Proposal C4: Report publicly on how suppliers are chosen and/or eliminated.

Report publicly on the company’s policies for supplier/vendor selection, management, and/or termination, including new source approval process, linking of supplier CSR performance with sourcing decisions, and strategy for managing impact of exiting factories.

Why?

The industry needs to better measure and report on its sourcing practices. Transparent reporting on company policies concerning transitions and closures would assist in developing collaborative efforts with other buyers and stakeholders, as well as encouraging better practice by other companies in the industry.

Responses

adidas

adidas reports publicly on these issues in its Annual Sustainability Reports, and has committed to publishing its Standard Operating Procedure for the approval of new suppliers, its Guideline for enforcing workplace standards and its Standard Operating Procedure (SOP) for factory terminations on its website.

Full response

"We have published our Workplace Standards and associated policies and guidelines. These are accessible on the adidas Group website, under Sustainability. Our recently revised Standard Operating Procedure (SOP) for the approval of new suppliers is soon to be posted on this site, together with our Enforcement Guideline and our SOP for factory terminations.

"We have described the linkages between our sourcing decisions and the compliance performance of our suppliers previously, in our annual Sustainability Reports. These are also to be found on our corporate website.

"The following provides amplification.

"Sourcing and Supplier Selection: To meet our fiduciary and governance obligations as a business we follow well developed and mature risk management processes. These processes inform and influence our sourcing strategies at a country level. Hence, in order to mitigate geo-political, trade and other business risks, we have established a balanced portfolio of suppliers across multiple sourcing countries. We recognize that some of these sourcing countries do not have independent trade unions, but they have a highly evolved and well established infrastructure for the export of manufactured goods that meet our sourcing needs.

"Our process of supplier selection is driven by our Sourcing organization nominating factories that pass technical performance criteria (in particular quality standards). These nominated suppliers are then screened for social compliance. Those that meet our minimum thresholds under our Workplace Standards are approved. Those that fail are rejected, or rejected subject to a second visit to permit remedial actions. We are not involved in comparative exercises, choosing one supplier over another where the selection could then be determined based on the unionized status of the supplier, or any other single factor.

"As for retention of suppliers, the reasons for termination of business relationships may be manifold – driven by concerns over technical performance, quality, available capacity, on-time-delivery, financial stability and investment levels, a failure to agree prices, etc. Occasionally, factories are also terminated due to repetitive non-compliances or zero tolerance issues under the Workplace Standards. This however is normally the last resort following extensive engagement and a ‘three strikes’ warning letter system, which calls for remedial action on the part of the supplier.

"Order Allocation and Management of Suppliers: Decisions taken on order placements – if we take, for example, our footwear sourcing division - are based on a range of factors, among them the overall market conditions and consumer demand, seasonal fluctuations, supplier performance, product/category mix and the balancing of orders between suppliers to maintain committed fill rates. In evaluating the ongoing performance of a supplier, our Sourcing colleagues refer to the factory Footwear KPI data.

"The Footwear KPI data measures a range of parameters including quality, on-time delivery, innovation (R&D) and management commitment. In addition to these factors, the Footwear KPIs contain labour and social compliance parameters, including worker turnover levels, average working hours (cf. targeted levels) and a composite SEA indicator.

"The SEA indicator considers six units of measure:

"1. Measuring management commitment to the effective delivery of the agreed strategic compliance plan;

"2. Measuring supplier management systems for HR and HSE includes an evaluation of certifications for environment and health and safety, development of HR and HSE systems, retention of qualified professionals for those management systems, and internal audit assessments of labour and HSE;

"3. Measuring worker management communications and industrial relations focuses on the factory’s ability to resolve disputes, respect forms of worker representation, develop effective grievance procedures and promote sustainable worker-management communications;

"4. Measuring the delivery and effectiveness of internal training for factory staff focuses on the process for training needs assessment, the scheduling and execution of training programmes, and the capital investment for training. Trainers are evaluated for skill, knowledge and experience and the factory training records are also reviewed;

"5. Measuring transparency in communication and reporting focuses on proactive factory reporting of self-assessment audits and action plan progress. It also scores factories on whether workers are coached, verification of document authenticity, and communication of the Workplace Standards to the workforce and subcontractors; and

"6. Measurements for compliance auditing focus on the factory management’s responses to non-compliance.

"Please note that the adidas Group has no plans to make public the full workings of our internal sourcing and order placement tools, our supplier rankings, or the individual scores or KPIs contained therein."

Lotto

Lotto says its selection policy adheres to its Code of Conduct, but makes no commitment on CSR performance, and managing the impact of exiting factories.

Full response

"In terms of our selection process, when identifying a supplier we adhere to the terms that are outlined in our Code of Conduct, we also consider whether a supplier can meet our demands of quality and quantity, delivery times and level of service required. We also emphasise that
our weight, compared to the weight of our competitors is minimal, and therefore, it is extremely rare that a factory would suffer should we cease our partnership with them, in the instance of a factory closure, it would in fact be Lotto Sport Italia that would suffer."

