NIKE SUPPLY CHAINSupply ChainFreedom of Association. We are updating Nikes Code and CodeLeadership Standards to make clearer the responsibility of contractedfactories to respect their employees right to freedom of association andcollective bargaining to the extent permitted by local law. This includesthe right to form and join trade unions and other worker organizations oftheir own choosing without harassment, intimidation, interference orretaliation. Where national law restricts freedom of association, thecontracted factories are required to facilitate alternate means toindividually and collectively engage with their employees and foremployees to express their grievances and protect their rights regardingworking conditions and terms of employment.The updated requirements will also address the obligation to comply withany local laws providing special protection to employees or workerrepresentatives engaged in union activities, a prohibition on discipliningemployees having engaged in legal strikes, the duty to bargain in goodfaith and honoring the terms of any negotiated collective bargainingagreement.Responsible Transitions. We are updating Nikes Code LeadershipStandards to include worker protections in the event of factory closure or
retrenchment. These steps include standards for factories that include, at aminimum, notice, consultation, severance and collective bargaining.Contracted manufacturers are also required to make payment to workersof retirement or severance funds, in compliance with local law. Thisrequirement includes contracted manufacturers facilitating payments ofsocial security provisions to which the employee may be entitled, such asunemployment insurance, and accurate record keeping on payment intoand maintenance of funds to ensure workers are protected.In addition, contracted manufacturers are encouraged to go beyond whatis required by law or collective bargaining to provide outplacement orretraining assistance, additional financial support, medical benefits andassistance in obtaining government benefits. The contractor is encouragedto 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 forits business and the industry. Because the supply chain spans multiplejurisdictions from raw materials to production to shipping to retail and,ultimately, to consumers, a consistent and mature public policy positionis needed.We support policies that deliver efficient, cost-effective delivery ofNIKE, Inc. products in a responsible manner. Our efforts concentrate onensuring efficient transport, security and safety of NIKE, Inc. productsthroughout the supply chain. In addition, we advocate for policies thathelp to ensure that NIKE, Inc.s supply chain - from factory to consumer -operates in a manner that considers both people and the environment ateach step of the way. We work with a number of bodies to advocate forthese policies. These include national governments, industry associationsand NGOs.Infrastructure in Vietnam. Nike has played a leadership role, alongwith other businesses and multilateral development organizations, insupporting infrastructure development in Vietnam. Nike created and led apublic-private partnership that offered an Infrastructure ExchangeProgram for Vietnamese government officials. The first component of theprogram involved having key Vietnamese government officials visit aNike footwear factory in Vietnam and subsequently physically follow themovement of finished products from the factory to the port. The grouptraveled to southern China, an area well known for its development of
physical infrastructure. They also visited Singapore to see world-classport facilities and operations and learn about infrastructure planning andfinancing. Each component included presentations and dialogue withexperts in various fields.We believe improved infrastructure, specifically roads and ports, willlead to additional investment and job creation in Vietnam, therebyimproving economic opportunities and the standard of living.Improved roads and related infrastructure lead to more efficient transportof goods, contribute to a decrease in traffic congestion, and reduceemissions and related pollution. These improvements benefit businesses,including Nike, that contribute to job creation and economicdevelopment. This model of cooperation is an example of how the privatesector can work with other key stakeholders on important developmentissues and opportunities.SustainabilityCreating Sustainable Models for Consumption and Growth. Nikescommitment is to create extraordinary performance products for athleteswhile managing our business within natures limits. We anticipate afuture that seeks out and rewards new models of consumption andgrowth, separated from material consumption. Its a transition from build,buy and bury - the common business model today - to a future ofsustainable business models for consumption and growth.As we embark on this journey, its clear to us that government will playan important role. Not only in setting the policy framework andlegislative environment for emerging business models and sustainableproducts but also as a key partner to help drive innovation, collaborationand partnership with other stakeholders in the clothing and footwearsectors.Our engagement with government on sustainable consumption andgrowth is still evolving as we, and others in our industry, face up to thesenew challenges. However, we already have an agreed set of policyobjectives: 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
