Approach to Procurement

The TOTO Group aims at being an existence that contribute widely and continuously to society and the environment under its Corporate Philosophy. For this purpose, we endeavor to create value for stakeholders, while promoting sustainability management and leveraging its strength. Risks we face are becoming more and more complex in keeping pace with the globalization of supply chains. 

Therefore, The TOTO Group considers that execution of sustainability not only by the Company but also by the whole supply chain at a high level is necessary in order to take ethical action, which is effective for society and the environment.

We are committed to engaging in the improvement of supply chain sustainability and risk mitigation with our suppliers.

TOTO Group Purchasing Policy

Through fair and equitable purchasing and in cooperation with suppliers, the TOTO Group continues to offer valuable products and services for customers. We also aim to realize a sustainable society, engaging in social issues in the whole supply chain and protection of the global environment.

Supplier Code of Conduct

The TOTO Group expects suppliers to meet not only economic criteria but also social, ethical, and environmental criteria, as well as criteria related to corporate responsibilities. The contents are summarized in the TOTO Group Supplier Code of Conduct. It is created based on TOTO Group's corporate regulations, the Ten Principles of the UN Global Compact, and key international standards related to sustainability.

The Code of Conduct is provided to all suppliers when they newly start a business with TOTO and when it is revised. We also ask not only suppliers but also their suppliers to comply with the Code of Conduct.

This Code of Conduct is reviewed as necessary in response to changes in social conditions and the environment.

Guidelines for Green Procurement

Based on the TOTO Group Global Environment Policy, the TOTO Group promotes the reduction of environmental loads in all processes of its corporate activities in order to reduce the environmental loads at all our companies.

In our procurement activities we will continue to contribute to the achievement of a sustainable society in cooperation with our suppliers by protecting the global environment and biodiversity and reducing the environmental loads in the entire supply chain.

In putting it into practice, we have established the Green Procurement Guidelines with the concept of the initiative and the content we would like to ask our suppliers.

Sustainability Procurement System

Sustainability Procurement Initiatives

Especially for critical suppliers and suppliers with high sustainability risks, we increase the chance of visiting and monitoring suppliers to check the status of their initiatives, provide education and support to help them understand the necessity of sustainability initiatives, and endeavor to improve the level of initiatives in sustainable procurement across the whole supply chain.

If a serious risk is identified through a questionnaire survey or audit, we will request that the supplier improve the issue and provide assistance. If no corrective measure is implemented and no improvement is observed, we may terminate the business with the supplier. There was no supplier wherein we terminated the business because of a serious prominent/ potential negative impact identified by our risk assessment/ measures in fiscal year 2024.

The TOTO Group supply chain

The TOTO Group's manufacturing sites are located across ten countries or regions, the Group has business with about 1300 production material suppliers of different sizes, and our supply chain extends globally. Structural rates by region based on the amount of procurement and the number of supplier companies in fiscal year 2024 are as follows.

Selection Criteria for New Business Partners

The TOTO Group requests that suppliers starting transactions with us comply with the TOTO Group Supplier Code of Conduct and checks in the evaluation table the status of sustainability initiatives such as human rights, labor, anti-corruption, health and safety, and environmental considerations. Needless to say, we evaluate quality, cost and delivery.
In addition, the achievement of standards for compliance items set by the TOTO Group is a condition for starting transactions.

Assessment of sustainability initiatives

 （Supplier Assessment）

Categorization of Critical Suppliers

Each department of the TOTO Group selects suppliers every year based on the following definitions.

・Suppliers of critical  parts and raw materials
・Non-substitutable suppliers
・Suppliers essential for achieving the business plan
・High-volume  purchased suppliers

Categorization of Suppliers with High Sustainability Risk

The TOTO Group selects suppliers every year based on the following definitions.

・Suppliers that handle raw materials with significant environmental, social, or biodiversity impact.　

・Suppliers located in countries with low World Bank Governance Indicators (WGI) values.　

・Suppliers that did not meet the TOTO Group's required level in sustainability evaluations.

