THE SELECTION, QUALIFICATION AND MONITORING PROCESS

The selection of suppliers and the setting of the purchase conditions for goods and services are based on impartial evaluations. The choice of suppliers is based on a Total Cost of Ownership approach, whose purpose is to fully determine the direct and indirect costs associated with an activity, favoring products from suppliers that guarantee ethical and sustainable behavior and a solid economic and financial structure.

The preliminary phase is the qualification of the supplier, managed by the Supplier Development department through the evaluation of specific information collected. Audits are also conducted that examine management systems for quality, environmental, social and health and safety aspects, as well as technological capacity, are analyzed and assessed. At this stage, when registering on the dedicated web portal suppliers declare that they will observe the principles of the Company's Code of Ethics, which is a primary condition for being added to the vendor list. In 2022, 81% of new suppliers were also evaluated using environmental and social criteria. The decrease in the figure compared to 2021 (100%) reflects the complexity of the process of integration and standardization of methods that is still being completed.

Different types of risk are monitored during the scouting phase and throughout the relationship with the supplier, starting with the risk of negative performance in terms of cost, product quality, or service. The social and ethical sustainability risk associated with activities with negative impacts on the community and the environment is also assessed, although not yet extended to all suppliers.

Based on assessments related to know-how, process impact and purchase volume, suppliers are classified within a Kraljic matrix 11 into four categories, for each of which specific contractual and risk mitigation strategies are defined.

In relation to components, prior to mass production, Comer Industries performs a complex process for checking and approving the supplier's process and product characteristics (PPAP) before proceeding with mass production, performing an analysis of evidence collected in the field and measurements of critical variables.

Through its Supply Chain department, Comer Industries constantly monitors suppliers, both through the performance evaluation and on the basis of objective indicators. The Company assesses its performance in terms of quality, competitiveness, sustainability and service levels at least semi-annually through the Vendor Rating tool, which highlights the main critical areas, if any, to start a continuous improvement process, aimed at achieving shared targets. In keeping with the plan to integrate sustainability aspects into the Company's processes, in 2022 a sustainability score was added to the supplier scorecard.

The Company involves the supply chain in its efforts to progressively improve product quality and sustainability performance by promoting risk mitigation actions, including from a product life cycle perspective.

To cope with procurement difficulties in the reporting year due to the complex international environment, risk analyses were performed on components based on procurement turnover and technological complexity. Where necessary, alternative supply chains were activated in order to establish double sourcing, i.e., the possibility of obtaining the same product from two different suppliers. This ensured the continuity of the production process without significant delivery delays.

Aware of how the supply chain plays a key role in sustainable development, the Company has launched several initiatives aimed at assessing its sustainability performance levels and identifying and managing related risks.

These include supplier engagement as part of the materiality analysis update (see the section The strategic value of sustainability | The materiality analysis) and due diligence regarding respect for human rights (see section People | Human rights).

11 - A Kraljic matrix is a four-category model designed to identify differentiated procurement policies to optimize the use of resources in the process while ensuring delivery