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Business Assurance - Viewpoint

Competitive advantage through supply chain resilience

Establishing a sustainable supply chain

The year 2021 is just around the corner. With the COVID-19 pandemic still ongoing, effective supply chain management is more important than ever. The impact of the pandemic must be managed in a manner that ensures a stable supply of parts and components under various constraints. This challenge comes on top of LG Electronics’ traditional supply chain management elements of TQRDCME (Technology, Quality, Responsiveness, Delivery, Cost, Management, and Environment). Although LG has managed to control various supply chain risks in the past, COVID-19 is proving to be an unparalleled learning opportunity to look further ahead and prepare well in advance for the future. 

Experiences related to climate change have challenged LG to address issues of facilities in coastal areas on the verge of flooding due to rising sea levels.  There have also been numerous cases where business operations were suspended due to typhoons, hurricanes and other severe natural disasters. 

Such instances forced LG to realize the simple truth, that nature, people, society and business are acutely intertwined. It is not surprising that investors and consumers alike are demanding greater sustainability. COVID-19, in fact, is accelerating this change. Within this perspective, as DNV GL's research has shown, sustainable supply chains and crisis resilience are critical factors to secure corporate competitiveness. With this realization and purpose, LG Electronics is carrying out numerous supply chain risk management initiatives. 

Companies that wish to work with LG must conduct and provide evidence of CSR assessments covering aspects such as labor rights, safety and health, and environment, a core requirement of the selection process. A requirement of all business contracts is a commitment to adhere to LG’s code of conduct as well as cooperation in annual compliance assessments. Consistent with DNV GL's survey results, the current COVID-19 situation is strengthening the need for communication and monitoring of one’s supply chains. As the findings also indicate, under the current environment, supplier inspections have been difficult to execute. As a countermeasure, LG Electronics has been conducting greater educational training to improve the evaluation system and bolster the ability of purchasing managers at production sites to audit suppliers. 

Sustainability and CSR management in any supply chain is a complex matter. Due to the nature of the electronics industry, there is a diverse ecosystem of suppliers that include outsourced manufacturers and service providers.  To no surprise, this makes identifying and managing risks in tier 2, tier 3 and lower suppliers quite difficult. But as sustainability and human rights have become boardroom topics and related laws and regulations are increasing in many countries, it has become critical to expand the scope of due diligence and management. Business continuity in the supply chain is one of the most important elements in LG Electronics' sustainable supply chain management system. 

Adding a pandemic to existing and ongoing challenges such as human rights, diversity and engagement, circular economy, and climate change have without question created a more difficult business environment. Despite this, LG Electronics believes that the current crisis can be overcome by working closer together with customers and suppliers. LG is committed to learning and striving to create a more sustainable world. 

Author: Mr. Hosung Joo - Team Leader, Corporate Social Responsibility Team, LG Electronics Inc.