Sustainability initiatives

The TOTO Group grasps and evaluates the status of sustainability activities of suppliers who are in continuous business. Starting in 2019, we standardized operations globally and asked all suppliers that supply raw materials and parts used in products to answer a sustainability evaluation questionnaire with one cycle of three years. This questionnaire consisted of questions in line with the basic principle of Supplier Code of Conduct. Through this questionnaire, we checked the status of sustainability activities of suppliers who were in continuous business and effectively identified the risks and opportunities of key topics that led to constructive dialogs with them. Also, for questions that we especially consider important we set standard points for the requirements to be complied with to require the suppliers to achieve. Suppliers who have not achieved the compliance items will formulate and implement corrective action plans. We support the activity until the improvement is completed.

In 2024, we asked four suppliers who hadn't met the compliance standards to develop corrective action plans, and allof them successfully made improvements.

As a result, all these suppliers achieved the required standard. Furthermore, our critical Japanese suppliers are ranked into four tiers—A, B, C, and D—based on their total questionnaire scores.

We request corrective actions from those ranked C and D through dialogues and monitoring. In fiscal year 2024, there were no such applicable suppliers.

In addition, in order to confirm the strengths and weaknesses of our suppliers' sustainability activities and to strive for continuous improvement, we will send a feedback report containing the company-wide average for the previous response and FY2024 to all suppliers who responded.

We will aim at maintaining 100% achievement of compliance with the TOTO standards in fiscal 2025.

Result of questionnaire survey

* Achievement rate of compliance with the TOTO standards：Rate of suppliers who have cleared standards for compliance items determined by the TOTO Group among all suppliers (includes completion of corrective actions).

FY2024 Target : Achievement rate of compliance with the TOTO standards　100%

Standards Required of Critical Suppliers

Assessment items for suppliers

Initiatives Regarding Human Rights Risks in the Supply Chain

Closely working with suppliers, the TOTO Group addresses business risks and constantly reviews our evaluation method. Human rights in supply chains especially gathers social attention among companies' human rights initiatives and is an area of increasing focus.

The TOTO Group has traditionally been considering earth and stone raw materials, which our staple products, and also fall under an area potentially subject to greater risks, especially from a business perspective, as target managed materials, and so we continuously assess the risks. In order to better understand the actual and potential human rights risks in the whole supply chain in business areas other than that, we started human rights due diligence in the supply chains in 2021 with the support of external experts.

In risk assessments, we focus particularly on issues such as forced labor and child labor.

Taking into account our unique and more comprehensive country risk scores created from several international indexes that included the Global Slavery Index (WFF) and risk score by industry created based on companies' human rights evaluation CHRB (Corporate Human Rights Benchmark) and KTC (Know The Chain), as well as impacts on the TOTO Group, we prioritized the risks and identified suppliers that should be prioritized for review.

We also considered the results of the fact-finding survey on the use of the foreigner skill training system, which is a risk specific to Japan.

In fiscal 2023, we conducted sustainability audit programs (such as WCA audits (Workplace Condition Assessment)) or audits by our own auditors on 13 suppliers, and confirmed that there were no serious non-compliances such as forced labor or child labor.

In fiscal year 2024, our focus was on the foreign technical intern training program in Japan. 

Two critical suppliers, identified as high-priority through our assessment, underwent a third-party audit program.

As a result of the audits, no serious non-compliances were found, but there were some areas that should be addressed for further improvement in the future, such as safety. Regarding the issues pointed out, our suppliers have submitted corrective plans and are implementing improvements.

In fiscal 2025, we will continue to strengthen human rights due diligence in the upstream supply chain.

Initiatives to reduce greenhouse gas emissions in the supply chain

CO2 emitted during the raw material and parts procurement process is 3.7%(in fiscal year 2023) in the whole product life cycle, and it is not included in the SBT target set by the TOTO Group. However, all of the Group’s business activities are established by using the products and services provided by suppliers, including raw materials, parts, and subsidiary materials.

For the realization of a carbon neutral sustainable society by 2050, which the TOTO Group seeks to achieve, efforts to reduce carbon dioxide emissions throughout the supply chain is essential; therefore, cooperation from suppliers is indispensable.

Therefore, in fiscal year 2022, we started an initiative to request our suppliers to set voluntary goals for reduction and requested for domestic and international critical suppliers with more than 80% of the procurement amount with regard to greenhouse gas emissions and voluntary reduction goals.

Next, in FY2024, we surveyed the scope of greenhouse gas emissions calculations of major suppliers. As a result, we found that approximately 80% of suppliers only calculate their own emissions (Scope 1, 2).

