Spotlight on Sustainable Sourcing

As summer returns to New England, Calyptus is devoting the month of June to focusing on a frequent topic of discussion in the procurement community – sustainable sourcing. Given the range of definitions of this term and the equally diverse ways that companies are addressing the issue – we are exploring the trials, successes, and tribulations that companies are experiencing in this area through individual case studies.

We start our series with the footwear and apparel industry – a sector that tends to receive a lot of negative press in the realm of environmental-friendliness and fair labor practices.

Once perennially chastised for allegations of lax oversight of their global suppliers, Nike appears to have put a lot of effort into their sustainable sourcing practices.

Nike has received a lot of attention lately for its Sourcing and Manufacturing Sustainability Program, which essentially gives equal weight to sustainability measures compared to the traditional aspects of quality, delivery, and cost used in supplier evaluation. The company is implementing a Sourcing and Manufacturing Sustainability Index (SMSI) designed to measure suppliers in the following areas:

• Health and Safety
• Labor and Human Resource Management
• Lean Commitment
• Energy Use and Carbon Output
• Environmental Sustainability

If suppliers are found to be noncompliant according to the SMSI system, they will need to fund third-party audits until they are brought to a minimum standard of conduct (what Nike calls “Bronze” level performance).

Though the brand team and marcom folks definitely have a heavy hand in this effort judging by the content and design of the Nike Responsibility site (the word “sustainability” is mentioned over 30 times on a single page), there appears to be a solid backbone to this initiative based on the following:

• Measurement. A team of 70 Nike employees and a set of third-party auditors evaluate individual factories every 12 to 18 months. Factories receive a score based on evaluation metrics and are held accountable for their performance. The company has also set a variety of specific goals and targets to be met by the year 2020.
• FLA Membership.  Nike is a voluntary member of the Fair Labor Association, which means that they are accountable for monitoring 100% of their supply chain to ensure that FLAs strict labor standards are met. FLA also conducts random assessments of Nike factories, the results of which are made public on the FLA website.
• Alignment. The company has collected data from hundreds of contract factories producing for the Nike brand and affiliates; bringing all factories into alignment with a single Code of Conduct.
• Training. Training programs have been rolled out to 76 Asia-Pacific factories and over 400 factory leaders on Human Resources Management, environmental sustainability and energy issues.
• Transparency. You have to hand it to Nike for publishing such a wealth of detailed information to the public about their sustainable sourcing efforts, including an interactive map that displays the names, locations, and statistics on hundreds of factories worldwide.

So what does the Nike example tell us about the state of sustainable sourcing today?

1. Many companies are still trying to get measurement down. Taking a look at the stats published on the Nike Responsibility website and the noncompliance elements highlighted in FLA reports, there is still a lot of work to be done in simply collecting data and tracking the efforts of suppliers, especially with supply chains that number in the thousands. In 2009, Nike lacked data on nearly 500 of their suppliers to sufficiently evaluate them.
2. Sustainable sourcing efforts can have a positive effect on the brand. Nike has jumped up nearly 10 spots since 2001 on Interbrand’s Ranking of Top 100 Brands. Interbrand measures companies based on financial performance, brand role and brand strength and incorporates primary research with consumers into their methodology. Interbrand cites environmental responsibility and other sustainability factors as key components in the favorable ranking of several top brands on the list.
3. Sustainable sourcing and fair labor practices are catching on in the footwear industry. In the case of this industry in particular, the trend in sustainable sourcing is contagious. PUMA, Adidas, Asics, and New Balance are also all members of the FLA and also highlight their social responsibility and sustainability efforts quite prominently. At the very least, these brands all seem to recognize the importance of the issue to consumers and appear to be taking steps towards a sourcing approach that is less wasteful and more equitable.