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 wasteGovernment policy on sustainable business models for our sector is stillemerging, posing both an opportunity and a challenge. The examplesbelow illustrate Nikes commitment to partner with government and takea leadership role to help drive change and policy outcomes aligned withour Considered goals.United Kingdom - Sustainable Clothing Action Plan. Since early 2008,Nike has been a lead member of the United Kingdoms (U.K.)Sustainable Clothing Action Plan (SCAP). Through SCAP, we arepartnering with the U.K. government to improve the environmental andsocial impacts of the clothing supply chain. SCAP launched in February2009 at Estethica, London Fashion Weeks sustainable fashion show.Main areas of focus for the action plan are the reuse, recycling, anddevelopment 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 Nikes Considered Design principles. Nike also shares thegoal of combining innovative sustainable design, development andmanufacturing practices to create performance products for athletes withother SCAP stakeholders. We have also been involved strategically,through our membership of the SCAP Steering Group and by committingto a number of key deliverables by 2010.Nike believes this partnership is a valuable opportunity to work togetherwith all stakeholders in the apparel industry and to share best practice andlearnings. We are also building a stronger relationship with the U.K. andEuropean governments as they consider legislation that will shape thefuture of the clothing industry in areas such as recycling, environmental
labeling, consumer awareness and sustainability. Nike clearly supportsthese policy goals and we believe that through this kind of partnership wecan help create market-based, realistic solutions to drive greatersustainability throughout our supply chain.Brazil Amazon Biome - Leather Sourcing Policy. In June 2009 Nikewas approached by the international environmental group Greenpeaceabout leather sourcing from the Brazilian Amazon Biome. Greenpeacehad just issued an extensive report detailing how cattle farming in theAmazon Biome basin caused significant deforestation issues, a leadingcause of Brazils contribution to climate change. Greenpeace asked Nikeand other companies to joiAn it in agreeing to stop working with leathersuppliers who were unable to ensure that their cattle farms in their supplychain were not located on deforested, indigenous or protected lands. Nikesigned on to Green Peaces Commit or Cancel policy and is currentlyworking with Greenpeace, the Brazilian Government, our suppliers andother brands through the Leather Working Group to deliver an effectivetraceability program to meet the goals of zero deforestation.Nike (NYSE: NKE) is making some big changes to how it manages itssupply chain. As part of its sustainability report released Thursday, theretailer said it plans to launch a new manufacturing index in 2012 thatwill place factories sustainable practices "on equal footing" with thetraditional supply-chain measures of quality, cost and delivery. The indexwill now include environmental and labor-sustainability metrics,according to the report. And Nike will use that index to evaluate itssuppliers.Its an interesting move with potentially widespread implications globallyamong suppliers -- and would-be suppliers -- to Nike. And with otherretailers -- including Walmart, which said last month that it wasexpanding its supplier scorecard program -- taking steps to addsustainability to its supply-chain requirements as well, it appears that thesupply-chain landscape may be poised for a shakeup that could givegreener and more socially responsible suppliers a competitive edge.Retail suppliers will likely be keeping a close watch on these leaderscriteria, which will begin to define sustainability for different products.We recently caught up via phone with Hannah Jones, Nike’s vicepresident of sustainable business and innovation, for more insight intoNike’s goals and its manufacturing index. Here’s an edited excerpt of ourconversation:GreenBiz: The report talks about making your factories faster,leaner and more efficient. How do you accomplish that withoutdescending into a Foxconn situation?
