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Over the past ten years, we have continually refined our methods, tools and techniques to monitor and promote our suppliers’ compliance with our Workplace Standards.

We have adjusted our methodologies and tools to the different sourcing relationships the adidas Group has in place with supplier factories. There are two models, direct sourcing and indirect sourcing.

The strategy applied to our direct suppliers is based on a long-term vision of self-governance in our supply chain where suppliers take ownership of their compliance programme. To help our suppliers, members of the Social and Environmental Affairs team conduct factory inspections, assessing risks and identifying root causes of non-compliances....

The strategy applied to our direct suppliers is based on a long-term vision of self-governance in our supply chain where suppliers take ownership of their compliance programme. To help our suppliers, members of the Social and Environmental Affairs team conduct factory inspections, assessing risks and identifying root causes of non-compliances. This approach evaluates management commitment to compliance, the effectiveness of the factories’ compliance systems and in turn leads to a more precise evaluation of training needs.

Factories are required to develop strategic compliance plans (SCP) in which they outline their strategies to meet our Standards. The plans include targets, programmatic actions, planned investments and timelines.

Factory performance is measured annually through a key performance indicator (KPI) which is linked to our Sourcing organisation’s management and tracking systems.

Some adidas Group business entities source products through intermediaries such as agents. We also develop new market opportunities with licensees who independently manage production....

Some adidas Group business entities source products through intermediaries such as agents. We also develop new market opportunities with licensees who independently manage production.

These business entities are obliged to submit three-year plans outlining their strategies, programmes and actions to ensure compliance in their supply chains as well as commission audits by adidas approved external monitors who verify the outcomes of the compliance plans and activities. We then measure the licensee’s annual compliance performance using a comprehensive scorecard.

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The following graph illustrates the non-compliance findings identified during Initial Assessments and Initial Assessment Follow-ups at new factories in our supply chain in 2012. In total, 61% of the findings related to health and safety and 39% to labour issues.

Non-compliance findings during Initial Assessments and Initial Assessment Follow-ups in 2012

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The next graph below takes a closer look at labour-related non-compliances identified in supplier factories, with two-thirds of the findings relating to the top three issues “Wages”, “Benefits” and “Working Hours/Overtime”.

Besides identifying non-compliances with our “Workplace Standards” at factory premises, the adidas Group compliance team particularly focuses on the existence and implementation of management systems on the supplier’s side. The team identifies any gaps in policies and procedures related to specific non-compliance areas such as forced labour, child labour, freedom of association or discrimination. As a result, the findings presented in the below graphic must be seen as broad categories. The percentages shown indicate the systemic shortcomings of newly proposed suppliers, rather than the confirmed presence of specific non-compliances, such as child labour, forced labour, or discrimination (see also footnote below graph).

Top 10 Labour Non-compliance findings identified in factories during
Initial Assessments and Initial Assessment Follow-ups in 2012



^{* “General Principle” covers e.g. company policies, employee handbook, management attitude and transparency, employment contracts and filing systems.
** “Child labour” covers management systems, policies and practices to prevent the employment of child labour and the necessary protections for juvenile workers, if they are of a legal age to work. The 4% here mainly addresses the lack of effective management systems to prevent child labour or effectively manage juvenile labour.
*** For example industrial relations and privacy issues.}

When suppliers fail to meet our Workplace Standards, we apply the sanctions and remedies from our Enforcement Guidelines....

When suppliers fail to meet our Workplace Standards, we apply the sanctions and remedies from our Enforcement Guidelines. These include:
- Termination of the manufacturing relationship
- Stop-work notices
- Third-party investigations
- Warning letters
- Reviewing orders, and
- The commissioning of special projects to remedy particular compliance problems.

Two types of non-compliance
Breaches of the Workplace Standards are categorised into zero tolerance points and threshold issues. Zero tolerance includes prison labour, serious, life-threatening health and safety conditions and repeated or systematic abuse. A finding of a zero tolerance non-compliance means an immediate and urgent engagement with a supplier and if verified, we will terminate the relationship with that supplier.

Threshold compliance issues include serious employment issues, serious health, safety or environmental issues and any combination of the two. The Enforcement Guidelines for threshold issues can disqualify a new supplier or lead to enforcement actions with existing suppliers.

Warning letter system
When we find ongoing and serious non-compliances and a lack of commitment on the part of the management to address the issues, we will, when appropriate, issue a formal warning letter. In very serious cases or in cases of zero tolerance non-compliance, a ‘stop work’ letter will be issued advising the offending supplier that SEA has recommended the business relationship be terminated.

The adidas Group participates in the Fair Labor Association (FLA), a tripartite organisation of companies, universities and NGOs dedicated to the sustainable improvement of workplace conditions. Through our affiliation we seek to verify the efficacy of our programme activities and to publicly report those activities to stakeholders....

The adidas Group participates in the Fair Labor Association (FLA), a tripartite organisation of companies, universities and NGOs dedicated to the sustainable improvement of workplace conditions. Through our affiliation we seek to verify the efficacy of our programme activities and to publicly report those activities to stakeholders.

The FLA accredited the adidas Group’s compliance programme in 2005, and re-accredited the programme in 2008. The next review and accreditation cycle was re-scheduled for 2013. Read more about the FLA’s monitoring activities on their website at http://www.fairlabor.org.

The Social and Environmental Affairs team rates suppliers using our Key Performance Indicator (KPI) rating tool. The KPI evaluates six fundamental elements of social compliance including management commitment, the quality of management systems in place, worker-management communication, training delivered, transparent reporting and measurement of compliance activities....

The Social and Environmental Affairs team rates suppliers using our Key Performance Indicator (KPI) rating tool. The KPI evaluates six fundamental elements of social compliance including management commitment, the quality of management systems in place, worker-management communication, training delivered, transparent reporting and measurement of compliance activities.

The KPI assessment provides a score for each of these individual sections and a cumulative score called a C-rating, 1 through 5. They determine the classification of suppliers in one of three clusters:

The Risk Management cluster includes the lowest performing suppliers. We help them to improve their performance and if they respond, they are moved up to the partnership cluster. If not, we wind down and eventually terminate our commercial relationship with them.

The Partnership cluster includes those suppliers who can benefit from significant training support so we focus on capacity-building programmes in collaboration with other companies and multi-stakeholder initiatives.

The Self-governance cluster is for those suppliers that are capably managing a programme of good industrial relations, health and safety, and employer-employee communications. These suppliers must have an internal compliance policy and practice and transparently report these activities.

We integrate basic compliance and long-term sustainability into the core sourcing management tools and performance measurement systems, so our key business partners understand how their social compliance score impacts our ongoing business relationship. This transparency and integration with sourcing decisions is fundamental to the success of our efforts to drive improvements in workplace conditions....

We integrate basic compliance and long-term sustainability into the core sourcing management tools and performance measurement systems, so our key business partners understand how their social compliance score impacts our ongoing business relationship. This transparency and integration with sourcing decisions is fundamental to the success of our efforts to drive improvements in workplace conditions.

The adidas Group Global Sourcing Organisation has established strategic programmes for its apparel (GASA), footwear (FACT) and accessories & gears (ASPECT) suppliers that are built on the principle of continuous improvement and rewarding suppliers for their performance and fulfilment of Global Sourcing’s needs. The programmes set out expectations from our strategic Tier 1 and Tier 2 suppliers by setting compliance milestones and mid- and long-term goals.

To ensure consistency across the sourcing business, the sustainability milestones adopted for GASA and FACT are closely aligned and linked with the Group’s 2015 Environmental Sourcing Strategy.