Supply Chain

Lead and Regional Champions - SEA staff assigned responsibility to lead, or provide regional support, in managing the compliance performance and relationship with an internal business unit, external licensee or agent.

FFC Key User - Individual responsible within a business unit for keeping related supplier records and status up-to-date in the Fair Factories Clearinghouse database.

Systems - Target 1

To mature and strengthen the efficiency of the external monitoring model for the indirect supply chain used by adidas Group licensees.

Why was this target chosen?

This 2008 goal focused on increasing the capacity of approved external monitoring agencies in SEA monitoring and coverage of the Group's indirect supply chain. It included a critical review of external monitoring agencies' performance by country as well as addressing trends in the increased auditing needs of the Group's business entities. This goal was also intended to support the extension of SEA policies and practices to more factories in the Group's indirect supply chain.

What was the approach taken?

All approved external monitors were evaluated by a select group of SEA staff who reviewed communication effectiveness between external monitors, SEA field operations staff and business entities, the execution of key procedures for monitoring operations, and remediation planning. The final performance summary included recommendations for improving the overall quality of the external monitoring process and improvement plans for individual external monitoring agencies. The exercise was intended to reduce the number of approved monitoring agencies by decertifying those with the lowest performance results.

Score

50 percent

Barriers encountered along the way

Insufficient training opportunities and occasional limitations in the deployment of SEA staff and support mechanisms curtailed verification and 'shadow' exercises with external monitors. The intention to consolidate the list of approximately two-dozen approved monitors to one global service provider was not possible since not one service provider had the capacity to execute an acceptable level of monitoring performance with the geographically extensive and complex indirect supply chain of the adidas Group. Successful engagements with licensees to increase the transparency of their supply chains resulted in an increased number of factories requiring audits. Higher audit demand with fewer approved external monitoring agencies placed additional stresses on the performance consolidation work.

Conclusion

The number of approved external monitoring groups was reduced by half. The best performing monitors received customised training plans to further enhance their abilities to execute remediation, factory rating and FFC database maintenance. We developed customised templates for remediation planning by external monitors, and new operational tools as well as more transparent verification mechanisms were implemented. The communication channels between SEA staff, external monitoring field operatives, and business entities were streamlined.

New target for 2009

The target remains the same as 2008: to increase the efficiency of the external monitoring activities servicing the Group's indirect supply chain. External monitoring performance will continue to be critically evaluated for performance and lower-performing agencies will be decertified from the Group's approved list. There will be ongoing training for external monitors. SEA's participation in the Sustainable Compliance Leadership initiative to develop harmonised audit tools will define additional and in some cases, broader industry wide activities for capacity building with external monitors. As 2009 will be the first year for SEA approved external monitors to develop remediation planning and factory ratings, those activities will be closely watched and evaluated by a selected team of SEA managers.

Systems - Target 2

To review and enhance the integrity of the data output from the Fair Factories Clearinghouse (FFC) database and strengthen the input processes.

Why was this target chosen?

This target was chosen to drive the generation of more accurate and timely performance data which informs critical communications and reporting to multiple internal and external stakeholders. Since the FFC data is maintained by dozens of users from adidas Group sourcing and purchasing departments, licensees, agents, and external monitors, there have been inconsistencies in data input and maintenance. This has compromised the expectations for data integrity and posed hurdles in our external reporting requirements.

What was the approach taken?

The FFC Working Group, an internal SEA task force with representatives from all regions, coordinated a series of data quality and integrity activities with internal and external users as well as executive and operations staff from the FFC.

FFC data-cleansing activities were led by key members of the SEA regional and global staff, who then verified results with the relevant sourcing departments and business entities. Corrected and accurate data was then adjusted in the FFC system by the user community. FFC topical training programmes and the delivery of capacity building modules to the Group's user community were enhanced and in some cases redelivered. SEA developed and implemented tools for the FFC user community to install as data integrity control points in their internal business management systems. FFC operations staff were engaged to develop and complete a number of critical user features or enhancements, thereby facilitating the system's 'user-friendliness'.

Score

50 percent

Barriers encountered along the way

One critical barrier was an external one and outside the adidas Group's ability to control or manage. Not all of the user enhancements promised by the FFC developers met the expected delivery timelines in 2008 so some aspects of system maintenance were not achieved and remain difficult to facilitate.

Many of the smaller business entities did not have designated key users, and there was a high turnover of key users in other business entities which drove a higher than planned demand for training activities. Factory consolidation and the evolving changes in the Group's licensing agreements also hindered faster completion of data integrity exercises.

