2. NIKE SUPPLY CHAIN
Supply Chain
Freedom of Association. We are updating Nike's Code and Code
Leadership Standards to make clearer the responsibility of contracted
factories to respect their employees' right to freedom of association and
collective bargaining to the extent permitted by local law. This includes
the right to form and join trade unions and other worker organizations of
their own choosing without harassment, intimidation, interference or
retaliation. Where national law restricts freedom of association, the
contracted factories are required to facilitate alternate means to
individually and collectively engage with their employees and for
employees to express their grievances and protect their rights regarding
working conditions and terms of employment.
The updated requirements will also address the obligation to comply with
any local laws providing special protection to employees or worker
representatives engaged in union activities, a prohibition on disciplining
employees having engaged in legal strikes, the duty to bargain in good
faith and honoring the terms of any negotiated collective bargaining
agreement.
Responsible Transitions. We are updating Nike's Code Leadership
Standards to include worker protections in the event of factory closure or
3. retrenchment. These steps include standards for factories that include, at a
minimum, notice, consultation, severance and collective bargaining.
Contracted manufacturers are also required to make payment to workers
of retirement or severance funds, in compliance with local law. This
requirement includes contracted manufacturers facilitating payments of
social security provisions to which the employee may be entitled, such as
unemployment insurance, and accurate record keeping on payment into
and maintenance of funds to ensure workers are protected.
In addition, contracted manufacturers are encouraged to go beyond what
is required by law or collective bargaining to provide outplacement or
retraining assistance, additional financial support, medical benefits and
assistance in obtaining government benefits. The contractor is encouraged
to provide these either directly or in coordination with governments,
NGOs or third parties.
Developing/Enabling Competitive Supply Chains. NIKE, Inc.
recognizes the need for a well-coordinated and efficient supply chain for
its business and the industry. Because the supply chain spans multiple
jurisdictions from raw materials to production to shipping to retail and,
ultimately, to consumers, a consistent and mature public policy position
is needed.
We support policies that deliver efficient, cost-effective delivery of
NIKE, Inc. products in a responsible manner. Our efforts concentrate on
ensuring efficient transport, security and safety of NIKE, Inc. products
throughout the supply chain. In addition, we advocate for policies that
help to ensure that NIKE, Inc.'s supply chain - from factory to consumer -
operates in a manner that considers both people and the environment at
each step of the way. We work with a number of bodies to advocate for
these policies. These include national governments, industry associations
and NGOs.
Infrastructure in Vietnam. Nike has played a leadership role, along
with other businesses and multilateral development organizations, in
supporting infrastructure development in Vietnam. Nike created and led a
public-private partnership that offered an Infrastructure Exchange
Program for Vietnamese government officials. The first component of the
program involved having key Vietnamese government officials visit a
Nike footwear factory in Vietnam and subsequently physically follow the
movement of finished products from the factory to the port. The group
traveled to southern China, an area well known for its development of
4. physical infrastructure. They also visited Singapore to see world-class
port facilities and operations and learn about infrastructure planning and
financing. Each component included presentations and dialogue with
experts in various fields.
We believe improved infrastructure, specifically roads and ports, will
lead to additional investment and job creation in Vietnam, thereby
improving economic opportunities and the standard of living.
Improved roads and related infrastructure lead to more efficient transport
of goods, contribute to a decrease in traffic congestion, and reduce
emissions and related pollution. These improvements benefit businesses,
including Nike, that contribute to job creation and economic
development. This model of cooperation is an example of how the private
sector can work with other key stakeholders on important development
issues and opportunities.
Sustainability
Creating Sustainable Models for Consumption and Growth. Nike's
commitment is to create extraordinary performance products for athletes
while managing our business within nature's limits. We anticipate a
future that seeks out and rewards new models of consumption and
growth, separated from material consumption. It's a transition from build,
buy and bury - the common business model today - to a future of
sustainable business models for consumption and growth.
As we embark on this journey, it's clear to us that government will play
an important role. Not only in setting the policy framework and
legislative environment for emerging business models and sustainable
products but also as a key partner to help drive innovation, collaboration
and partnership with other stakeholders in the clothing and footwear
sectors.
