Business Partners for Win-Win Growth
LG Electronics’ USD 35.9 billion global purchasing total demonstrates well the importance of supplier competence for the company. For this reason, we must make our best efforts to support our partners with diverse programs to ensure win-win growth.
GLOBAL PURCHASING AMOUNT
ENHANCING COMPETENCE THROUGH WIN-WIN GROWTH
LGE continues its efforts towards win-win growth with suppliers to secure global competence. The efforts are driven by “Win-Win Growth” and “Supplier Quality Engineering” organizations. Currently, we are carrying out projects under four categories: education, funds, management innovation, and partner communication, each pursuing technology innovation, core competency development, management innovation, and quality/productivity improvement. All these tasks are performed in parallel with a survey to get suppliers’ feedback on our approach and make necessary changes to maximize efficiency.
MANAGERIAL STABILITY THROUGH FINANCIAL SUPPORT
LGE supports its suppliers’ financial stability through various types of financing programs and continuous improvement in payment terms.
- Green Partnership
In December 2010, LGE promised to provide financial support of KRW 40 billion for 5 years to suppliers selected at the Small and Medium Enterprise Technology Fair. Prior to this event, during the agreement for win-win cooperation and fair trade with suppliers in September 2010, we announced a program to support outstanding suppliers in their new growth engine projects, including the research and development in solar energy and water processing.
- Financing for Quality and Productivity Improvement
LGE proposed an enterprise-wide project to conduct a program to fund suppliers’ quality enhancement and productivity improvement activities(e.g molding equipment improvement) (2010: KRW 33 billion, 2011: KRW 37 billion).
- Improvement of Cash Payment Terms
Since September 2010, LGE has improved its process to increase cash payment rates for subcontractors to 100% to improve the suppliers’ financial status.
- Launch of Win-Win Cooperation Funds
LGE subsidizes the Win-Win Cooperation Funds to support the working capital needs of suppliers, and offers the lowest interest rate among the competitors(based on data from the Industrial Bank of Korea). To further support suppliers as molding companies forming the basis of the manufacturing industry, we established the Root Industry Performance Bond program to provide deposits as a form of special financing. Additionally, we continue to offer zero-interest funds and network loans to provide ongoing supports for the suppliers’ financial stability.
MANAGERIAL CAPABILITY THROUGH NON-FINANCIAL SUPPORT
- Management Consulting and Business Advisory Council
In addition to the financial support, LGE operates a business advisory council consisting of retired procurement managers to strengthen the suppliers’ managerial capabilities. The business advisory council is dispatched on the supplier’s premises and operates a program to improve supplier’s production levels upon request. Also, an on-site consulting activity from the Factory Innovator(FI), organized by LGE employees, is provided in parallel to improve the productivity. LGE aims to achieve its production leveling goal through management consulting and plans to increase the number of supporting staff by 50% by 2012.
- Establishment of the Supplier Quality Engineering(SQE) group
LGE carries out a specialized program to support suppliers through quality specialists trained within the procurement group to secure the quality of the components and enhance technical supports.
- Vocational Training Consortium
LGE operates diverse consortium with the collaboration of in-house and the regional training centers to enhance the suppliers’ competence. In 2010, a total of 2,298 employees have completed the training courses, which is 50% more than 2009.
COMMUNICATION WITH SUPPLIERS
- Open dialogue with suppliers
Through various communication programs, LG Electronics provides encouragement for suppliers and listens to their opinions and challenges, while also guaranteeing transparency in all business transactions.
| Programs | Operation Cycle | Details |
|---|---|---|
| Supplier Portal | Opened | Convenient online communication with LG Electronics (inquiries and suggestions on procurement transactions) is available with all relevant systems integrated |
| New Supplier Registration System | Opened | Companies can apply to become a new supplier for LGE using this system, at which time they will be automatically connected to LGE’s purchasing personnel after an automatic screening process. |
| Supplier Suggestion System | Opened | Every supplier’s suggestions on work process improvement will be taken into account for R&D, general management activities, and mutual growth. |
| Suppliers’ Satisfaction Survey | 1/ Year | Surveys on LGE’s overall capabilities in such areas as purchasing, product quality, R&D, and design will reveal any potential problems. |
| Evaluation & Awards for Existing Suppliers | 1/ Year | Incentives and penalties will be imposed by regularly evaluating each existing supplier’s business results and transactions. |
| Global Suppliers Day | 1/ Year | LG Electronics will share its vision and achievements with its top 300 suppliers, LG affiliates, and LGE’s major executives and purchasing personnel. |
| Procurement Executive Council | 1/ Quarter | As the top organization to make decisions on purchasing, the committee evaluates suppliers, reviews satisfaction surveys, and examines ways to support business partners. |
- Supplier Grievance Process
To further enhance communication with suppliers, LGE operates the Supplier Grievance Process site(http://ethics.lg.co.kr) in each of its affiliates to understand supplier opinions.
- 2010 Global Suppliers' Day
Following 2009, LGE has once again organized its “2010 Global Suppliers’ Day” in Seoul with the participation of the top 300 global suppliers’ CEOs and 600 personnel by procurement teams in the headquarter and companies. During the event, the Global Outstanding Supplier Award was given to the winner of each company. The Green Award, newly established in 2010, was also awarded to respective winners. In addition to this, a charity auction of goods donated by LGE was held, raising a total of KRW 60 million to support for Good Neighbors.
- Suppliers’ Satisfaction Survey
Each year, LGE conducts a satisfaction survey for its domestic and overseas suppliers. In 2010, LGE conducted the survey to the top 180 Korea and overseas companies, compared to 122 companies in 2009, and evaluated the overall satisfaction level of purchasing group and contact point. The result was somewhat lower than the previous year. The overall satisfaction level of procurement scored 73.4 out of 100 in 2008. The satisfaction level increased by 1.6 point in 2009, then decreased by 1.0 point in 2010, showing little difference in terms of time series analysis. Overall satisfaction level have gradually increased. Since 2008, with the “will to continue business” increasing approximately one point every year. LGE intends to conduct the suppliers’ satisfaction surveys regularly and use them as base data to reinforce partnerships with suppliers.
