Impact of Reebok and adidas Supply Chain Integration on Factory Workforce

Herzogenaurach, 2 October 2006 - One of the major goals of the merger of adidas and Reebok into a newly combined company, the adidas Group, is to generate growth in company revenue, achieved in part by consolidating the companies’ supply chains. While we expect a reduction in the total number of suppliers making adidas Group products, we do not expect the overall number of factory workers to diminish significantly, as our long term business partners continue to expand their operations.

Establishing a World Class supply chain

In our efforts to build a world class supply chain that supports our business needs, the performance of both adidas and Reebok suppliers is being carefully reviewed using performance indicators that assess innovation, quality, customer satisfaction and factory workplace conditions. As a result of this process, suppliers who best fit the adidas Group business targets for achieving excellence are being identified and selected as future business partners.

Termination of business relationships

Those suppliers who do not qualify as long-term business partners, will be terminated in accordance with carefully developed termination guidelines. These guidelines are consistent with criteria established by the MFA (Multi-Fibre Arrangement) Forum and the Fair Labor Association, and have been informed by the mature experiences of our two brands. The adidas Group Sourcing Department, together with the Legal and the Social & Environmental Affairs Departments, have developed this termination process in order to cushion potential economic and social impacts on workers and factory managers. Wherever possible, suppliers are given at least 6 months advance notice of the termination of the business relationship.
 
Many of the suppliers who will receive such notice produce for multiple buyers and our orders represent a small percentage of their overall business. Therefore, in such cases, any impact would be small to insignificant. However, where there is any expected worker retrenchment (layoffs), the termination process requires:

• first and foremost, full compliance with local labour laws and regulations;

• factory management to develop and implement a viable financial plan to provide, at a minimum, all worker severance payments and other benefits;

• advance notice to factory workers by factory managers; and

• consultation with trade unions, if they are represented in the relevant facility, and factory workers to ensure that retrenchments are managed in a fair and transparent manner.

The adidas Group recognises that in some countries, local governments lack the resources, knowledge or technical capability to enforce existing labour laws, including provisions relating to worker retrenchments and severance payments. The adidas Group tries to help fill this gap in part, through our own activities and the support we are able to offer suppliers and workers. On a number of occasions, we have acted as advisors to our suppliers, as they develop retrenchment, training and job placement programmes. We have monitored the implementation of those plans and, where appropriate, liaised with local trade unions and non-government organisations. We have actively solicited the support of other suppliers, encouraging them to recruit workers made redundant in the same localities. While these activities assist suppliers to fulfil their responsibilities to workers, they do not act as a substitute for the legal obligations of suppliers to their employees, or the requirement to provide the necessary severance packages.