NIKE'S STRATEGY TO IMPROVE SOCIAL AND ENVIRONMENTAL CONDITIONS IN ITS GLOBAL SUPPLY CHAIN 'Sustainability will be at the nexus of transformation in...
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NIKE'S STRATEGY TO IMPROVE SOCIAL AND ENVIRONMENTAL CONDITIONS IN ITS GLOBAL SUPPLYCHAIN

"Sustainability will be at the nexus of transformation in business, economies, and markets," stated

NIKE, Inc. President and CEO Mark Parker in the company's 2011 corporate sustainability report. Like

many multinational firms, the world's largest footwear, apparel and sporting goods company faces

innumerable complexities in managing social and environmental issues among its 700-plus contract

factories in 42 countries. The company's approach to managing supplier responsibility greatly evolved

over the last two decades, with the company establishing a robust system of supplier monitoring,

auditing, and remediation. Despite using an expansive monitoring program, Nike found that many

factories continued to yo-yo in and out of compliance. In 2009, Nike launched project "Rewire" and

transformed its approach from focusing primarily on compliance to one that gives supplier incentives

to improve their social and environmental performance, since they are now evaluated on

sustainability factors in addition to cost, on-time delivery, and quality.

Nike's "Rewire" approach to supply chain sustainability has involved making several changes in the

company: Transitioning to a more integrated organization structure, delivering lean manufacturing

training to build workers' skills and improve efficiency, developing a new supplier incentive scheme,

and promoting innovation to engage all relevant stakeholders in creating the environment needed for

systemic change to take place.

Integrating Sustainability with Supply Chain Management

Rewiring Nike's approach to supply chain sustainability has involved changes both at the company

level and with its suppliers. Within the company, Nike changed its organizational structure to better

integrate sustainability within traditional corporate functions. The company uses a matrix

organizational structure in which manager's report to multiple departments. Based on business unit

goals, employees develop strategies and plans detailing their multidisciplinary responsibilities.

Internal scorecards are used to report progress towards the goals. As part of this shift, Nike's

Sustainable Business and Innovation (SB&I) team is now formally part of the innovation team, and the

SB&I leadership either reports to or works closely with sourcing and manufacturing, product design,

product creation, strategy, finance and marketing organizations. With each department accountable

for sustainability performance, Nike can better integrate sustainability into business decisions much

earlier in the design process, rather than after-the-fact. Top company management has driven this

transformation with initiatives being led, and accountability shouldered, by top management.

According to Andrew Ogilvie, Nike's Senior Director for Labor Excellence & Innovation, while the

matrix approach can be complex, it has helped to promote the integration of sustainability within the

company. Ogilvie further stated, "We have integrated sustainable innovation within Nike's growth

strategy and, as a result, we have found leverage points within our matrix to accelerate change."

Cross-department scorecards are used to report Nike's progress toward achieving goals and targets.

Innovation in Product and Process Design

In addition to business model innovations such as integrating sustainability within business

departments and improving the supplier incentive structure, Nike has also been focused on

collaborative product and process design innovations focused on environmental sustainability. The

company has targeted innovations that can prevent environmental issues and still create value for the

customer.

"...only innovation will make the difference because these issues are simply too big and complex for

Nike or any one business to address on its own. We need coalitions to drive systemic change at scale."

Hannah Jones, (2013).

Several recent product design innovations have been successful. In 2010, World Cup football shirts

were made from recycled plastic bottles and developed using the Nike Materials Sustainability Index,

which enables product creation teams to select environmentally better materials. More recently,

Nike's Flyknit technology was used to deliver a lighter shoe for runners that uses fewer materials. The

shoe uses "essentially a single thread". Since the one-piece upper does not use the multiple materials

and material cuts used in traditional sports footwear, the shoe reduces both waste and cost.

Nike is also investing in manufacturing process innovations. For example, it made a minority

investment in Dyecoo, a Dutch technology firm, which seeks to create the first commercially available

waterless textile dyeing machines. By using recycled carbon dioxide to transfer the dyes, DyeCoo's

technology eliminates the use of water in the textile dyeing process. The textile industry is one of the

largest consumers of water, and most of the world's textile suppliers are located in Asia. The scale of

the industry's activity in the region can put pressure on the availability of clean water and contribute

to environmental pollution in the discharges from manufacturing processes. By removing the need to

use water in the dyeing process and eliminating the risk of effluent discharge, a known environmental

hazard, DyeCoo could bring significant benefits to the region, as well as reducing the environmental

impact of its own supply chain.

Conclusions

Nike's approach to improving social and environmental conditions in its global supply chain has

evolved to focus on integrated management of sustainability and innovation, increased supplier

incentives, and systems innovations intended to prevent problems before they arise. While there is

limited empirical research on responsible practices leading to improved social and environmental

performance, Nike has undertaken important changes that it believes will improve social and

environmental performance in its supply chain.

In terms of integration, Nike's Rewire strategy has been driven from top leadership and resulted in a

new organization to align goals between business functions in terms of sustainability, and the public

targets it sets. In the manufacturing and sourcing team, for example, the MI was integrated to evaluate

its source base including dimensions of sustainability, quality, cost, and on-time delivery performance.

While the company acknowledges some challenges to its integrated, matrix organizational structure,

Nike finds it allows for clearer integration and collective accountability of sustainability goals. In

addition, Nike's hypothesis is that integrated training programs for contract factory managers and

workers such as lean and HRM are helping to drive systemic change. Lean builds worker skills by giving

them a voice to suggest how Nike can improve but also has business benefits by increasing productivity

through efficiency and quality control. HRM builds factory management capabilities to create skilled

and valued workforce.

In terms of incentives, Nike's innovative MI is a leading example of how a company can move away

from a more traditional compliance approach and a "push" model to manage sustainability issues, to

a "pull" model, which incentivizes suppliers for performance. By offering suppliers incentives,

imposing sanctions and measuring performance on a supplier's balanced scorecard, suppliers better

understand the importance of sustainability. This pull approach is helping to reward and develop

suppliers who are committed to growing their business using social and environmental performance

as a source of competitive advantage. Nike has embraced a long-term perspective. Improving

sustainability performance often involves heavy investment initially, with benefits being realized over

a longer term.

Case adapted from: https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/non-teaching-case-studynike-

strategy-improve-global-supply-chain.pdf


QUESTION (25)

With reference to the case study critically discuss sustainable procurement and identify practices that

can be adopted by Nike on their global supply chain strategy to improve their environmental footprint.

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