Our engagement with government on sustainable consumption and
growth is still evolving as we, and others in our industry, face up to these
new challenges. However, we already have an agreed set of policy
objectives:
Partner with governments on defining and shaping public policies that
encourage, incentivize and reward innovation for sustainable
materials, product and business models in the footwear and
clothing sectors
5. Create partnerships with government, industry, academia and NGOs to
share these common challenges and to agree on how best to
leverage and deliver agreed policy goals through sharing best
practice and identifying incentives for innovation to achieve our
common shared policy outcomes
Engage with government and other stakeholders in specific policy
forums and where legislative change is being discussed to ensure
our voice and experience is part of the debate on the challenges to
move forward toward our common goal of sustainable production
and consumption
Focus on key policy issues of climate change, sustainable materials and
product and post-consumer waste
Government policy on sustainable business models for our sector is still
emerging, posing both an opportunity and a challenge. The examples
below illustrate Nike's commitment to partner with government and take
a leadership role to help drive change and policy outcomes aligned with
our Considered goals.
United Kingdom - Sustainable Clothing Action Plan. Since early 2008,
Nike has been a lead member of the United Kingdom's (U.K.)
Sustainable Clothing Action Plan (SCAP). Through SCAP, we are
partnering with the U.K. government to improve the environmental and
social impacts of the clothing supply chain. SCAP launched in February
2009 at Estethica, London Fashion Week's sustainable fashion show.
Main areas of focus for the action plan are the reuse, recycling, and
development and use of sustainable fibers.
Nike is working with several SCAP project teams to provide data, best-
practice examples and expertise on materials analysis and assessment,
and to share Nike's Considered Design principles. Nike also shares the
goal of combining innovative sustainable design, development and
manufacturing practices to create performance products for athletes with
other SCAP stakeholders. We have also been involved strategically,
through our membership of the SCAP Steering Group and by committing
to a number of key deliverables by 2010.
Nike believes this partnership is a valuable opportunity to work together
with all stakeholders in the apparel industry and to share best practice and
learnings. We are also building a stronger relationship with the U.K. and
European governments as they consider legislation that will shape the
future of the clothing industry in areas such as recycling, environmental
6. labeling, consumer awareness and sustainability. Nike clearly supports
these policy goals and we believe that through this kind of partnership we
can help create market-based, realistic solutions to drive greater
sustainability throughout our supply chain.
Brazil Amazon Biome - Leather Sourcing Policy. In June 2009 Nike
was approached by the international environmental group Greenpeace
about leather sourcing from the Brazilian Amazon Biome. Greenpeace
had just issued an extensive report detailing how cattle farming in the
Amazon Biome basin caused significant deforestation issues, a leading
cause of Brazil's contribution to climate change. Greenpeace asked Nike
and other companies to joiAn it in agreeing to stop working with leather
suppliers who were unable to ensure that their cattle farms in their supply
chain were not located on deforested, indigenous or protected lands. Nike
signed on to Green Peace's Commit or Cancel policy and is currently
working with Greenpeace, the Brazilian Government, our suppliers and
other brands through the Leather Working Group to deliver an effective
traceability program to meet the goals of zero deforestation.
Nike (NYSE: NKE) is making some big changes to how it manages its
supply chain. As part of its sustainability report released Thursday, the
retailer said it plans to launch a new manufacturing index in 2012 that
will place factories' sustainable practices "on equal footing" with the
traditional supply-chain measures of quality, cost and delivery. The index
will now include environmental and labor-sustainability metrics,
according to the report. And Nike will use that index to evaluate its
suppliers.
It's an interesting move with potentially widespread implications globally
among suppliers -- and would-be suppliers -- to Nike. And with other
retailers -- including Walmart, which said last month that it was
expanding its supplier scorecard program -- taking steps to add
sustainability to its supply-chain requirements as well, it appears that the
supply-chain landscape may be poised for a shakeup that could give
greener and more socially responsible suppliers a competitive edge.
Retail suppliers will likely be keeping a close watch on these leaders'
criteria, which will begin to define sustainability for different products.
We recently caught up via phone with Hannah Jones, Nike’s vice
president of sustainable business and innovation, for more insight into
Nike’s goals and its manufacturing index. Here’s an edited excerpt of our
conversation:
GreenBiz: The report talks about making your factories faster,
leaner and more efficient. How do you accomplish that without
descending into a Foxconn situation?
7. Jones: [There are] two elements to 'lean.' One is the process change piece
of it, and the engineering change around how you think about products’
efficiencies and quality. And the other is really about the culture of
empowerment that is core to making lean really work. For our industry,
this is key. It requires…management [to] understand that the worker is
the closest to the process and to the act of manufacturing and therefore
has the greatest insight. And that actually what you need to do is put
greater value on the worker and enable the worker to feel empowered, so
that they can speak out and speak up and talk about where they can see
improvements could happen.
