term 2 group case study final revision

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!"#$%&'&($ * +,+-'.&'/.0.-1

“The link between sustainability and Nike as a growth company has never been clearer,” said Hannah Jones, Vice President, SB&I. “There are serious potential impacts of social, environmental and economic shifts on labor forces, youth sport, supply chains and products. This gives Nike the opportunity to use our power of innovation and our commitment to transparency and collaboration to tackle these complex issues.”

Jason Santos | Troy Bretzman | Mike Renfro February 8, 2015

4

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$

TABLE OF CONTENTS

Page 1

Cover Page

Page 2

Table of Contents

Page 3

Executive Summary

Page 4, 5

Statement of Problem

Page 6, 7, 8, 9

Statement of Problem

Page 10

Recommendations

Page 11

Recommendations | Action & Implementation Plan

Page 12

Action & Implementation Plan

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$

EXECUTIVE SUMMARY

Nike is an America multinational company that is involved in the development, design, manufacturing, and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. Headquartered in Beaverton, Oregon, Nike was founded in 1964 as Blue Ribbon Sports. The company officially changed its name to Nike in 1971. The company boasts revenue in excess of US$24 billion as of 2012. In its endeavor to become the world’s leader in sports apparel, Nike has run into several problems, such as how the production of products affect the environment through emission discharge and toxic waste and other problems such as poor labor practices. Nike’s response to these challenges, have been a radical rethink of how, where and why they do business. In 2012, a 12-person board planned sustainability goals for 2015-2020 which at the time seemed reasonable, however after review it was determined that reaching the target of zero discharge of hazardous chemicals would be too difficult. Nike found itself in a place where they had to create new innovations, make changes throughout the supply chain and work closer with the whole industry.  As of now, Nike has succeeded well above expectations. Through trial and error and excellent management choices, they have overcome great hurdles. They put into practice new labor practices that not only benefitted the company, but eliminated poor labor conditions where need. They innovated new technologies that not only cut down

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$

STATEMENT OF PROBLEM Labor and Environmental practices:

Nikes brand was threatened when criticism over labor practices at contract factories became a topic of concern by consumers, particularly college students. In the 1990’s contracted factories in Asian countries presented unsafe working conditions and practiced forced child labor. Its Malaysia factories were housing its workers in deplorable facilities, garnished wages to pay for work permits and “recruitment fees” and withholding their passports to prevent them from leaving. At first the company insisted that those conditions were not its responsibility. A huge global public outrage came about and the public demanded greater responsibility from Nike. Within days following the report, change came for its workers. Following the change, Nike investigated the incident including the review of all 34 of its contract factories. The investigation concluded the root cause was partly due to weak law enforcement, poor education and industry. Nike’s approach shifted after realizing that ignoring supply chain responsibilities was not prudent in the company’s global reputation. Nike was committed to improving working conditions by expanding independent monitoring; raise minimum wage requirements, strengthen environmental, health, and safety standards; expand worker education programs; increase support of Nike’s micro-enterprise loan program for

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ Jones and her team spent months surveying other company’s work on sustainability issues and eventually integrated sustainability and innovation processes throughout the organization. Innovation was applied to all levels of the company: in its products, processes, revenue generation, business model, and throughout its industry road map. In addition to jones efforts, Nike wanted to be more transparent so the industry decided to disclose a list of its worldwide factories manufacturing its products. This allowed consumers to research and see for themselves how those factories were being managed. Project ‘Rewire’ was initiated which added sustainability factors to the metrics used to evaluate the performance of executives responsible for sourcing decisions and restructuring the company. Nike reduced management layers, cut its workforce by 5%, consolidated the supply chain, and restructured the matrix of goods and geographic region. The Project team also established natural audit programs to provide independent oversight of the system of contract factory audits against Nike’s health, safety, and environmental standards. When two of Nikes subcontractors in Honduras closed their doors putting 1,800 workers out of a job without notice and paying $2 million in severances, Nike response was inadequate for the universities and student groups around the United States. In conclusion to the ordeal, an arrangement was made where Honduran government paid out the severances and Nike funded a $1.5 million Workers’ Relief program to provide vocational training and health coverage to the workers who were laid-off.

