procurement and supplier selection process help improve customer satisfaction and trust in Central Retail’s products and services, leading to an increase in customer loyalty. Efficient social development and environmental management systems, such as waste management, as well as efficient use of energy and resource consumption, can improve quality of life for everyone in the community and society. Furthermore, Central Retail also participates in government sustainable campaigns to support the low-carbon transition, such as the use of electric trucks or alternative energy in logistics. Upholding ethical business operations can also prevent Central Retail’s involvement in corruption or bribery, which could lead to defamation or destroy trust within Central Retail’s stakeholders. In summary, sustainable supply chain creates higher value to Central Retail, which leads to higher returns to shareholders and investors.

Management Approach

Central Retail plans to achieve its sustainable supply chain management through customer-centric commitment, quality and variety of product assortment, and sustainability activities. In general, supply chain management starts with Central Retail engaging with stakeholders to raise awareness on sustainability and then allowing them to begin their own sustainability journey with support from Central Retail.

Customer Centric	Seeking to understand the customers to be able to offer selected range of products that can inspire and delight them
Quality and Variety of Assortment	Selecting the right product with the right quality and price for the customers to maximize value creation
Sustainability	Considering the impact on the society and the environment for all product offerings

Central Retail aims for all suppliers to begin their sustainability journey by complying with minimum ESG requirements according to the law. Then Central Retail will promote suppliers’ awareness, as well as provide knowledge and know-how to further enhance understanding about sustainability based on characteristics of each supplier. Finally, Central Retail will assist all suppliers in their effort to integrate sustainability concepts into their own businesses.

Central Retail Sustainable Supply Chain Management System

Central Retail has developed its sustainable supply chain management system to ensure that both Central Retail’s employees and merchandising, and the suppliers can align and comply with high sustainability standards. To oversee the sustainable supply chain management system and practices, Central Retail has established the Supply Chain Sustainability Committee that is headed by a Board of Director from the Corporate Governance and Sustainability Committee. The Supply Chain Sustainability Committee also comprises of the Supply Chain Director at the management-level, and employees from the merchandising and supply chains function to represent each business units. Central Retail has included the Supplier Code of Conduct int he standard contract and trade term agreement to ensure compliance from all suppliers. Central Retail’s internal merchandising practices will be continuously reviewed to ensure consistent alignment with any updates to the Supplier Code of Conduct, and to prevent conflicts with ESG requirements.

The sustainable supply chain management system begins with supplier selection and screening processes, with the creation of the supplier screening matrix and CRC ESG Watchlist. After significant suppliers have been identified, they will be thorough assessed via desk and on-site approaches before creating corrective action plans as appropriate. Furthermore, Central Retail has also developed a supplier ESG in-depth training for internal buyers and stakeholders. Besides supplier development programs, supplier ESG benchmark has been created to provide relative benchmarking among peers based on ESG performance, thus encouraging suppliers to improve their sustainability practices.

Supplier Screening, Assessment and Development

Central Retail has developed the process to identify and assess sustainability risks and challenges throughout its supply chain. The procedure is divided into four steps: 1) Supplier selection and screening, 2) Supplier assessment, 3) Corrective Action Plan, and 4) Supplier development. This is to encourage sustainable business practices, prioritizing on tier-1 suppliers before expanding the scope to cover any remaining suppliers in the future.

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1. Supplier Selection and Screening

Foremost, all new and existing suppliers must acknowledge and comply with Central Retail’s Supplier Code of Conduct as the minimum ESG requirement. Suppliers who are unable to comply with the Supplier Code of Conduct and meet the minimum ESG requirements within 3 years timeframe may potentially face termination and be excluded from contracting.

Next, all new and existing suppliers must also undergo supplier selection process in which they must complete a self-assessment questionnaire (SAQ) to demonstrate if they have existing practices and processes in place to manage ESG topics in alignment to the Supplier Code of Conduct. Results from the SAQ make up the ESG criteria of the supplier selection process, constituting to 15% weight. Business performance criteria (e.g. factory checklist, performance evaluation, etc.) constitutes the remaining 85% weight in the supplier selection process. Thus, suppliers that have good ESG management practices and processes will have higher scores in both the SAQ, which will help them become more preferable (15% weight) in contract awarding. Considering both ESG and business performance criteria, the selected suppliers will then be added to the Approved Vendor List (AVL) and be awarded with contract. Compliance to the Supplier Code of Conduct, completing the SAQ, the supplier selection process are conducted on an annual basis. Suppliers will undergo more intensive assessment of ESG risks in the supplier assessment processes.

Now that suppliers are awarded with contracts and added to the AVL, every suppliers must also undergo the supplier screening process to identify “significant suppliers.” Central Retail has defined ‘significant suppliers’ as suppliers that are considered to have high business relevance to Central Retail but may also have significant actual and potential country-specific, sector-specific, and commodity-specific ESG risks.

Central Retail has developed the supplier screening matrix, which is a set of criteria that the merchandise function uses to evaluate both potential and existing suppliers in terms of supply chain risks and screen for significant suppliers.

