Nike (NYSE: NKE) is making some big changes to how it manages its supply chain. As part of its sustainability report released Thursday, the retailer said it plans to launch a new manufacturing index in 2012 that will place factories' sustainable practices "on equal footing" with the traditional supply-chain measures of quality, cost and delivery. The index will now include environmental and labor-sustainability metrics, according to the report. And Nike will use that index to evaluate its suppliers.
It's an interesting move with potentially widespread implications globally among suppliers -- and would-be suppliers -- to Nike. And with other retailers -- including Walmart, which said last month that it was expanding its supplier scorecard program -- taking steps to add sustainability to its supply-chain requirements as well, it appears that the supply-chain landscape may be poised for a shakeup that could give greener and more socially responsible suppliers a competitive edge. Retail suppliers will likely be keeping a close watch on these leaders' criteria, which will begin to define sustainability for different products.
We recently caught up via phone with Hannah Jones, Nike’s vice president of sustainable business and innovation, for more insight into Nike’s goals and its manufacturing index. Here’s an edited excerpt of our conversation:
GreenBiz: The report talks about making your factories faster, leaner and more efficient. How do you accomplish that without descending into a Foxconn situation?
Jones: [There are] two elements to 'lean.' One is the process change piece of it, and the engineering change around how you think about products’ efficiencies and quality. And the other is really about the culture of empowerment that is core to making lean really work. For our industry, this is key. It requires…management [to] understand that the worker is the closest to the process and to the act of manufacturing and therefore has the greatest insight. And that actually what you need to do is put greater value on the worker and enable the worker to feel empowered, so that they can speak out and speak up and talk about where they can see improvements could happen.
It starts to change the conversation between the managers and the workers. It starts to change the conversation with the management, in how they have to stop viewing workers as a cost and start seeing them as one of the core, valuable assets that they have. That makes them think more about turnover rates. It makes them think more about HR systems, it makes them think more about supervisors being trained in management and it makes them really think through how do they communicate, how do they work with the workers to retain them. Because they want to invest much more in them, in terms of building up skill sets.
So to us, 'lean' is one of the components [of] how we think about building better working conditions. Because we think it’s the business conditions that enable a lot of the additional work we do, through our code of conduct and through our Sustainability Manufacturing and Sourcing team. Then we have this new manufacturing index, which locks in performance on sustainability, performance on lean, performance on workers’ rights into the core conversation between the buyer and the supplier around where growth and volume will go and where orders will go.
GreenBiz: What do your sustainability goals mean for current and potential suppliers to Nike?
Jones: I think it’s a shift. And I think that the shift that’s been happening over the last two or three years, that this report kind of begins to capture and signal, is that we have been rewiring the conversation internally and rewiring the conversation with our suppliers in which we really explain to them that there are some new rules of engagement. And that our sourcing strategy and our sustainability and working conditions strategies are one in the same. We’ve built a sourcing strategy that looks at having fewer partners for the longer term that are optimized, to enable us to have those fewer partners. And then really building in to how we have a business discussion with them.
So if you think before, in our industry, the traditional conversation between a buyer and a supplier is one of cost, delivery on time and quality. Those are always the driving kind of indicators [determining] are we going to give you more orders or less orders? And so now what was done is we’ve said: sustainability. And I want to emphasize [that] when I say sustainability it includes workers’ rights. Sustainability is one-fourth of that equation now.
So our suppliers now know two things: one, their business with us is going to be dependent on how much they show their commitment to sustainability. And two, we’ve changed also from a ‘make your systems less bad’ [approach] to actually describing a vision of good. It’s saying if you’re going to be on the journey with us…we’re going to need you to really think about investing in your workers, investing in lean and investing in efficiencies and green.
Next Page: How to get good sustainability grades