Monitoring compliance

Over the past ten years, we have continually refined our methods, tools and techniques to monitor and promote social compliance in our supply chain.

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

Approach Sourcing model        
  Direct supply chain Indirect supply chain
Goal Self-governance Accountability and risk management
Factory Assessments/
Monitoring conducted by
adidas Group SEA team External monitors commissioned by SEA
Assessment tools applied Strategic monitoring tools

Compliance plans
Performance assessments

Compliance plans
Subject of rating Individual supplier factory Business entity responsible for sourcing relationship
Rating tool SEA KPI Compliance scorecard

Monitoring our direct supply chain

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 achieve this, we need to act both as assessors and advisors - assessing management commitment to compliance and the effectiveness of the programme, and providing help and support to suppliers to ensure success in the long term. We promote effective human resources, health, safety and environmental management systems as an effective way to internalise continuous improvement. Strategy development and execution must be in the hands of qualified, committed and capable middle managers who are supported and empowered by senior management. The Lean manufacturing initiative and SEA activities strive to be collaborative and ensure that suppliers establish systems that support fair, healthy and safe work conditions and deliver improved efficiency and productivity.

Factory inspections are conducted by members of the SEA team. By applying innovative monitoring practices they assess risks and identify root causes of non-compliances. This approach evaluates the effectiveness of 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 management and tracking systems.

Monitoring our indirect supply chain

While the major product volumes are sourced through our direct supply chain, some adidas Group business entities follow their own sourcing arrangements. Normally these business units do not establish direct supplier relationships but source products through intermediaries such as agents. We also develop new market opportunities for certain product categories through agreements with licensees who independently manage production.

Business entities are obliged to commission external audit firms to carry out initial assessments in their supplier factories. Business entities or licensees choose external monitors from a list drawn up by the adidas Group.

We have developed detailed guidance so external monitors can conduct assessments in a consistent way. Where these assessments identify the need for remediation processes, they are overseen by the SEA team.

Business entities and licensees are required to submit an SCP to SEA on a regular basis. Similarly to our direct suppliers, these plans outline their strategies, programmes and action steps to ensure compliance in their supply chains. The compliance plans help us track and evaluate the commitment and effectiveness of our business entities' management in ensuring sound compliance practices. SEA then reviews annual progress against the SCP, measures the results, and issues a Business Entity Report Card. Find more information in the Strategic developments section.

Recording non-compliances

All inspection records including factory audit reports, assessment results and remediation plans are centrally stored in the Fair Factories Clearinghouse database, which has been specifically designed as a sharing platform. We share our findings and develop common agreed action plans with other brands in order to reduce audit fatigue for our suppliers, to standardise and harmonise remediation efforts and to create leverage to drive sustainable compliance.

The below table/graph illustrates the common non-compliances in our supply chain.

The reported non-compliances are dominated by health and safety issues, largely as a result of Initial Assessments identifying and requiring the remediation of occupational health and safety practices to meet our minimum requirements. This results in a high frequency of non-compliance in what can be viewed as safety fundamentals, such as the presence and storage of chemicals in the workplace, fire safety and electrical and mechanical safety.

non-compliances at our existing suppliers by issue type in 2010

non-compliances at our existing suppliers by issue type

The ten most occurring health & safety issues are:

  1. Chemical Storage
  2. Hazardous Chemicals in Production
  3. Architectural Considerations: Emergency Exits & Aisles
  4. Management Systems for Safety & Health
  5. Emergency Preparedness
  6. Electricity & Electrical Hazards
  7. Machinery & Protective Equipment
  8. Fire Safety: Fire Extinguisher, Hose Reel & Hydrant
  9. Housekeeping
  10. First Aid

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