Mizuno

Mizuno states that its selection policy and CSR performance rules our found in its internal “Group Rule of Supply Chain Management “ which it is not willing to make public; but it is willing to publish its Vendors Human Rights Checklist. The company has no policy on factory closures.

Full response

"We have corporate policies for supplier selection that on start of business with supplier Mizuno group shows supplier documents required, evaluates supplier’s capability by using sheets specified and submit to conduct a labor audit related with CSR if necessary.

"The chapter 2 in our internal rule of practice for supplier/vendor titled Group Rule of Supply Chain Management undisclosed (the “RSCM”) provides the procedures detailed on start of business. In our view we select supplier that has advantages both in capability of performance and CSR.

"The chapter 3 in the RSCM provides procedures of business period including specific labor audit, factory profile questionnaires and factory visit report. We have no procedures on termination except provisions of OEM agreement as we have policies that we should instruct suppliers if we find problems in suppliers.

"We will prepare to disclose our labor standards program titled Mizuno Business Standards, Overview Evaluation for Vendors Human Rights Checklist undisclosed (the “Checklist”) in near future. There is no plan to disclose the RSCM as we regard it an internal rule."

New Balance

New Balance provides some general information on its selection policy, but makes no commitment on CSR performance or on managing the impact of exiting factories.

Full response

"A new supplier must be determined to meet a certain level of standard prior to producing New Balance products as part of our factory selection process. This means undergoing an audit or providing results of a recent audit from a company with standards at least equal to those of New Balance. Factories with management that show indifference to solving problems and working with our compliance teams for improvement, or violate a 'no tolerance' issue, are terminated."

Nike

“This is something that Nike currently reports on in our Corporate Responsibility reports.”

Full response

“This is something that Nike currently reports on in our Corporate Responsibility reports.”

Pentland

Pentland reports information to the Ethical Trading Initiative regarding its supplier selection procedures, but this information is not available to the public. The company makes no comment on its termination policy or strategy for managing impact of exiting factories.

Full response

"Annual reporting to the Ethical Trading Initiative. These reports are available to the tripartite partners within the ETI on a confidential basis. Information relating to presence of unions and collective bargaining agreements, length of relationships with factories and supplier selection procedures is covered in this reporting."

Puma

Puma will report on its supplier selection process in its upcoming Sustainability Report. The company makes no comment on its termination policy or strategy for managing impact of exiting factories.

Full response

"Both the VRS and our Strategic Partner concepts ensure that there is an objective basis for purchasing decisions based on equal consideration to price, quality, delivery, compliance and medium- to long-term investment commitment. We are constantly improving the implementation of our VRS and the Strategic Partner concept and we will be reporting on this in greater detail in our upcoming Sustainability Report. In our latest report, we have already provided information on the performance of direct and licensee sourcing in each country."

Asics

ASICS says it has a policy for supplier/vender selection and procedure for starting business with a supplier, but not a termination policy. The company does lists factors taken into account when considering terminations such as: the length of the relationship, changes in the business environment, ASICS’ changing business strategy, product delivery, product quality, etc. The company also says it tries to leave factories gradually by reducing orders through 1-2 seasons and by informing the supplier of the pullout in time to let the supplier look for new clients. No mention of linking CSR performance to sourcing.

Full response

We have policy for supplier/vender selection and procedure for starting business. The termination policy and procedure does not exist. At this moment, data collection is not yet completed. We haven’t sufficient figures to show.There is new source investigation flow chart to see whether the factory complies with the law and our code of conduct. The investigation result is discussed at the decision making of new sourcing. After decision is made, CSR team discussed the date for initial audit to factory. Based on the compliance status, the factory visit will be scheduled at once or after a certain period of time. As a general rule, Asics conducts initial audit by internal auditor and start non-compliance remediation plan.Director and general manager of business unit make the termination decision for existing factories for case-by-case. The prerequisite conditions for termination are various; the length of relationship, changes of business environment, changing business strategy to Asics, delivery, product quality, etc. Asics thinks it is not effective to prepare the termination policy and procedure of factories. We have not a special strategy for managing impact of existing factories.When we leave the factory for instance, we dare not immediate pullout. We try to leave factory smoothly but not to exacerbate factory's economic position to an extreme degree. Asics brings complete pullout into view for 1 to 2 seasons by keeping reducing the order progressively We inform factory in advance before leaving so that they can have time to look for new clients.

Response Key

The brand claims to implementing all components of this proposal or has agreed to implement them within Play Fair's proposed timeframe.

The brand is currently implementing or has agreed to implement some of the essential components of the proposal but has refused to implement, has overlooked, or has raised issues with one or more important components; or, the brand agrees to implement the proposal but not within Play Fair’s proposed timeframe.

The brand has refused to implement the essential components of the proposal.

The brand has misunderstood or failed to comment on the proposal; or the brand is considering the proposal, but has yet to make a decision.