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THE ADIDAS GROUP SOURCING MODEL

THE DILEMMA OF THE APPAREL AND FOOTWEAR MANUFACTURING INDUSTRY

Provided that the above-mentioned relevant conditions are in place, sourcing countries not only benefit from the creation of jobs and economic growth based on the apparel and footwear industry. Often, the evolution of this basic industry paves the way for a more diversified production and economy at a later stage. Taiwan is a clear example of this evolution: from an apparel-based economy, the country has now moved to more complex electronic and financial services.

However, the apparel and footwear manufacturing sector also faces numerous challenges as it is often associated with human rights abuses, poor environmental performance as well as questionable purchasing practices – challenges that sometimes dwarf the millions of jobs created by the industry and its contribution to the country’s economy.

THE ADIDAS GROUP SOURCING MODEL

In order to address these challenges, the adidas Group strongly believes that long-term partnerships with its suppliers are of utmost importance.

Within the company, the Global Operations department, specifically Sourcing, looks into these aspects in collaboration with Social and Environmental Affairs (SEA). And while the company spreads its sourcing over multiple countries, 80% of its global production comes from the so-called ‘strategic’ suppliers.

Our sourcing strategy embodies the very spirit this company is built upon: only the best for the athletes. We do not simply buy products from our suppliers, but we instead have built outstanding, long-term partnerships with them which ultimately allow us to develop and bring the best-performing product to market.

JOHN MCNAMARA, ADIDAS GROUP SENIOR VICE PRESIDENT FOR SOURCING

LONG-TERM PARTNERSHIPS

Instead of frequently changing suppliers depending on which one can offer the same product for the cheapest price, the adidas Group focuses on key long-term partners that are transparently disclosed in its global supplier list. The relationship with these core suppliers has existed for over a decade. For example, this year the company celebrated more than 25 years of sourcing in Indonesia.

CELEBRATING MORE THAN 25 YEARS OF SOURCING IN INDONESIA

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Not even increasing labour costs in some of these countries have produced challenging effects on these relationships. In fact, business in Cambodia, Vietnam and Indonesia has been growing, not shrinking. To have an idea, the wage increase over the period 2011 to 2013 has been 19% in China, 45% in Vietnam and 54% in Indonesia.In the long run, it is these long-standing partnerships that carry greater benefits for both parties rather than constantly changing to maximise short-term profits.

TOGETHER WE WIN

The terms of business with suppliers are not based on a purely order/purchase relationship. Over time, the adidas Group has for example also developed specific programmes to address productivity, efficiencyand quality at supplier level.

More interestingly, substantial investments on both sides are made. This is why the company also places its own personnel in the strategic factories, where they work closely with the local personnel on developing the next innovation. Take Brazuca, the 2014 FIFA World Cup™ icon and the ultimate example of innovation in ball manufacturing.

Brazuca was produced in China by a long-term partner and supplier of the adidas Group, Longway. Why in China? Why at this factory? Since the beginning of the cooperation with the adidas Group in 1997, Longway has established itself as the expert in high-tech ball production. In 2006, engineers and developers from Longway and adidas set up a Centre of Excellence at the factory: this is where Brazuca was brought to life.

These two-way relationships generate synergies, trust, dynamism and technology transfer, which are all key to fostering innovation.

IT IS MORE THAN JUST BUSINESS

Many also question the industry’s approach when it comes to social and environmental considerations. In the case of the adidas Group, the business relationship with suppliers is guided by the company’sWorkplace Standards, which contain clauses to ensure fair labour practices, fair wages, safe working conditions and environmental standards in factories.

Thanks to hundreds of factory visits every year, the company consistently reviews and evaluates suppliers, works with them to address issues and makes improvements where necessary. In 2013, nine manufacturing relationships were terminated with suppliers who failed to adhere to the standards and requirements.

This is not all we do. We also proactively engage with governments to tackle critical issues such as minimum wages, freedom of association or environmental standards. Ultimately, business can thrive only if the right conditions are in place and as a responsible company we want to drive positive and long-lasting change.

FRANK HENKE, ADIDAS GROUP’S VP FOR SOCIAL & ENVIRONMENTAL AFFAIRS.

For example, back in 2010, the adidas Group successfully led a group of suppliers and brands to develop a protocol ensuring the exercise of trade union rights in the workplace in Indonesia. More recently, the company has joined the U.S. Business Call on Climate Change, urging federal policymakers to collaborate on a bold response to climate change.

A LONG JOURNEY

Over the last two decades, the adidas Group has been working on defining the key elements of effective management of its supply chain; the current challenges require changes that will not happen overnight, though. From fair wages to women’s rights, from migrant labour to chemical management – there is still a lot to do to maintain the balance between shareholder expectations, economic success and social and environmental advancement.

The adidas Group is convinced that commitment to long-term solutions is the right way to achieve this balance, so that all sides can benefit: the developing countries through social and economic advancement as well as the adidas Group through best-in-class products and economic value. As John McNamara concludes:

It is a challenge but we want to keep leading the game – on the pitch and off the pitch.

JOHN MCNAMARA, ADIDAS GROUP SENIOR VICE PRESIDENT FOR SOURCING

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