With the ARSM system, we have not only set out the social and environmental responsibilities of our first-tier suppliers, but are also rolling this out to second- and third-tier suppliers in phases. The goal of this is to further expand the reach of our social responsibility and influence. Acer requires first-tier suppliers to implement risk assessment and management of second-tier suppliers based on the RBA Code of Conduct. For higher-risk suppliers, we also carry out on-site audits and tracking of improvements. We have also integrated performance in these into our supplier ESG scorecard assessments, realizing and expanding the environmental and social responsibility of our supply chain. We have selected some ODMs for expansion of the scope of responsible supply chain management to third-tier suppliers, and we plan to formally roll this into routine management activities from 2021. 

We carry out supplier CSR scorecard evaluations, reviewing the implementation of CSR among our suppliers and their performance. Such assessments are part of proper CSR practice and performance, and in quarterly business review meetings, the results have been provided to senior management of Acer and our suppliers, driving our bilateral business relationships forward.    

We continue to communicate with suppliers and enhance their ability to respond to sustainability issues, as well as encourage suppliers to incorporate sustainable development matters into their management agendas. In line with Acer’s sustainable development strategy, we hold a variety of supplier sustainability conferences, and in our annual supplier ESG communication meetings, we provide information on the latest in CSR developments and trends, as well as analyzing important supply chain matters and potential actions that we can take together. These meetings also provide an opportunity for two-way communication between Acer and suppliers, strengthening the supply chain’s environmental and social responsibility and deepening our CSR-related cooperative relationships.

Risk Assessment 1   
We initially screen supplier risks based on country risk, industry risk, product risk, and importance. Filtered suppliers are then included in the next phase of management.

Supplier Code of Conduct Compliance Declaration   
Suppliers are required to sign the Supplier Code of Conduct Compliance Declaration, comply with the RBA Code of Conduct, and provide social and environmental information as required by Acer, while also ensuring that they and their operations comply with the RBA Code of Conduct. In addition, we include relevant provisions in procurement contracts, requiring new suppliers to sign onto them.

Supplier Self-Assessment Questionnaire   
All suppliers found to be medium to high risk in Risk Assessment 1 are required to complete a Supplier Self-Assessment Questionnaire (SAQ) to conduct self-assessment on the four aspects of labor, health & safety, ethics, and the environment, forming the basis for our management of supplier social and environmental liability risks.

Risk Assessment 2 (Desk Assessment) 
Based on the results of previous audits, the risk level of the factory location, and the supplier's business relationship with Acer, we conduct a second stage of risk assessment taking into account stakeholder concerns. It is carried out through desk assessment, supplemented by remote audits conducted via phone or video conferencing.

On-Site Audits   
Suppliers are encouraged to participate actively in the RBA Validated Audit Process (VAP) to reduce the burden of on-site audits by different customers. For the new and potentially high-risk suppliers, the third-party verification companies are engaged to conduct social and environmental audits. Acer's audit manager leads the audits and adopt comprehensive RBA audit tools, aiming to achieve dual objectives of Acer’s leadership in-management and the third-party objective audits.

Corrective Action Verification   
We require our suppliers to submit a written Corrective Action Report (CAR) based on audit findings within 30 days of receipt of the audit report. A written review by Acer's audit management staff will be confirmed on site during the following year's on-site audit.

Communication   
We have a close partnership with our suppliers and aim to be on the same page in terms of social and environmental responsibilities. We engage in bilateral communications with suppliers on ESG issues through working groups on topics, annual Supplier ESG Communication Meetings, and quarterly business review meetings.

Education and Training   
In addition to requiring suppliers to comply with local regulations and Acer's standards, we also provide training and education on the latest social and environmental responsibility trends to enhance Acer's supply chain's ability to take on sustainability challenges.   
 

Rewarding and Elimination  
To enhance suppliers' sustainable development management performance, Acer has established a reward and elimination mechanism based on quarterly assessment results. The assessments consider six dimensions, rating suppliers on a five-level scale to identify and reward top performers with increased procurement and collaboration opportunities, while eliminating underperformers to improve overall supply chain capability. 

Supplier screening mechanism and tier-based management 

Supplier Screening and Evaluation

In accordance with Acer's supplier social and environmental management process, supplier screening and evaluation are carried out. The first-tier supplier screening includes an assessment of country/region, industry, and product risks. The supplier evaluation encompasses operations, governance, social, and environmental aspects, utilizing the RBA self-assessment questionnaire (SAQ) as the scoring method. The second-tier supplier risks are evaluated by the first-tier suppliers, taking into account screening criteria such as material attributes, procurement amount, and ESG risks, among other factors.

Evaluation of significant suppliers 

All significant suppliers are required to conduct on-site audits and take corrective action plan (CAP) for any finding issues (see 
Supply Chain Audit and Improvement section). After reviewing the audit results, suppliers with significant potential negative 
impacts are selected and invited to participate in supplier capability improvement activities. (see the Improving Supplier 
Capabilities section.)

Supplier Rewarding and Elimination Mechanisms  

Acer has established a supplier rewarding and elimination mechanisms to encourage suppliers to accelerate and move toward the sustainable development. Through quarterly assessments, measures by six dimensions which including supplier core competence and ESG, we identify suppliers which outperform in sustainable development and provide them with higher ratios in procurement along with priority to join new product development collaboration. We eliminate underperforming suppliers in order to refine and joint improvement in the supply chain.

Incentive Mechanism

• Evaluation dimensions: quality, innovation/technology, speed/responsiveness, delivery, cost, risk, and ESG.
• Evaluation levels and scores: Classified into five levels based on ratings of each dimension, A (>=90 points), B (89-80 points), C (79-70 points), D (69-60 points), and E (<60 points).
• Frequency: Quarterly
• Rewards: Suppliers that have received an A or higher for three consecutive quarters will be given a higher procurement ratio and priority in adopting of new products.

Elimination/Exit Mechanism

For suppliers rated as D or below, in addition to reducing their procurement ratio as appropriate, they are also required to develop improvement plans and implement regular review mechanisms. The elimination mechanism is as follows:

• Suppliers ranked as D or below for two consecutive quarters will be required to undergo a reevaluation of supplier selection and 
  management.
• The suppliers ranked as E for three consecutive quarters, will be disqualified and revoked their future collaborations with Acer after assessment and discussion of evaluation meeting.