Posco Group pledges deeper supply chain cooperation, vows to pay suppliers within 10 days

"This was not a formality. You thought about things from our company's perspective and supported us wholeheartedly."

Those were the words of Kim Chang-seop, head of management support at Gwangwoo, a materials company that took the stage Thursday at the Posco Group mutual-growth agreement ceremony at the art hall on the fourth floor of the west wing of the Posco Center in Gangnam-gu, Seoul. Kim was describing the impact of Posco's smart factory support program. Gwangwoo, a second-tier Posco supplier, boosted productivity by 12 percent and cut manufacturing costs by 8 percent after receiving help to build a smart factory. "It was a great help to our company, and I would like to take this opportunity to express my gratitude," Kim said.

The event was organized by Posco Group and the Korea Fair Trade Commission to build a mutual-growth framework extending beyond first-tier suppliers to reach second- and third-tier partners. About 130 people attended, including Fair Trade Commission Chairman Ju Byeong-gi, Posco Holdings President Lee Ju-tae, Posco CEO Lee Hee-geun, POSCO International CEO Lee Gye-in, and other heads of major Posco Group subsidiaries and supplier companies.

The ceremony was more than a signing event. Suppliers themselves took the stage to describe firsthand how their partnership with Posco had changed their businesses.

Gwangwoo was founded in 1989 at the Pohang National Industrial Complex. The company grew by localizing metalworking fluids for the steel and automotive sectors and has since expanded its product lineup into cosmetics, chemicals, defense, and biotech and pharmaceuticals. Despite having a workforce of about 50, the small and medium-sized enterprise exports to more than 10 countries including Japan, the United States and Europe, generating annual sales of 70 billion won ($47 million) and direct and indirect exports of more than 10 billion won.

Since 2016, Gwangwoo has operated under a fair-trade agreement with Posco's first-tier suppliers and received support through the mutual-growth program. Kim said the company particularly benefited from Posco's large-and-small enterprise smart factory initiative and free on-site consulting from the mutual-growth support team, both of which led to improvements in factory operations.

"We benchmarked smart factory adoption cases in similar industries, were matched with a dedicated project manager, and received support from A to Z on identifying the most urgent challenges for our company," Kim said. "Through that process, a great deal of automation was achieved, leading to improvements in the manufacturing process through reduced human error and higher productivity," he added.

Another supplier, Hanseung Chemical, shared its experience under Posco Group's profit-sharing program. A first-tier supplier to Posco Future M, Hanseung Chemical specializes in chemicals for air-quality management. CEO Kim Sang-su said the company worked with Posco Future M to develop a composite agent for fluoride treatment and eco-friendly substitute products, achieving cost reductions and sales growth in the process.

"Hanseung Chemical proposed improvement ideas, and Posco Future M provided a test bed at its production site," Kim said. "We worked together on-site to refine operating conditions and address problems, and established new standard management procedures." He said the most recent project also improved chemical safety, reduced workload and generated about 1.95 billion won in additional sales.

Technology protection was also cited as a benefit of the partnership. Hanseung Chemical said it uses a technology escrow system to safeguard its core intellectual property and has received three years of free support under an ESG (environmental, social and governance) management assistance program. "Going forward, we will continue working to create sustainable growth and social value grounded in technological innovation and trust," Kim said.

A display panel at the venue highlighted the track record of Posco Group's mutual-growth programs. The group cited the domestic-first introduction of a profit-sharing system in 2004, the abolition of lowest-bid contracting in 2018 and the adoption of a subcontracting mutual-payment system in 2019 as key milestones. Since 2021, the mutual-growth support team has worked with a cumulative 204 small and medium-sized enterprises, completing 674 projects.

Through the agreement, Posco Group committed to four key pledges: improving payment terms, expanding the mutual-payment system, giving preferential treatment to first-tier suppliers that join the mutual-growth initiative, and supporting suppliers in strengthening their competitiveness.

Under the first commitment, Posco Group will pay suppliers in full in cash within an average of 10 days. It will also support first- and second-tier suppliers in paying their own downstream partners within a maximum of 30 days. The group will increase use of the mutual-payment system to help second- and third-tier suppliers collect payments reliably. The system guarantees cash payment to suppliers on the due date and allows them to convert receivables into cash before that date at low financing costs.

The profit-sharing program will also be expanded. Posco Group said it will extend the program — which distributes financial gains from jointly developed technologies with suppliers — beyond first-tier partners to include second-tier and lower suppliers. The move is intended to spread throughout the supply chain a model Posco first introduced in South Korea in 2004.

Posco Holdings President Lee Ju-tae framed suppliers as the foundation of the group's growth in his welcoming address. "Behind the history of growth that Posco Group has achieved — from steel to secondary battery materials and energy infrastructure — lies the sweat and hard work of our first- and second-tier suppliers," he said.

Lee said the global economy now faces sweeping changes, including supply chain restructuring, the transition to carbon neutrality and AI-driven innovation, all amid an unstable international environment. "In this era of upheaval, sustainable growth and future competitiveness cannot be guaranteed without a solid partnership with our suppliers," he said.

"I am convinced that our suppliers are Posco Group's competitiveness, and that their growth is Posco Group's future," Lee said. "We will do our utmost to ensure that today's pledge does not remain a mere declaration but becomes a living practice on the ground."

Korea Fair Trade Commission Chairman Ju Byeong-gi used his congratulatory remarks to place the mutual-growth agreement in the broader context of the industrial ecosystem. "Mutual cooperation between large companies and their suppliers will underpin the global competitiveness of large enterprises while at the same time serving as social capital that drives the sustained growth of our economy," Ju said.

He singled out the improved payment terms for particular praise. "Posco's commitment to paying first-tier suppliers in cash within 10 days will be an important driver in easing suppliers' liquidity burden and supporting innovation and productivity gains," Ju said.

"A stable payment flow is the starting point for investment, employment and technological innovation, and the smaller the supplier, the greater the expected impact," he added. Ju also commended Posco's decision to share the gains from technology development and process improvements with second-tier and lower suppliers rather than keeping them in-house, calling it "a policy that demonstrates responsible leadership."

The agreement is expected to benefit more than 5,300 suppliers across the Posco Group supply chain. The group plans to incorporate the key terms into its fair-trade supplier agreements scheduled for early next year, continuing the mutual-growth framework.