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ While Nike faced a future of constrained resources in its efforts to design new products, Nike decided to learn how to push the envelope in product innovation and manufacturing by starting with its employees on how they could view innovation through a design lens. This step has transformed the company’s culture and purpose. Nike also decided to share its research and development work on sustainability with other companies to help promote their efforts to changing the industry and the world. After extensive analysis through various committees of the impacts and implications across the value chain, Nike has determined their greatest factor affecting its workers, communities and environment is from the materials used in manufacturing.  As Nike takes steps to improve material innovation, it has focused some of its resources on implementing lean manufacturing. Nike worked with their supply chain to demonstrate the value of lean as a driving force to sustain and improve business performance where workers involvement was to drive business success through continuous improvement. Nike also shared its vision of reaching a closed-loop business model where their goal was to achieve zero waste in the supply chain and have products and materials that can be continuously reused. Models over water shortages revealed the potential for disruption and cost increase at multiple points in Nike’s value chain – from production of cotton, to the generation of laundering of Nike t-shirt by the end user. With two-thirds of the world’s

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ population experiencing water stress, some of the greatest shortages were expected in the Asia Pacific Region, where 36% percent of the global water supply would have to meet the needs of 60% of the world’s population – where much of Nike’s factories were located. Nikes water program provided suppliers with tools to track water usage. Today, the two main areas with significant water use are in its material manufacturing and finished goods manufacturing. Nike has set targeted goals and are on the road to improvement. The incorporation of “waterless dyeing” technology for textiles that use co2 instead of water has decreased processing costs, less energy and less chemicals in its products. In contrast to conventional dyeing techniques, DyeCoo’s technology of waterless dying across the polyester industry could save a trillion gallons per year- the annual consumption of three

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ ongoing with the investment in DyeCoo. In 2012, the first product made using the innovative new Nike Flyknit technology and manufacturing process was launched. The Flyknit lunar 1+ running shoe reduces footwear waste in the upper by 80% on average compared with traditional production methods. From old and traditional to new innovation and creativity in their design factor, Nike continued to explore alternatives and develop a better material, it has reduced energy use, waste, water, greenhouse emissions and chemistry. PRODUCT IMPACTS | FROM PEGASUS TO FLYKNIT

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ such as Nike leadership and educational resources and technical assistance, and opportunity to boost factory orders as being top priority. In July of 2013, Greenpeace launched a high profile campaign charging Nike,  Adidas, Puma and other well-known apparel companies’ with not doing enough to prevent their textile and dye houses from releasing hazardous

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ neither of the facilities were a Dye house for Nike but still called on them due to their connections with other younger facilities in china and its role as a leading brand. Nike released a public response in less than a week following the report on the issue and its partnership with Greenpeace to promote water management in China and improve chemical inputs and processes in the footwear and apparel industry. Nike affirmed its commitment to the goal of “ Zero discharge of hazardous chemicals for all products ”. The Greenpeace campaign had across all pathways in our supply chain by 2020 ”. condensed the time table sharply in an effort to rid hazardous material from the environment. Nikes actions was underway. Nike is a company that considers the impact of giving back, having a positive Corporate Social Responsibility and being environmentally conscious. At the same time Nike experienced setbacks due to their dependence on third party manufacturers and having limited control. Nike Better World CSR Campaign targets smaller waste output (carbon footprint) and paying closer attention to the way their products are being manufactured (labor force) helping Nike to get back in good standing with consumers. When considering the responsibility that companies have today, Nike as a major

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ that are involved. We believe that Nike’s current effort to eliminate poor labor conditions, going so far as to cutback in, or close production sites to control abuse of such practices is to be praised. In response to their goal of meeting “zero discharge of hazardous chemicals for all products across all pathways in our supply chain by 2020”, we feel great progress has been made but the goal of FY2020 may not be a realistic one. We propose extending their goal to 2035 will allow further room for innovation in newer product design as they have done with waterless dying and Flyknit. It will also give more time to achieving such goal. In recent news, Nike has set incremental goals. In FY15 it’s looking to achieve a 20% reduction in co2 emissions. In FY13 only 41% of participating footwear factories met the minimum requirements of the Nike Energy and Carbon program. Now that Nike has remedied so many of its past problems, it should by no means fall asleep at the wheel. Many companies have fallen victim to reaching a certain goal and then as time went by, forget the importance of why they had chosen those goals in the first place. Nike needs to continue on the path that it’s currently on. They should constantly be rebranding themselves, making the company even further superior. Nike’s

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!"#$%&'&($ * +,+-'.&'/.0.-1 2 &.3$ Nike has invested heavily in new sustainability technology. They should continue to invest in their business partnership with DyeCoo. The technology behind DyeCoo’s waterless dye machine is an incredible advantage for Nike. Not only does it show Nike to be actively involved in sustainability, but by investing in the technology itself, invokes a sense of “can do” spirit, which in the long run will help them to stay at their current position as the number one sports apparel retailer.  As far as labor practices go, Nike should continue to be transparent in their labor practices. To ensure that labor practices are carried out sufficiently, Nike should place a higher level manager to be responsible for the condition of the workers and their work environment at overseas factories. The manager would receive ethical and cultural training before departure to ensure a comfortable transition and upon return, receive repatriot counseling.