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Value Chain

Supply Chain Management

We contribute significantly to the economy of Hong Kong and other places through our diverse supply chain, which comprises the full sequence of activities involved in providing products and services to all areas of our business. Consider the wide range of products and services involved in the different categories of spending for railway construction projects, transport operations, property management and other business. Managing the procurement process for such a complicated supply chain in a responsible manner requires focus and a strategic approach.

Fortunately, we are in a position to build upon a strong foundation of working with stakeholders in our supply chain over more than three decades to promote quality, efficiency and a commitment to corporate responsibility. Our reputation as a fair and equitable business partner is well established among our suppliers, and we find that this helps to maintain constructive and productive working relationships with them.

 

A (Supply) Chain is Only as Strong as Its Weakest Link

During February 2014, the East Rail Line experienced lengthy delays due to faults caused by sub-quality overhead line insulators. In response to this incident, we implemented enhancement measures to prevent similar problems from occurring in the future, which include establishing in-house facilities to conduct high voltage insulator tests and strengthening the procurement process to re-emphasise the required specifications when placing orders with suppliers.

 

Management Approach

We introduce the key elements of our approach to procurement and working with suppliers in this section. It also contains links to more information on our corporate website.

GUIDING STRUCTURE

Procurement Process

The Company has a transparent and independent procurement process based on principles of good governance. The key objectives of this process are to serve the interests of our shareholders and other stakeholders by promoting competition, providing value for money to the Company, and ensuring compliance with our policies on corporate responsibility and sustainability.

Supply Chain Risk Management

Risks in our supply chain are subject to regular assessment by our Enterprise Risk Committee. For example, we anticipate that flooding and other extreme weather events associated with climate change could have major impacts on our supply chain, including delays to production and delivery of goods, and higher insurance premiums for our infrastructure and property assets. To address these issues, we have put in place risk mitigation measures such as keeping safe levels of stock for critical spares and investigating ways to develop alternative sources of supply for a range of goods and services.

The Supplier Code of Practice (SCoP) was launched in 2008. It provides a basic, compulsory behavioural framework for ethical standards, human and labour rights, and supply chain management. Full compliance with the SCoP is a requirement of all procurement contracts entered into by the Company, with any violation considered to be a material breach of contract. Suppliers are also responsible for ensuring that their own suppliers comply with the SCoP.

Green Procurement

Our Green Procurement Policy encourages our procurement teams to promote sustainability in our supply chain. We are a founding member of the Hong Kong Green Purchasing Charter and apply green specifications for procurement of a range of items, such as Forest Stewardship Council (FSC) certified products for stationery supplies. We encourage our suppliers to adopt eco-labelling and are currently working with some suppliers to explore the feasibility of introducing locally produced biodiesel into our supply chain.

KEY PRINCIPLES AND PROCESSES

Supplier Survey

We survey our suppliers periodically to collect information about the status of their policies, initiatives and monitoring systems relating to

  • ethical standards
  • human and labour rights
  • environmental protection (including carbon emissions, energy, water, waste and noise)
  • consumer protection
  • supply chain management
  • conflicts of interest

We use this information to understand how our suppliers are aligning with the Supplier Code of Practice and to identify areas for improvement and collaboration.

Supplier Engagement

We invite suppliers to participate in regular forums, seminars and site visits to evaluate performance and share best practices, and our procurement teams participate in regular visits to suppliers’ facilities. Overall, we aim to foster a culture of cooperation and mutual support in our supply chain by working with suppliers to promote corporate responsibility beyond contractual compliance. Focusing on worker safety and health, human rights, labour practices and community engagement, our Operations, Projects and Property Divisions have identified specific parts of the supply chain in which to deliver strategic engagement on these issues.

Please refer to supply chain assessment and collaboration with contractors.

Promoting Transparency

We publicise information about contracts and tenders on our corporate website in the interests of total transparency.

 

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You can download a copy of our Supplier Code of Practice from our corporate website.

 
 

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The Hong Kong Green Purchasing Charter is an initiative of the Green Council, a non-profit environmental association formed in 2000 to encourage environmental protection measures in the industrial and commercial sectors of Hong Kong.

 
 

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Please refer to our corporate website for Information on Tender Notices, Invitation for Tenders/Expressions of Interest, and Notices of Contract Award and Supplier Registration and Administration.

 

Supply Chain Assessment

These diagrams show the breakdown of our spending on products and services during 2014 as well as our strategic focus areas for supplier engagement by division and category of spending.

