In April 2005, Nike surprised the business community by releasing its global database of nearly 750 factories worldwide. No laws required the company to disclose the identity of its factories or suppliers.
Yet, between the early 1990s and 2005, Nike went from denying responsibility for inhumane conditions in its factories to leading other companies in disclosure. This response to a supply chain crisis was a strategic shift.
This shift illustrates how a firm can use transparency to mitigate risk and add value to its business.
Making the Shift toward a Sustainable Supply Chain
David Doorey (York University) conducted a case study of this transformation, drawing on interviews with company executives, industry professionals, and representatives of unions and NGOs involved in the push for factory disclosure.
In the early 1990s, Nike executives began to see reports of abusive labor conditions in their supplier factories as a risk to their brand image. Nike’s traditional line denying responsibility for conditions in these factories no longer satisfied a growing number of customers.
On top of that, media images of children sewing Nike soccer balls and running shoes sent social activists, academics, and journalists into a costly anti-Nike campaign.
Nike leaders realized they were facing a supply chain crisis. They needed a new strategy to deflect the growing criticism and improve their suppliers’ performance. Starting with the creation of a new labor practices department, Nike introduced a series of changes to enable better monitoring of sources of risk associated with suppliers’ labor practices. These changes included:
Conduct a basic audit: Nike introduced the SHAPE internal monitoring system to provide it with an initial assessment of whether a proposed new factory was near satisfying the code of conduct. Factories flagged as high risk would also undergo a more comprehensive “M-audit.”
- Create a corporate responsibility and compliance division: Senior management created a new division to facilitate the integration of corporate responsibility issues throughout the business. This brought together sustainability and compliance employees working across product groups.
- Assign field managers: Nike assigned field managers to the various regions. They were responsible for monitoring day-to-day compliance with labor laws and the Nike code.
- Establish a global database: Head office developed a comprehensive database to help track the global supply chain and access audits conducted in the field.
- Initiate external expert review: In 2004, Nike invited a panel of external experts to review a draft of its 2004 corporate responsibility report. The committee concluded that Nike would not receive the credit it craved from the NGO community unless it released the names and addresses of its entire factory database.
From Supply Chain Crisis to Sustainability Leadership
These monitoring and enforcement systems created confidence internally, which was necessary before releasing the list externally in 2005.
Nike turned this unprecedented response to its supply chain crisis into a lucrative marketing opportunity that outweighed competitive risks associated with factory disclosure. It advertised its new transparency as evidence of its new commitment to labor practices.
In fact, the company turned its full disclosure into a badge of honor among the apparel industry.
Seeing the success that Nike enjoyed from this move, many of Nike’s competitors disclosed their factory lists, including Levis, Timberland, Puma, Adidas, and Reebok.
Better Strategies for Supply Chain Management
What can other organizations take from Nike’s experience to avert their own supply chain crisis?
- A systematic supply chain monitoring mechanism can help address the worst practices. Moreover, this mechanism is foundational prior to adopting greater transparency. If you don’t know about it, you can’t fix it.
- A defensive strategy is not a realistic long-term approach. Companies have difficulty hiding from the media and should replace defensiveness with a proactive strategy that uses code monitoring and enforcement — and eventually full disclosure — to their advantage.
Companies should replace defensiveness with a proactive strategy that uses code monitoring and enforcement — and eventually full disclosure — to their advantage.
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