Jones: [There are] two elements to lean. One is the process change pieceof it, and the engineering change around how you think about products’efficiencies and quality. And the other is really about the culture ofempowerment that is core to making lean really work. For our industry,this is key. It requires…management [to] understand that the worker isthe closest to the process and to the act of manufacturing and thereforehas the greatest insight. And that actually what you need to do is putgreater value on the worker and enable the worker to feel empowered, sothat they can speak out and speak up and talk about where they can seeimprovements could happen.It starts to change the conversation between the managers and theworkers. It starts to change the conversation with the management, inhow they have to stop viewing workers as a cost and start seeing them asone of the core, valuable assets that they have. That makes them thinkmore about turnover rates. It makes them think more about HR systems,it makes them think more about supervisors being trained in managementand it makes them really think through how do they communicate, howdo they work with the workers to retain them. Because they want toinvest 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 buildingbetter working conditions. Because we think it’s the business conditionsthat enable a lot of the additional work we do, through our code ofconduct and through our Sustainability Manufacturing and Sourcingteam. Then we have this new manufacturing index, which locks inperformance on sustainability, performance on lean, performance onworkers’ rights into the core conversation between the buyer and thesupplier around where growth and volume will go and where orders willgo.GreenBiz: What do your sustainability goals mean for current andpotential suppliers to Nike?Jones: I think it’s a shift. And I think that the shift that’s been happeningover the last two or three years, that this report kind of begins to captureand signal, is that we have been rewiring the conversation internally andrewiring the conversation with our suppliers in which we really explain tothem that there are some new rules of engagement. And that our sourcingstrategy and our sustainability and working conditions strategies are onein the same. We’ve built a sourcing strategy that looks at having fewerpartners for the longer term that are optimized, to enable us to have thosefewer partners. And then really building in to how we have a businessdiscussion with them.So if you think before, in our industry, the traditional conversationbetween a buyer and a supplier is one of cost, delivery on time andquality. Those are always the driving kind of indicators [determining] are
we going to give you more orders or less orders? And so now what wasdone is we’ve said: sustainability. And I want to emphasize [that] when Isay sustainability it includes workers’ rights. Sustainability is one-fourthof that equation now.So our suppliers now know two things: one, their business with us isgoing to be dependent on how much they show their commitment tosustainability. And two, we’ve changed also from a ‘make your systemsless bad’ [approach] to actually describing a vision of good. It’s saying ifyou’re going to be on the journey with us…we’re going to need you toreally think about investing in your workers, investing in lean andinvesting in efficiencies and green.GreenBiz: What do your suppliers need to do to stand out, to getgood grades from your auditing team?Jones: We have a whole set of indicators, performance indicators thatthey 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] repeatoffences, which go up to and including termination of the relationship. Ifyou look at some of the data in the labor section of this [report], you’llsee that we have eliminated a number of factories because of theirunwillingness to consistently shift management strategy and culture [and]to build in sustainability and workers’ rights.GreenBiz: Other big retailers are on the sustainable supply-chainbandwagon: Walmart, for example, has a supplier scorecardprogram. Is the writing on the wall now for suppliers thattransparency is needed to remain competitive?Jones: I think the signals are getting louder and louder. I think what wasa whisper is now a shout. I think that’s a good thing. And I think that a lotof our suppliers are beginning to wake up; that there are new rules ofengagement and that they will be, in this era of transparency, owningtheir reputations. And that it will be important; that it is a competitiveadvantage.GreenBiz: How do you balance environmental and labor issues?Jones: We’ve been pursuing a huge amount of work around… the laborside of things and the environmental side of things. And then you’ll see inthe manufacturing index, the environment piece is coming into it. I thinkwhat 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 abalancing 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 teamthinks about. We run sustainability now as you would almost an
innovation pipeline. There are different kind of issues that hit at differenttimes in that pipeline. For some issues that we have out there, theresimply isn’t a solution yet that’s obvious. And what we need is…solutions. We need new technology and new chemistry, new materials, toswap out with the old. So there is an innovation challenge and it’s reallyabout sending a signal to innovators in the company and outside thecompany, that we are in the hunt for alternatives.As you get further down into the commercialization nature of things it’sabout how you get mainstream adoption. Because at the momentsustainability, absent strong policy levers being pulled, faces a scalingchallenge. There is a cost to early leadership, and it’s the early cost ofinvesting 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 getsustainable options to be the default, the more viable it becomes. Itbecomes a kind of self-fulfilling prophecy in a very good form.