Strategic Focus Areas for Engagement

Transport Operations Property Management Railway Extension Projects
Worker safety and health
  • Works & Maintenance Services
  • Works & Maintenance Services
  • Civil Works
  • Engineering & Mechanical Works
Human rights and labour practices
  • Other Services & Spares
  • Cleaning, Security & Clubhouse Services
  • Civil Works
  • Engineering & Mechanical Works

Supplier Survey in 2014

During 2014, we received information from 660 suppliers in response to our Corporate Responsibility Questionnaire. Compared with the baseline from 2011, we have observed an overall increase in the proportion of suppliers indicating they have corporate responsibility policies, initiatives and monitoring systems in place. Subsequent to completion of our survey, we engaged a consultant to review corporate responsibility practices in our supply chain and to assist us in identifying the next steps to embed corporate responsibility even deeper into our procurement process. We plan to report on the progress of this activity in future.

Supply Chain Audit

Under the terms of our Supplier Code of Practice we have the right to conduct audits to ensure compliance. During 2014, we conducted an audit at the manufacturing facility of one supplier for marketing merchandise. This supplier was selected in view of the labour intensive nature of its production process, which implies a high risk profile for corporate responsibility and sustainability issues. The overall findings of the audit were considered satisfactory, with no major areas of non-compliance. However, we did take the opportunity to make a number of suggestions on how the factory could strengthen its compliance with our Supplier Code of Practice in future.

 

Model Management Practices in Our Supply Chain

Since 2009, we have committed a total of HK$9.7 billion towards procurement of rolling stock for our new railway lines. Given the huge scale of this investment, we have put a lot of effort in recent years into refining our lifecycle assessment approach for this kind of equipment. Our procurement decisions take into consideration future energy use and maintenance costs of our trains over an average lifespan of 40 years, in addition to upfront capital costs.

Furthermore, in order to meet our high standards for quality we maintain close working relationships with the manufacturers who fabricate our trains. Our model practice for quality management of rolling stock grew out of an enhanced partnership that has developed with one of our major suppliers. We work closely with this supplier through a joint project office located at the manufacturing base to ensure all performance indicators for quality are achieved, including complete traceability of all major components.

 

Collaboration with Contractors

The work that we do to engage with contractors is an aspect of our value chain. In general, contractors hire their own staff directly but they may also hire sub-contractors and independent contractors. Securing buy-in from contractors is integral to our strategy to promote corporate responsibility.

Contractors are obliged to comply with a set of stringent safety specifications as part of their contractual obligations for every project; however, we also strive to establish non-contractual partnering relationships that will lead to joint efforts to improve delivery plans. For example, we set up a “war room” for every major civil works contract, providing a designated physical space for project team members to work together to meet high standards of safety, quality and environmental best practice.

Safety on Construction Sites

We provide leadership on safety standards for construction workers in Hong Kong in partnership with the Labour Department, industry bodies, unions and other major employers.

 

Awards for Excellence in Quality, Safety, Environmental Management & Stakeholder Engagement

Launched in 2010, our Project Division’s annual awards scheme aims to promote continuous improvement in these areas during delivery of new railway projects for Hong Kong.

In 2014, the Grand Safety Award was presented to Samsung - Hsin Chong Joint Venture (Shatin to Central Link) for being the best performer among all extension project contractors based on a set of objective criteria including accident rates, site conditions, safety audit results, training efforts and leadership on safety. We particularly appreciated the initiative shown by this contractor to introduce concrete hoardings along footpaths in the To Kwa Wan area, ensuring public safety during implementation of large-scale, temporary traffic management schemes.

Other award winners in 2014:

  • The Gold Environmental Award was won by Nishimatsu Construction Company Ltd (South Island Line (East)) and Leighton Contractors (Asia) Ltd (Shatin to Central Link) for successfully reducing construction noise with effective measures such as fully enclosing works plants using insulating fabric.
  • The Gold Stakeholder Engagement Award was won by Chun Wo – Hip Hing Joint Venture (Kwun Tong Line Extension) for engaging with stakeholders in the Whampoa area, where more than 100 traffic diversions had to be implemented to facilitate construction work in the congested neighbourhood.
  • The Gold Quality Award was won by Kier – Laing O’Rourke – Kaden Joint Venture (South Island Line (East)) for outstanding quality and control measures in project management.