Supply Chain Management
China Airlines deeply understand that only by cooperating with business partners can we truly implement corporate sustainable development and create sustainable value.
Supply Chain Management
CAL has implemented sustainable supply chain management since 2014 and later established the Supply Chain Task Force to be in charge of sustainable supply chain management covering aviation supplies, jet fuel, in-flight catering, and service procurement as well as general affairs. In addition to setting the long-term sustainable development goals in accordance with the UN's Sustainable Development Goals (SDGs), CAL has formulated the "Sustainable Supply Chain Management policy statement and " Supplier code of conduct " in accordance with international standards, including the Global Reporting Initiative (GRI), ISO 26000, United Nations Global Compact (UNGC), and International Labour Organization (ILO). The sustainable supply chain management measures include risk review mechanisms, audits, and supplier conferences that facilitate negotiations with suppliers. These measures are reported to the Corporate Sustainability Committee for review every quarter.
CAL Value Chain
Compared with other industries, the aviation industry is unique in respect of safety concerns. As of the end of 2023, the CAL Group had established 28 joint ventures in business sectors including air transport, ground handling service, tourism, aerospace technology, air transport support, and logistics and warehousing. By integrating their strengths, the Group will optimize its overall quality of service, competitiveness, and value chain.
CAL Value Chain
Sustainable Supply Chain Management
CAL has been promoting sustainable supply chain management since the beginning of 2014. Subsequently, we established a Joint Creation Value Team for important procurement categories, including "aviation materials, aviation fuel, in-flight meals, service procurement, and general business affairs" ; formulated long-term sustainability goals based on the United Nations' Sustainable Development Goals (SDGs); and established China Airlines’ Sustainable Supply Chain Management Policy Statement and Supplier Code of Conductwith reference to the Global Reporting Initiative (GRI), ISO 26000, United Nations Global Compact (UNGC), International Labour Organization (ILO), and other international standards. CAL has also established a risk investigation mechanism and performed audit operations. Continuously reviewing China Airlines' procurement procedures and existing sustainable supply chain management mechanisms every year can ensure that suppliers comply with the China Airlines Supplier Code of Conduct to avoid suppliers from violating ESG requirements. If a supplier violates the terms of the Supplier Code of Conduct, the Company may terminate the partnership. We also organize annual supplier conferences to improve the management results to the Corporate Sustainability Committee for follow-up inspection on a quarterly basis. The President is the highest accountable decision-making body of the Corporate Sustainability Committee.
Supply Chain Management Objectives and Exit Mechanism
CAL's main business and supply chains are located in Taiwan, which has the highest rate in the world with 48% of suppliers and 67% of CAL's total procurements. It is followed by the Americas, Asia, Europe, and Oceania. In 2022, the outbreak of the Russo-Ukrainian War, respite from the COVID-19 pandemic, gradual opening of borders across the world, and reemergence of tourism have led to a labor shortage in airports of different countries. We continue to conduct risk assessments in each region to verify whether our suppliers' upstream operations involve Russia and whether our partner suppliers use illegal forced labor in terms of human rights issues. CAL shall prioritize the selection of suppliers with good ESG performance to ensure the stability of the supply chain. CAL also uses the SAQ for sustainability risk assessments each year to track the identified actual social impact in the supply chain and observe whether there is potential negative social impact and regional political and economic risks. The contracts between CAL and suppliers include provisions that require the completion of improvement operations within a specified timeframe (e.g., 180 days) if there is a violation of the CAL Supplier Code of Conduct. Failure to meet the improvement requirements will lead to the termination of the partnership. Additionally, ongoing monitoring will be conducted to further enhance the overall sustainability performance of the supply chain.
Regional Distribution of Tier-1 Suppliers (Includes Critical Tier-1 Suppliers)
| Global Supplier Profile | ||
|---|---|---|
| Taiwan | 399 | 48% |
| Asia (except Taiwan) |
120 | 14% |
| America | 207 | 25% |
| Europe | 103 | 12% |
| Oceania | 9 | 1% |
| Total | 838 | 100% |
Regional Distribution of the Procurement Amount from Tier-1 Suppliers
| Regional Distribution of the Procurement Amount from Tier-1 Suppliers Overview of Global | |
|---|---|
| Taiwan | 36% |
| Asia (except Taiwan) |
24% |
| America | 26% |
| Europe | 12% |
| Oceania | 2% |
| Total | 100% |
Proportion of Procurement from Critical Suppliers
| Region | Critical Tier-1 Suppliers Purchase Amount | Total Purchase Amount | Proportion |
|---|---|---|---|
| Aviation Parts | 9,101,271,766 | 11,292,602,753 | 81% |
| Aviation Fuel | 33.852,687,871 | 52,176,345,058 | 65% |
| In-Flight Catering | 837,464,085 | 850.913.335 | 98% |
| Ground Handling Service | 623,351,385 | 2,278,192,043 | 27% |
| General Products | 373,962,943 | 467.244.471 | 80% |
| Total | 623,351,385 | 2,278,192,043 | 27% |
Risk Assessment of Supply Chain Sustainability
To strictly control supply chain sustainability risk, CAL has conducted a survey for supply chain sustainability risk and formulated our Sustainability Assessment Questionnaire (SAQ) since 2015 based on international initiatives and evaluations such as the GRI Standards, ILO, UNGC, Dow Jones Sustainability Index (DJSI), CDP, and the Universal Declaration of Human Rights. CAL also established a sustainable supply chain management system to improve the accuracy of the results of the SAQ in 2017, the functions of which include specifying the definition of critical suppliers, conducting the Sustainability Assessment Questionnaire (hereinafter SAQ), formulating regulations for review and designing relevant forms, setting different goals for short-term, mid-term, and long-term reviews, and improving the follow-up tracking mechanism. CAL continued to strengthen supply chain management in 2022 . CAL identified supplier risks at the beginning of the year, conducted due diligence in the middle of the year, and reviewed the improvements at the end of the year. Supplier training was also organized to fully control suppliers with high risks, and on- site audits were conducted further to reduce supply chain sustainability risks.
