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Supply Chain
Adidas Implements New Strategies to Lead in Supply Chain Transparency

Adidas recently released its 2012 sustainability report, which outlines the many successes, as well as the challenges and shortcomings, the athletic wear manufacturer has experienced in the past year. The company has improved transparency within its supply chain, introduced more sustainable manufacturing processes — such as its waterless DryDye t-shirt line — and improved energy efficiency in many of its stores. All of these initiatives and dozens of others are part of the company’s goal to meet a series of aggressive goals on the environmental, governance and social fronts by 2015.

Some goals are proving more difficult to achieve than others. As media outlets have pointed out, Adidas fell short of verifying its suppliers’ data over the past year. And other goals Adidas has set for 2015, such as water efficiency and promises of more sustainable apparel, will be a challenge to meet in two short years.

In an interview last month with Frank Henke, Adidas' Global Director of Social and Environmental Affairs, he explained some of the hurdles a company with such a large and tangled supply chain confronts, and shed light on how the company is working to stamp out inefficiencies and ensure working conditions are fair and safe for the company’s factory employees around the world.

“Becoming a sustainable company is a marathon, not a sprint,” Henke said from the company’s Germany headquarters. In order to improve environmental and social performance throughout Adidas’ factory base, he said the company had to do more than become merely a global policeman. Such a confrontational approach would hardly work; many apparel manufacturers are contractors who can simply move to another factory if they find their customers' demands too burdensome. At the same time, too much reliance on third-party audits can lead to the abuse and manipulation of data.

There is a middle way. First, companies have got to be involved as they improve conditions in the factories making their products. To that end, Adidas has a team of 65 professionals who not only conduct audits but work with factory owners and managers on capacity building, employee training and programs that help these facilities meet Adidas’ standards for its suppliers. The company also partners with NGOs such as the Fair Labor Association (FLA), a workers’ rights advocacy group, to run independent factory audits, and engages with local companies to train factory managers on a variety of issues from compliance to labor laws to human rights.

Yet all this training poses another problem for Adidas and other apparel manufacturers: As more companies strive to make their supply chains more ethical, the same factory managers that Adidas trained to embrace this new way of doing business are often quick to accept a better offer from another company. So Adidas must do far more than just teach managers about compliance and environmental matters: The company has to figure out ways to build better relationships with these managers and incentivize them to stay. All of this sounds impressive, but the onus clearly is on Adidas to improve compliance throughout its factory base. As its own sustainability report reveals, suppliers who self-govern increased from 11 to 15 percent; a big jump percentage-wise, but many of the company’s stakeholders will expect more from Adidas.

The company is testing out new ways to improve working conditions at factories. New approaches are necessary on the shop floor: Many workers will not drop a card in the suggestion box if they believe they are watched, and calling a hotline is not always a comfortable option for workers. In Indonesia, Adidas and one of its largest factories are testing out a new method — SMS texting.

According to Henke, the system gives workers a discreet channel through which they can complain, suggest ideas or leave positive feedback. All of the text messages are sent to a central server and then managers can run queries to see what complaints are most critical, what kind of changes could be made within the factory to improve workers’ comfort or what new processes could help the factory become more efficient. For now this SMS texting program pilot is at one of the company’s largest footwear suppliers in Indonesia where 9,000 workers have the choice to participate in the system. Eventually the plan will roll out to four more factories in Indonesia and one in Vietnam. As far as employee engagement goes, the system has already revealed a wealth of information: Adidas’ sustainability report states 79 percent of the texts were related to grievances in the workplace.

The challenges Adidas confronts within its supply chain are similar to those experienced by other multinationals in different industries. While increased transparency and new ways of communicating with workers are admirable, the stubborn fact persists that Adidas and its competitors do not have a choice: In the aftermath of the Bangladesh factory collapse, consumers are even more conscious about the impact their purchasing decisions have overseas. Adidas will have to simply expand these programs and add even more; the marketplace will dictate that the company, and the entire apparel industry, do no less.


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