1. Procurement Policy Summary
CONFIDENTIAL
Procurement Policy Summary
2009.9

2. Procurement Policy Summary
Section
Details 1
Procurement Ownership & R&R
Procurement Ownership/ Change of Procurement Ownership / CPO R&R 2
Procurement Process
Supplier Qualification / Bidding & negotiation / Supplier Selection / Contract Management / PO (Purchase Order) Management 3
Supplier Management
Potential Supplier Management / Supplier Evaluation / Supplier Differentiation & Segmentation / Special Management 4
Risk Management
SOD (Separation of Duties) 5
Information Management
Procurement IT System

3. Procurement Policy Summary
Section
Details
Common Subject for Procurement Policy
Important decision making and approval is basically by the respective head of headquarters, sector of procurement executing team.
In the event that an agreement cannot be made, the CPO shall present a recommendation for the change of procurement ownership based on the reviewed information to the relevant teams and then request decision-making by the president 1
Procurement Ownership & R&R
1.1 Procurement Ownership : The procurement ownership shall be determined according to the features of the goods and services
1.2 Change of Procurement Ownership : In the event that a change of procurement ownership is deemed necessary, it is possible to make changes through discussions and work adjustment among the relevant teams under the supervision of the CPO
1.3 CPO R&R
The CPO shall perform expense management and control functions when needed to minimize costs for procurements occurring at HMM
The CPO’s roles as a Contract Service Provider / Helper / Watcher shall be defined according to the features of the procured goods and services, but may be adjusted taking into consideration cost effects and acquiring visibility 2
Procurement Process
2.1 Supplier Qualification
Certain qualifications must be obtained in order to become a supplier for HMM
In order to become a supplier for HMM, it must first pass a predetermined qualification procedure and acquire approval from the respective teams

4. Procurement Policy Summary
Section
Details 2
Procurement Process
2.2 Bidding & Negotiation
In order for a bid to exist, multiple suppliers must participate in the bid
However, the minimal number of bidding suppliers for a bid to exist can be changed with the consent of the business sector depending on the market conditions and features of the contract type
When exceptional bidding is permitted
When there is only one source in the market that can provide the goods (Sole or Only Source)
When it is a strategic business partner with HMM or is in an alliance (Business Partner, Alliance Partner)
When a supplier candidate discovers a business opportunity and requests business to HMM (Supplier identifies opportunity including marketing alliances)
Supplier candidate designated by a key client of HMM including an owner (Customer Nominated Supplier)
When the supplier candidate has certification or intellectual properties needed for the project (Obtaining special licenses or intellectual property rights)
When it is advantageous to enter in to contract with a supplier in the market for flexibility and efficiency of sales operations (Multi-supplier advantage) (i.e. Master Lease)
When a contract lower than the standard cost for the goods/service (according to Appendix 2)
The director of the bidding team shall acquire the approval from the business sector director or the business headquarter director depending on the gravity of the case and then notify the CPO
2.3 Supplier Selection
Evaluation for supplier selection shall be composed mainly of the actual status evaluation, performance evaluation and price evaluation
Supplier selection shall be performed as for basic principles of competitive bids and handling exemptions, refer to <2.2 Bidding and Negotiation>

5. Procurement Policy Summary
Section
Details 2
Procurement Process
2.4 Contract Management
The contract shall be valid and renewed every one year, but the period can be changed when it is advantageous for HMM depending on the market conditions
In order to extend the contract period with an existing supplier, it shall first search for the most optimal contract conditions including the rate for the existing supplier, and for other suppliers through open bidding
In order for a the same supplier to extend the contract period without bidding again, it shall provide evidence that the contract conditions including the rates are the most optimal at the current period, and if needed, the team’s respective business department director or business sector director shall be reported to for extension of the contract period with the same supplier. The CPO shall then be notified of this
However, in the event that a contract is entered into or extended with the same supplier without bidding, it cannot exceed three years (suppliers must be selected through open bids and price negotiations must be conducted at least once every three years).
2.5 PO (Purchasing Order) Management : Document officially confirming the payment of expenses for procurement 3
Supplier Management
3.1 Potential Supplier Management
In order to promote price competition among suppliers through supplier-based diversification, potential suppliers must be continuously discovered and managed
Qualification procedures must be executed regularly for potential suppliers
3.2 Supplier Evaluation
Evaluation on the conditions and performance of suppliers must be done at least once a year
When the CPO acts as a Helper, it shall provide basic guidelines for evaluations and the evaluation body must be selected appropriately and rationally depending on the evaluation items
When needed, HMM shall provide the evaluation results to the suppliers and information on how the performance of each supplier will affect business with HMM in the future

6. Procurement Policy Summary
Section
Details 3
Supplier Management
3.3 Supplier Differentiation / Segmentation
Suppliers shall be managed differently depending on the supplier evaluation results and strategic importance, in order to establish strategic management plans fitting the features of suppliers
The CPO shall periodically identify the supplier segmentation group operation and conditions, review it and present guidelines for them
3.4 Special Management
Suppliers where transactions are no longer possible due to political or international environments, suppliers that caused irreversible damages to HMM during business, and suppliers who cannot have business relations restored with HMM for any reason 4
Risk Management
4.1 Separation of Duties
In the event that a series of processes in which expenditures are spent by only one team, the risk factors and management of items to check that may occur in each stage cannot be reciprocally verified, and thus for improvements of this, the work process is designed to be executed by the most appropriate team in the series of processes that result in costs
The SOD system shall be regularly reviewed by an appropriate number of people, and when needed be renewed (SOD evaluation), and shall be managed including the renewal items in which the series of SOD evaluation results are down in writing 5
Information Management
5.1 Procurement IT System
The series of all procurement process, regardless of goods or services purchased, shall have electronic information management through a system in order to procure immediate visibility
The access authority by function and master information of the procurement IT system shall be defined in accordance to the operations and roles of each department explained in<1. Procurement Ownership and R&R>, <2. Procurement Process>, <3. Supplier Mgmt.>, and <4. Risk Management>
Overall management of the procurement IT system shall be performed by the CPO, and configuration and supplementing of these functions shall determined by the same