It starts to change the conversation between the managers and the
workers. It starts to change the conversation with the management, in
how they have to stop viewing workers as a cost and start seeing them as
one of the core, valuable assets that they have. That makes them think
more about turnover rates. It makes them think more about HR systems,
it makes them think more about supervisors being trained in management
and it makes them really think through how do they communicate, how
do they work with the workers to retain them. Because they want to
invest much more in them, in terms of building up skill sets.
So to us, 'lean' is one of the components [of] how we think about building
better working conditions. Because we think it’s the business conditions
that enable a lot of the additional work we do, through our code of
conduct and through our Sustainability Manufacturing and Sourcing
team. Then we have this new manufacturing index, which locks in
performance on sustainability, performance on lean, performance on
workers’ rights into the core conversation between the buyer and the
supplier around where growth and volume will go and where orders will
go.
GreenBiz: What do your sustainability goals mean for current and
potential suppliers to Nike?
Jones: I think it’s a shift. And I think that the shift that’s been happening
over the last two or three years, that this report kind of begins to capture
and signal, is that we have been rewiring the conversation internally and
rewiring the conversation with our suppliers in which we really explain to
them that there are some new rules of engagement. And that our sourcing
strategy and our sustainability and working conditions strategies are one
in the same. We’ve built a sourcing strategy that looks at having fewer
partners for the longer term that are optimized, to enable us to have those
fewer partners. And then really building in to how we have a business
discussion with them.
So if you think before, in our industry, the traditional conversation
between a buyer and a supplier is one of cost, delivery on time and
quality. Those are always the driving kind of indicators [determining] are
8. we going to give you more orders or less orders? And so now what was
done is we’ve said: sustainability. And I want to emphasize [that] when I
say sustainability it includes workers’ rights. Sustainability is one-fourth
of that equation now.
So our suppliers now know two things: one, their business with us is
going to be dependent on how much they show their commitment to
sustainability. And two, we’ve changed also from a ‘make your systems
less bad’ [approach] to actually describing a vision of good. It’s saying if
you’re going to be on the journey with us…we’re going to need you to
really think about investing in your workers, investing in lean and
investing in efficiencies and green.
GreenBiz: What do your suppliers need to do to stand out, to get
good grades from your auditing team?
Jones: We have a whole set of indicators, performance indicators that
they need to be meeting. So there are kind of incentives along the way,
but there are also sanctions for failing to meet standards and [for] repeat
offences, which go up to and including termination of the relationship. If
you look at some of the data in the labor section of this [report], you’ll
see that we have eliminated a number of factories because of their
unwillingness to consistently shift management strategy and culture [and]
to build in sustainability and workers’ rights.
GreenBiz: Other big retailers are on the sustainable supply-chain
bandwagon: Walmart, for example, has a supplier scorecard
program. Is the writing on the wall now for suppliers that
transparency is needed to remain competitive?
Jones: I think the signals are getting louder and louder. I think what was
a whisper is now a shout. I think that’s a good thing. And I think that a lot
of our suppliers are beginning to wake up; that there are new rules of
engagement and that they will be, in this era of transparency, owning
their reputations. And that it will be important; that it is a competitive
advantage.
GreenBiz: How do you balance environmental and labor issues?
Jones: We’ve been pursuing a huge amount of work around… the labor
side of things and the environmental side of things. And then you’ll see in
the manufacturing index, the environment piece is coming into it. I think
what you’re going to see is even more convergence in the years to come,
where we pull all these different sorts of indicators together. And it’s a
balancing act.
GreenBiz: Where does Nike still need work to achieve its goals?
Where are the places where you have the most catching up to do?
Jones: There are different areas that I think about and that the team
thinks about. We run sustainability now as you would almost an
9. innovation pipeline. There are different kind of issues that hit at different
times in that pipeline. For some issues that we have out there, there
simply isn’t a solution yet that’s obvious. And what we need is…
solutions. We need new technology and new chemistry, new materials, to
swap out with the old. So there is an innovation challenge and it’s really
about sending a signal to innovators in the company and outside the
company, that we are in the hunt for alternatives.
As you get further down into the commercialization nature of things it’s
about how you get mainstream adoption. Because at the moment
sustainability, absent strong policy levers being pulled, faces a scaling
challenge. There is a cost to early leadership, and it’s the early cost of
investing at a prototype level and all the money that goes into that R&D.
So the faster we can get this to market and the faster we can get
sustainable options to be the default, the more viable it becomes. It
becomes a kind of self-fulfilling prophecy in a very good form.