Conclusion

FFC data that informs internal and external reporting improved as a result of the 2008 activities. The quality of data input as well as the quality of archived data were enhanced. Input quality during 2008 was notably improved as a result of enhanced training materials and an increased frequency of training delivery to the user community. The ability of adidas Group FFC users to manage their own quarterly data accuracy verification will be increased by the implementation of systems management tools, which were developed in 2008. Subsequent data-cleansing activities will be supported by more functional reporting and verification tools. For existing data, the cleansing exercises removed large chunks of duplicated records, obsolete information going back through five years of archiving, and reduced the frequency needed for future data-cleansing exercises.

On the not so positive side, the quality of FFC data did not reach the expected levels. Some of the data required in current reporting exercises does not match the existing FFC data and/or data reporting points, or is not easily accessible. A less than expected number of system user enhancements were delivered in 2008 by the FFC operations staff and this had negative consequences for data retrieval tools that would automate reporting requirements.

Lessons learnt in 2008

FFC work on 'user-friendly' features remains a critical target but inconsistent timeline management by the FFC will make the automation or accuracy of some SEA reporting difficult to plan and forecast.

Ownership of the data must be more widely taken on by the Group's user community because the greatest improvements in 2008 were seen in business entities that did so.

New target for 2009

This is an ongoing target. There will be less emphasis on data-cleansing in 2009 since the bulk of archived data in past years has been reviewed and verified. Ongoing cleansing will cover smaller bits of data from shorter periods of time and will be supported by improved systemic verification tools and a better trained user community.

The largest challenge will remain in closing the gaps between the Group's current reporting data needs and the FFC's limitations in managing, archiving or reporting those data points.

Systems - Target 3

To complete strategic compliance planning for an additional fourteen critical business entities comprising ten licensees, one agent, one brand and two business units.

Why was this target chosen?

This target is focused on embedding SEA policies and practices within Group business entities that have direct and indirect product purchasing responsibilities.

We believe that successful promotion of fair, healthy and safe workplace conditions will occur when business entities' executive management take a leadership role to integrate compliance in internal systems and business practices with core business planning. This will lead to business sustainability.

This 2008 target is an expansion of SEA's three-year-old approach to Strategic Compliance Planning with suppliers and factories. Tools that were once developed for suppliers, were customised to more closely inform the business entities' key performance indicators and transparent units of measure.

What was the approach taken?

Essentially, the approach in 2008 was to co-assign SEA compliance responsibilities to specific business entity staff. These include championing field level, FFC database, programmatic and decision-making activities at managerial and senior levels.

The primary tool is a master plan laying out the direction, strategy and action for the business entity's implementation of sustainable compliance. This Strategic Compliance Plan (SCP) must be revisited, reviewed with the SEA corporate contact point and updated by the company annually. It is linked to a rating instrument and key performance indicator.

The methodology for the Strategic Compliance Plan starts with information gathering about the business entity's existing compliance activity. A gap analysis is completed and informs the SCP three-year development plan. The SCP components are linked to a compliance rating for the business entity.

Management commitment is demonstrated by integrating compliance into core business planning management systems which enable the organisations to identify, measure, control and improve the various core business processes.

Compliance training includes creating infrastructure to support staff capacity building needs and initiatives. Transparency and regular reporting need to be supported by clear policies and systems and effective communication.

Score

100 percent

Barriers encountered along the way

The time that was needed to develop Strategic Compliance Plans (SCP) was underestimated by 50%.

Conclusion

The 2008 target included 14 business entities which were completed.

  • 10 licensee SCP's were planned, 5 were completed.
  • 2 business unit SCP's were planned and 7 completed.
  • 1 brand SCP was planned and completed.
  • 1 agent SCP was planned and completed.

SCP development and completion was achieved. Implementation of the SCP actions has moved into 2009.

SEA flexibly managed an SCP candidates list that changed several times during the year.

Lessons learnt in 2008

The Group's business exigencies forced unplanned changes to the SCP candidates list during 2008. This is likely to continue in 2009 so SEA needs to continue a pragmatic approach to the selection of eligible business entities.

New target for 2009

This remains a target and is linked to our longer term goal to see strategic planning processes embedded within the business entities. In line with this, implementation and reporting by business entities are to grow during 2009.

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Within this report
KEY
  • 0%: no progress
  • 10%: initiated
  • 25%: partly complete
  • 50%: good progress
  • 75%: substantially complete
  • 100%: fully complete