To better use resources of our SEA team and achieve more effective and sustainable compliance outcomes, we spent 2010 fine-tuning our strategic approach to specific levels of supplier performance. We have identified three clusters of supply chain profile that are based on a factory's KPI compliance rating:
- The Risk Management cluster includes those factories scoring at 1C or 2C - about 67% of our supply chain
- The Partnership cluster includes 3C factories - about 25% of our supply chain
- The Self-governance cluster is composed of 4C and 5C factories - about 8% of our supply chain.
In the Risk Management cluster, factories have made little or no progress improving performance against the KPI units of measure. The compliance activities, if they are executed, are generally ineffective or weak. In 2010, we have focused our monitoring on identifying and managing threshold and zero tolerance compliance issues. The future outlook for suppliers in this cluster includes dedicated attempts to transition them to the partnership cluster or identify exit strategies for the lowest performers who do not improve their performance.
In the Partnership cluster, factories have shown acceptable compliance performance. Our approach here is on collaborative monitoring activities with other brands and multi-stakeholder initiatives. Noteworthy in 2010 was the rollout of harmonised corrective action plans, where all buyers from a factory agree to one set of remediation activities. The future outlook for suppliers in this cluster is a strong capacity-building programme to improve compliance performance and further harmonised auditing activities with other companies and multi-stakeholder initiatives.
Factories in the Self-governance cluster manage their own compliance activities in a verifiable and transparent manner. These suppliers have all shown a strong commitment to compliance and are guided by three-year Strategic Compliance Plans. They have effective management systems in place for employment and health and safety, and employ a capable compliance organisation. They promote good industrial relations and employer-employee communications as well as train their employees in sustainable compliance policy and practice. They embrace a transparency mindset. Notable 2010 self-governance activities included factory participation in the ILO's Better Work programme and as FLA participating companies.
Three compliance performance clusters of our supply chain (2010)
Other outcomes this year
- In 2010, we started to link our Human Resources Management Systems approach with the emerging audit methodology for the Sustainable Compliance Initiative (SCI). The SCI focuses monitoring on the stages of the employment life cycle, from recruitment through to leaving employment.
- We issued 55 Business Entity Report Cards this year, more than double the previous year's number. This reflects our commitment to embed SEA and sustainability policies and practices in the business entities of the adidas Group. The activities that informed the Report Cards show an extension of our monitoring coverage of the indirect supply chain and the Report Cards themselves track and measure the success of the business entities in sourcing responsibly.
- The Strategic Compliance Plan (SCP), a rolling three-year roadmap for compliance activities, was simplified and expanded to more of the supply chain this year. At the end of 2010, there were more than 330 suppliers working on SCPs. 85% of these suppliers are in China, Indonesia, Thailand and Vietnam. This not only increased the integrity of the Key Performance Indicator scores (factory ratings) but helped guide collaboration activities with other buyers in shared factories.
- We increased collaboration with other brands in shared factories and focused more attention on harmonising or creating common corrective action plans, specifically in Brazil, Indonesia, and Mexico. In China, we led a brown shoe industry partnership with nine other global brands to harmonise our guidance to Stella, one of the world's largest shoe manufacturers, so they could deliver one set of corrective actions to satisfy all their major customers.
- Supporting the direct field work were numerous engagements with governments to more rigorously enforce their national laws or trade agreements, especially in El Salvador, Indonesia, USA, Honduras, Madagascar, Mexico, and increased support from the commercial and business units of the Group to communicate and enforce SEA expectations and compliance.
Read more about our engagement with stakeholders.