In the future, we aim to build a system that can more accurately reflect each company's reduction efforts by utilizing supplier-specific data (primary data).

In FY2025, we will proceed with concrete discussions with multiple suppliers to strengthen support for expanding the scope of suppliers' greenhouse gas emissions calculations.

Procurement Respecting Biodiversity

The TOTO Group positions global environmental conservation as one of its most important issues.

With the aim of contributing to the creation of a "sustainable society," we are promoting corporate management based on a high level of environmental awareness, and are working to conserve biodiversity and use resources sustainably through our company and our suppliers.

Sustainable Raw Material Procurement Standards were established in 2010. The procurement of earth and stone raw materials and wood materials, from which our staple products are made, is regarded as an critical issue to consider.

These standards are specified and published in the Guidelines for Green Procurement. 

 In addition to human rights, labor and compliance, we take into consideration the effects on the environment and ecosystem in the places where our raw materials are produced, as we pursue the appropriate balance between the sustainable use of resources and stable procurement and push forward with sustainable procurement in cooperation with suppliers.

Standards for Sustainable Raw Material Procurement:

(i) Raw materials produced in compliance with the laws and regulations of the place of origin.
(ii) Raw materials produced in a working environment where safety and hygiene are properly provided.
(iii) Raw materials whose impacts on the local environment and biodiversity are taken into consideration.
(iv) Respect for the human rights of workers and local residents at the source.

Earth and Stone Raw Materials

For earth and stone raw materials used to produce ceramic sanitary ware, we confirm the legality and sustainability at all mines by conducting a questionnaire survey or an interview through trading companies that includes questions asking about compliance with the standards specified by TOTO at least once every three years. The questions include whether forests are restored after completion of mining and whether efforts are made to prevent mining and tailings from polluting rivers and lakes.

In 2024, it was confirmed that all surveyed mines met TOTO’s standards.
We will aim at maintaining 100% achievement of compliance with the TOTO standards in fiscal 2025.

Survey result

Survey target: All sanitary ware production factories

*Survey coverage rate: Percentage of mines surveyed against all mines that the ceramic sanitary ware plants purchase stone materials from.

FY2024　Target : Achievement rate of compliance with the TOTO standards　100%

Assessment items for Mines

We conduct tree-planting activities in completed mine areas to regenerate forests.

Mining sit

 

 

Wood Materials

Illegal logging and excessive logging of forests is a major cause of loss of forests, leading to loss of biodiversity.

The TOTO Group basically handles timber and timber products that have been certified as legal. Based on the Japanese Forestry Agency's "Guidelines for certifying legality and sustainability of timber and timber products", we survey information necessary for traceability regarding the wood materials to be procured (country of origin, commercial distribution, legality certification, etc.) every year. In addition, we have set a target value for the ratio of legal materials and recycled materials to the amount of wood materials used for the products we produce, and confirm the actual values.

In recent years, we have maintained the ratio of legal and recycled lumber at 100% and aim at maintaining it in fiscal 2025 as well.

Percentage of Legal Wood Materials and Recycled Wood Materials in products

Recycled Wood Materials：Wood based materials that are made from wood that has been used once, wood that has not been used, or that has been discarded.

FY2024 Target : Composition of Legal Materials + Recycled Wood Materials 100%

Communication with Suppliers

Results of Policy Briefings for fiscal 2024

Responding to Disasters and Other Risks

To strengthen our ability to respond to natural disasters, which have been frequent in recent years, we are working with suppliers to establish a system that will enable us to immediately know the impact of a risk when it occurs and implement countermeasures by grasping which parts are produced in which site, quickly determining the status of damage using external services and conducting simulations to prepare for contingencies. We are also working to establish a stable supply system by deepening the risk assumptions, such as securing inventory based on the BCP according to the recovery plan per part and duplicating procurement lines.

Partnership Building Declaration

Buyer human resource development

In order to realize a sustainable society as a whole supply chain, it is indispensable for the TOTO Group's procurement personnel to recognize social and environmental issues in the supply chain. The TOTO Group has started offering basic training that includes sustainability training for employees engaging in procurement activities and provides sustainable procurement training on a regular basis to continuously raise the level of employees competencies. Also, we conduct training on specific themes that need to be strengthened, such as the reduction of human rights risks in the supply chains and the reduction of greenhouse gas emissions.