Business relevance criteria (e.g., total procurement spent, critical component, non-substitutable, etc.) Business relevance criteria provide information to determine suppliers that have high business value creation to Central Retail.
Supply chain ESG risk criteria
- General information (e.g., country of operations, sectors, and commodities sold, etc.)
- Established the CRC ESG Watchlist to compile country-specific, sector-specific, and commodity-specific ESG risk criteria that are used to evaluate the risks relevant to each supplier. The CRC ESG Watchlist must be constantly updated to reflect any changes to business landscape, and global trends.

In addition, Central Retail will also analyze external data sources through social listening. Associated keywords from the internet and social networks are monitored to analyze public opinions about each supplier. Social listening helps Central Retail double-check results of the supplier screening and search for any complaints and cases of non-compliance to the Supplier Code of Conduct, or relevant laws and regulations. Combined results of the business relevance criteria, supply chain ESG risk criteria, and social listening will sort significant from non-significant suppliers.

2. Supplier Assessment

Following supplier screening, all significant suppliers must undergo supplier desk assessment process that requires suppliers to submission of more comprehensive information and evidence to Central Retail to be systematically verified. For example, suppliers are required to submit evidence of ESG-related policies and management systems (e.g., certification on sustainable and socially responsible operations, ISO 14001, ISO 45001, etc.), and past and present ESG-related metrics to demonstrate good performance. This systematic supplier desk assessment will allow Central Retail to systematically determine and sort the significant suppliers into high, medium, and low risk levels. Significant suppliers with medium and low risks are considered to have passed the supplier risk assessment.

Significant suppliers with high risks will require a more thorough supplier on-site assessment conducted by Central Retail’s employees or external parties. With primary data gathered on-site both Central Retail and the suppliers will be able to gain understanding of the current state and pinpoint the root causes behind the risk issues. If suppliers cannot address their cause of concerns and limit their risk to within medium or low levels within a 3-year timeframe, they will be excluded from contracting and be removed from the AVL.

3. Corrective Action Plan

Primary data and root causes of the high risk issues obtained from supplier on-site assessments can also inform the corrective action plan to help with remediation, mitigation, and prevention of impact for the high risk significant suppliers. Such plans outline specific actions, timelines, and responsibilities to address the high-risk issues with the goal to mitigate and remediate any significant actual and potential risks.

After Central Retail has agreed to the corrective action plan, the suppliers will need to implement and improve pending issues within the 3-year timeframe prior to a follow-up assessment. Once the suppliers have been reassessed by Central Retail with the results showing a decrease from high to medium risk, they can then be included in the AVL, Vice versa, suppliers who are unable to implement the corrective action plan or meet the minimum ESG requirements within the set timeframe will be excluded from contracting.

4. Supplier Development

Growing together with suppliers is one of the most important factors for developing a business more effectively. As a result, one of the primary strategies to maximize potential with suppliers is to provide training so they can align their business operations with Central Retail’s sustainability requirements and to build trust among stakeholders and suppliers along the value chain.

Central Retail also provides suppliers with ESG Benchmark of suppliers into high, medium and low risk scores, and also disclose the list of suppliers that implement ESG projects, such as GHG emissions and energy reductions project, anti-corruption, data privacy, etc. This approach provides a holistic view of suppliers’ implementation of ESG initiatives., which foster collaboration, tracks progress, and encourages broader participation in sustainable practices

In order to build stronger relationships with suppliers, improve their sustainability performance, and achieve long-term goals, Central Retail continues to identify and address areas for improvement in the supply chain, set new goals and targets for sustainability performance, and share best practices with suppliers and stakeholders.

Project Highlights

Over the past year, the merchandising and supply chain functions function has actively engaged with suppliers and other relevant stakeholder groups including employees, investors, customers, and communities to ensure ESG integration and knowledge sharing. These stories are shared through Central Retail’s website and Sustainability Report.

Strategic Camp: Empowering Sustainable Practices

Central Retail organized a strategic camp in 2023 to increase understanding on sustainability supply chain practices and impacts within its employees working in supply chain management functions. This workshop empowered supply chain employees with the knowledge, skills, and motivation they need to integrate sustainable practices into their daily operations, and demonstrated how sustainable supply chain practices can lead to enhanced cost-effectiveness and operational efficiency. Topics taught during the workshop, participated by 110 employees, included energy management, circular economy, and supplier screening and selection. This enabled the employees to have clear understanding on integrating and executing ESG initiatives in the supply chain

Central Retail Logistics for SME and Sustainability Program

Central Retail conducted the Central Retail Logistics for SME and Sustainability Program for suppliers. The objective of this initiative is to build good relationships and encourage suppliers and SMEs to integrate sustainable practices in their work process, including procurement, product storage, distribution and transportation, and customer support. Participated by 135 suppliers and SMEs helped equip suppliers with technical skills and tools needed to align their practices with Central Retail’s sustainability standards by sharing basic knowledge and best practices.