Dimensions of Consideration and Risks in Supplier Screening
| Dimension / Risk | Explanation |
|---|---|
| Environmental (E) Criterion | Includes but is not limited to waste management, energy management, and biodiversity. |
| Society (S) Criterion | Includes but is not limited to human rights and labor rights. |
| Governance (G) Criterion | Includes but is not limited to anti-corruption and bribery. |
| Country-specific Risks | Relevant management mechanisms or monitoring measures (such as audits) to ensure that the company's procurement does not originate from countries with high corruption, instability, political conflicts, or weak regulatory capabilities. |
| Sector-specific Risks | Identify suppliers that are more likely to have negative environmental, social, and corporate governance risks based on the attributes of the procurement category and strengthen management. |
| Commodity-specific Risk | Includes but is not limited to accept regular oil product, operation or equipment inspection, pass the food safety control system, provide an airworthiness certificate or a certificate of conformity for each aviation material related transaction item. |
Procedure of Identifying Risk of Supply Chain Sustainability
Supply Chain Sustainability Risk Assessment Implementation Status
| Suppliers | 2022 | 2023 |
|---|---|---|
| Tier 1 Suppliers | 792 | 838 |
| Critical Tier 1 Suppliers (Share of Total Procurement Spent %) | 44(68%) | 50(59%) |
| Critical Non-tier 1 Suppliers | 3 | 1 |
| Proportion of Procurement from Critical Tier-1 Significant suppliers | 68% | 59% |
| Number of Significant non Tier-1 suppliers | 3 | 1 |
| Risk Assessment of Supply Chain Sustainability | 2022 | 2023 |
| Tier 1 Suppliers Assessed Annually | 44 | 48 |
| Significant supplier Assessed Annually | 47 | 49 |
| High-Risk Suppliers | 2022 | 2023 |
| Tier-1 Suppliers Classified as High-risk (Share of Total Procurement Spent %) | 0 | 5(9%) |
| Critical non Tier-1 Suppliers Classified as High-risk | 0 | 0 |
2023 Risk Survey of Supply Chain Sustainability
Unit: Score
As for the SAQ, CAL conducted the SAQ with 44 suppliers in 2022, accounting for 68% of the total procurement amount of all critical tier-1 suppliers with a response rate of 75%. In addition, CAL also surveyed 3 critical tier-2 suppliers with a response rate of 66.67%. According to the results of the SAQ, the average score of the suppliers in 2022 was 92.00. The average scores in the four dimensions (please refer to the note) were between 86 and 97 points, showing that most of the suppliers have incorporated the concept of sustainability into these four dimensions. The scores in the four dimensions all improved compared to the previous year.
Note: “Governance” includes ethics and regulatory compliance. “Environment” refers to environmental protection. “Society” includes human rights and labor conditions, and occupational safety and health. “General” includes quality and safety and information security.
Overall Performance of Supply Chain Sustainability
In 2023, the score of supply chain sustainability risk assessment was 96.64 points.
- Governance : The score (95.28) was decreased compared to the previous year (97.28) and has been the lowest score overall. It is observed that further improvement is needed in terms of regulatory compliance in the governance aspect.
- Environmental : The score (98.93) has continued to significantly improve compared to the previous years (86.48), and it demonstrated suppliers still prioritize environmental issues. Areas such as biodiversity, waste reclaimed management, greenhouse gas emissions, sustainable aviation fuel, and sustainability / Green Mark will be further developed to ensure that suppliers address environmental concerns and propose relevant policies in response to emerging trends.
- Society : Although the score (95.29) was an improvement compared to the previous year (89.64), the Company places significant emphasis on managing occupational injuries in the supply chain to adhere to safety-related designs that comply with regulations, aiming to minimize occupational accidents.
- General : The score (97.07) has slightly improved compared to the previous year (94.60), and the second highest score overall. We will continue to track and request suppliers to pay more attention to privacy management.
