Raw Materials Procurement Management Policy

Local procurements accounted for 7% of the Company's total procurement amount in 2022 due to the special nature of the industry, which relies on imports for the main raw materials (crude oil, naphtha), accounting for 90% of all procurements. If the main raw materials are excluded, local procurements account for 66% of procurements. Hence, raw material procurement has a massive effect on the Company, and the Company has adopted the following methods to maintain stable raw materials supply:

• Raw materials import: FPCC, with our optimal refining techniques and sufficiently flexible processes, can purchase different types of crude oil from different oil producing countries. We have entered into long-term purchase agreements with overseas oil and coal suppliers to diverge risks.
• Development of diversified feed: We replaced part of naphtha operations with LPG, and minimized our dependency on naphtha. This helps properly mitigate the effects of an unstable supply of raw materials and controls our material purchase costs.
• Adjustment of own capabilities: Ensures stable supply for processes

Implementation of management and evaluation

Suppliers that intend to apply for business dealings with the Company must pass a documentary evaluation, and will be subjected to an on-site evaluation when necessary. We will only begin business dealings with suppliers that pass the evaluation and a profile is set up. If a supplier makes a late delivery, delivers products with poor quality, or is found in violation of labor safety rules, the supplier will be automatically listed in the supplier evaluation mechanism, and the Procurement Department will evaluate whether or not to blacklist the supplier. This allows us to select excellent partners for long-term cooperation.

We require suppliers to comply with government laws and regulations during each procurement, including: applicable industrial safety qualification, ISO qualification, indication of hazardous materials, and illustration. Manufacturers need to properly recycle used containers or carrying aids, and give priority to products made by organizations for persons with disabilities. Suppliers are asked to precisely follow the requirements in the Quotation and Order Notice, and the Company's stance on upholding the spirit of sustainable management and requirements to comply with fair trade principles is stated in the forms above. Our goal is for vendors we do business with to meet requirements on environmental protection, labor safety, and human right, otherwise we will reject their products.

We began requiring vendors to sign the "supplier/contractor social responsibility commitment" and administering the "supplier/ contractor social responsibility questionnaire" in 2019, so that vendors will understand our philosophy and jointly fulfill their social responsibility. Vendors are required the sign the commitment and respond to the questionnaire when they log into Formosa Technology E-Market Place or after placing an order, and are required to comply with related regulations.

Vendor evaluations are arranged in the following year as needed based on the response to the "supplier/contractor social responsibility commitment" and "supplier/contractor social responsibility questionnaire" in the previous year, ensuring that our vendors fulfill their CSR according to requirements. Supplier evaluation results in 2022 showed that there were no major risks, such as child labor, forced labor, freedom of association, and collective bargaining.

Supplier Opinion/Complaint Mechanism

Formosa Technology E-Market Place has a professional customer service center to provide suppliers with complete consultation services around the clock for questions regarding use of the Company's online price quotation platform or questions about the Company. Furthermore, Formosa Technology E-Market Place has a report and complaint platform with dedicated personnel to look into and respond to reports. Suppliers expressed their opinions in 79 cases in 2022, which can be broken down as follows: (a) Inquiry about the contents of procurements: 55.6%; (b) Questions about the system: 16.5%; (c) Withdraw inquiry about related issues: 1.3%; (d) Procurement revision: 1.3%; (e) Complaint: 13.9%; (f) Other: 11.4%.

Green Procurement

To reduce carbon emissions from vehicles making deliveries, we worked together with freight forwarders in implementing electronic operations for concentrated delivery by suppliers. As of the end of 2022, electronic operations for concentrated delivery by suppliers reached 97%.

Furthermore, we have replaced paper invoices with electronic invoices, and 89.4% of the vendors we do business with are also using electronic invoices as of the end of 2022.

The use of products with the Green Mark reduces resource consumption, reduces environmental pollution, and mitigates the impact on Earth. It can also drive suppliers to develop green products, and elevate the production of green products in Taiwan. We procure 257 green products, including plastic pallets, toner cartridges, and fluorescent lamps, and the procurement amount of green products recognized by the government was NT$75.12 million in 2022.

Authorized Economic Operator (AEO) Certification

AEO certification means that government-approved businesses and their up-stream and down-stream partners, that is, the overall supply chain, are safe and the trade safety measures meet the criteria for quality businesses. This will be a growing trend for international trade in the future, and also one of the prioritized policies to be promoted by our customs authority.

We started the AEO certification process in June 2013 and completed all the items requiring certification in less than six months. We became a certified AEO on December 6, and also became the largest business to obtain the AEO certification in Taichung Customs' history.