Step Two: Presenting Suppliers with Integrity Guidelines and Expectations

Once a company has identified the critical suppliers that it wishes to include in the certification program, and ranked them according to relative importance, specific requirements need to be communicated to suppliers in a way that helps them understand both what they need to do and why it needs to be done. The way in which a company conveys this message can be all-important, insisting upon cooperation, while at the same time providing information, guidance, and assistance in equal measure.

It is therefore important from the outset that the supplier s organizational leadership understands that the initiative is not simply a cynical public relations exercise, or that fulfilling the requirements will create an unreasonable administrative burden for them. Too often that has been the case, and it has caused suppliers to be wary.

. . . Many in developing economies perceive codes and monitoringas an ˜outside-in affair, explains Michael Allen, from Global Alliance, reflecting purchasers reputational concerns or the political agendas of Northern NGOs and labor unions. Host-country vendors and managers often resent what they see as external intrusions driven by distant interests. ^{[6 ]}

This is another reason to move beyond the all-too-typical survey by mail approach that many companies have turned to when faced with the need to understand a supplier s social and environmental behavior. Introducing the requirements to suppliers usually requires providing supplier management with a written copy of the company s value statement, the code of conduct or specific standards, and a separate list of clearly defined and prioritized actions that they need to take in order to ensure compliance. This written material should include a straightforward explanation of why your company needs this type of certification, as well as:

• A project outline which details key timescales and milestones

• A list of names and contact information for company representatives

• Training materials that are available

• An explanation of company-sponsored funding, guidance, training, or conferences that will be made available to them

Leading practices indicate that there are several important things to consider when introducing standards requirements to suppliers. First, and most important, the initiative should belong as much as possible to the organizational leadership of the supplier. They therefore need to accept not only the value and necessity of the certification exercise, but the importance of achieving genuinely high standards of employment and environmental practices. They need to take responsibility for their actions, but to ensure that this happens, it will be important to be able to make a case for action, not only for your company, but for them as a supplier, as well. That is why, whenever possible, supplier management should be invited to participate in developing the codes and standard program, or at least be invited to attend company-sponsored supplier education workshops.

Case Study: Adidas-Salomon: Supply Chain Management

SITUATION

The Adidas sporting goods brand is famous across the world and, like any household name , it could potentially become the target of protests and media pressure if its parent company s policies and practices fail to win public approval.

Using an external supply-chain has allowed Adidas-Salomon to keep its costs down and remain competitive. However, the company s supply chain is long and complex, relying on about 570 factories around the world. In Asia alone, its suppliers operate in 18 different countries . Moreover, its cost-saving use of external suppliers is not without risks: in particular, the company has less control over workplace conditions at its suppliers factories than it would have at company-owned sites.

Outsourcing therefore raises a broad range of issues and concerns for the company. Employment standards have to be evaluated throughout the supply chain to ensure fairness and legal compliance on such matters as wages and benefits, working hours, freedom of association and disciplinary practices as well as on the even more serious issues such as forced labor, child labor and discrimination. Furthermore, health and safety issues, environmental requirements and community involvement also need to be considered .

TARGETS

Outsourcing supply should not mean outsourcing moral responsibility. Recognizing this, and having regard to the risks and responsibilities associated with managing a global supply chain, Adidas-Salomon has designed and implemented a comprehensive supply-chain management strategy.

That strategy is to source the company s supplies from the cheapest acceptable sources rather than from the cheapest possible. The company has its own so-called standards of engagement (SOE) and the level of acceptability is based on the values of the company itself. Contractors, sub-contractors, suppliers and others are therefore expected to conduct themselves in line with Adidas-Salomon s SOE.

The strategy is based on a long- term vision of self-governance for suppliers ” adidas does not wish to be forever in the position of looking over the shoulders of its suppliers.

ACTIONS

The company has a 30-strong SOE team, most of whom are based in the countries where suppliers are located (Asia, Europe, and the United States). They know the labor laws and safety regulations in their countries and are often able to interview workers in their own language.

Before a relationship is formed with any new supplier, an internal audit is carried out to ensure working conditions in that supplier meet Adidas-Salomon s SOE criteria. All business partners sign an agreement committing them to comply with the SOE and to take responsibility for their subcontractors performance on workplace conditions. The monitoring process is continuous as suppliers are audited at least once a year, and more often if serious problems are detected .

Training forms an even more important part of the process than monitoring because it goes beyond the policing role to one that will have a long-term impact. As of October 2001, some 200 SOE training sessions had been held for business partners during the course of the year, a significant increase on the 150 courses held the year before.

RESULTS

About 800 audits were conducted at different levels in the supply chain during 2000. This involved interviewing managers and workers, reviewing the documentation, and inspecting facilities. Since then, the audit process has continued .

Using the information gained from these audits, presentations are made to the management of the supplier, outlining any problems found and the consequential action points. Clearly defined responsibilities and timelines are then agreed with the site managers. Where serious problems are detected, a follow-up visit may be conducted within one to three months. If the supplier is unwilling to make the necessary improvements, Adidas-Salomon may withdraw its business. This course of action is a last resort; the company prefers to stay in partnership and to work from the inside to help encourage improvements.

In 2000, Adidas-Salomon adopted a system of scoring and reportingon its suppliers performance. This gave an overview of the supply chain and highlighted the main issues and problem areas on a countryby-country basis, but an improved and extended system is now being developed. This will allow the company to publish even more detailed reports about the progress that it, as a company which manages large and complex supply chains, has been able to make in the important areas of social and environmental performance.

Source: World Business Council for Sustainable Development, January 2, 2002 at www.wbcsd.org.

 

^{[6 ]} Michael Allen, Analysis: Increasing Standards in the Supply Chain, Ethical Corporation , October 2002, pp. 34 “ 36.