Sustainable Supply Chain Assessment
According to the SAQ analysis results for 2023, no suppliers scored below 80 points. Subsequently, a further screening of the lowest 1% of scores among CAL's five material procurement types and suppliers identified 5 high-risk suppliers. However, after evaluation, none of these suppliers were found to have significant actual or potential negative impacts on the environment or society. To learn more about the implementation status of sustainable practices of our supply chain partners, CAL has set up different audit plans for sustainable supply chain management. As of 2023, 90% of the audit objectives for Critical Tier-1 suppliers have been completed. CAL's audits are conducted on-site, in written format, or by correspondence. The method is determined based on the supplier's location, characteristics, and border control measures. The audit survey in 2023 showed that suppliers require improvements such as the establishment of an environmental management system, classification and recycling for recyclable waste, monitoring suppliers' environmental performance, and providing regular training on environmental management and regulations for employees. After CAL requested follow-up and training, part of the Critical Tier-1 suppliers have made significant improvements in environmental management. In terms of human rights management, CAL has developed a human rights and labor risk control framework based on international standards to mitigate the risk of compliance with labor and human rights regulations. No Critical Tier-1 suppliers have terminated the partnership in 2023. CAL will continue to enhance support, follow-up, and requests for improvements for these environmental and social issues.
Furthermore, the Supply Chain Task Force conducts on-site second-party audits of Critical Tier-1 suppliers every year. Since some of Critical Tier-1 suppliers are international partners, CAL also performs remote audits. The audit process is conducted based on the supplier audit checklist. Please provide evidence, such as governance, to verify whether the audited supplier complies with the Code of Conduct or has established relevant policies and management procedures, or internal monitoring measures in place to ensure the implementation of the Code of Conduct or corresponding management policies (such as the company's internal code of conduct).
Supply Chain Sustainability Assessment Implementation Status
| Suppliers | 2021 | 2022 | 2023 |
|---|---|---|---|
| Critical Tier-1 Suppliers Assessed in the Current Year (Percentage of Total Critical Suppliers) | 32(78.04%) | 9(20.45%) | 13(26%) |
| Critical Tier-1 Suppliers Assessed in the Past 3 Years (Percentage of Total Critical Suppliers) | 21.96% | 79.55% | 90% |
| High-Risk Suppliers | 2021 | 2022 | 2023 |
| Assessed in the current year (Percentage of Total High-Risk Suppliers) | 0 / 0% (No high-risk suppliers in the current year) |
1 / 20% | |
| Assessed At Least Once Every 3 Years (Percentage of Total High-Risk Suppliers) | 0% | 0% | 0% |
| High-risk Suppliers with Corrective Measures and Completed Improvements | 0% (No high-risk suppliers in the current year) |
0% Planning to introduce corrective measures starting in 2024 |
|
| Terminated the contracts | 0% (Risk suppliers improve within the specified period.) |
||
| Significant Suppliers | 2021 | 2022 | 2023 |
| Assessed in the current year (Percentage of Total Significant Suppliers) | The process of auditing Significant Suppliers commenced in 2023. | 25% | |
| On-site audit | 3 | ||
| Desk Assessments | 10 | ||
Performance of Supply Chain Sustainability
Green Procurement
As CAL improves its operations, it remains committed to implementing its environmental policy on green procurement. In 2023, there will be a 400% increase in the amount of green procurement compared to 2022. We aim to raise awareness of green consumption and reduce environmental impact from the source by selecting products with Green Mark, such as energy- efficient refrigerators and Green Mark / energy label household appliances, FSC / PFEC certified boarding passes, various types of paper on board (including hand towels, toilet paper, etc.), and office paper, and continuously promoting systematic, digitalized, and mobile operations.
Green Procurement
Unit: TWD million
Note: Green procurement includes Category I, II, and III products prescribed in the Regulations for Priority Procurement of Eco-Products (dated January 15, 2001).
Local Procurement
Taiwan is a crucial hub of CAL. Except for certain aviation equipment, parts, and operations that are subject to international standards, CAL has managed to source parts from local suppliers (Taiwan, Penghu, Kinmen, and Matsu). We purchase high-quality agricultural products from Taiwan such as bananas, sugar apples, and pineapples. Suppliers support local produce and select the best ingredients, which are cooked with meticulously designed processes to reduce pollution in the environment and food waste, and thereby ensure sustainability with low-carbon and clean vegetables.
In 2023, the local procurement amount decreased by 35.33% compared to 2022, with the proportion of domestic local procurement dropping to 52.93%. The main reason for this decrease is the inclusion of aviation parts in statistics in 2023, resulting in high-priced procurement (add aviation parts in 2023). Aviation parts are more difficult to procure from local suppliers due to their characteristics, leading to a decrease in the procurement proportion. However, there is little change in the number of procurement items compared to previous years.
Unit: TWD million
Unit: Suppliers
Note 1: The statistics include the Administration Division and the maintenance park.
Note 2: The statistics will add aviation parts to procurement items in 2023.