Nike Supply Chain Issues – How They Turned a Crisis into Opportunity

Nike's response to a supply chain crisis repositioned it as a sustainability leader and raised the bar for an entire industry.

In April 2005, Nike surprised the business community by releasing its global database of nearly 750 factories worldwide. No laws required the company to disclose the identity of its factories or suppliers. Yet, between the early 1990s and 2005, Nike went from denying responsibility for inhumane conditions in its factories to leading other companies in corporate transparency. This response to a supply chain crisis was a strategic shift. This shift illustrates how a firm can use supply chain transparency to mitigate risk and add value to their business. By adopting a more open approach, Nike set a new standard in ethical supply chain management, encouraging other corporations to follow suit in improving labour conditions and fostering supply chain accountability.

Making the Shift toward a Sustainable Supply Chain

David Doorey (York University) conducted a case study on Nike’s supply chain transformation, drawing on interviews with company executives, industry professionals, and representatives of unions and NGOs involved in the push for factory disclosure. In the early 1990s Nike executives began to see reports of abusive labour conditions in their supplier factories as a risk to their brand image. Nike’s traditional line denying responsibility for conditions in these factories no longer satisfied a growing number of customers. On top of that, media images of children sewing Nike soccer balls and running shoes sent social activists, academics and journalists into a costly anti-Nike campaign.

Nike leaders realized they were facing a supply chain crisis. They needed a new strategy to deflect the growing criticism from the public and improve their suppliers’ performance.

How Nike Improved Supplier Monitoring and Labour Practices

Starting with the creation of a new labour practices department, Nike introduced a series of changes to enable better monitoring of sources of risk associated with suppliers’ labour practices. These changes included:

Conducting a Basic Audit

Nike introduced the SHAPE internal monitoring system to provide it with an initial assessment of whether a proposed new factory was near satisfying the code of conduct. Factories flagged as high risk would also undergo a more comprehensive “M-audit.”

Creating a Corporate Responsibility & Compliance Division

Senior management at Nike created a new division to facilitate the integration of corporate responsibility issues throughout the business. This brought together sustainability and compliance employees working across product groups.

Assigning Field Managers

Nike assigned field managers to the various regions to oversee the supply chain. They were responsible for monitoring day-to-day compliance with labour laws and the Nike code of conduct.

Establishing a Global Database

Nike’s head office developed a comprehensive database to help track the global supply chain and access audits conducted in the field.

Initiating External Expert Review

In 2004, Nike invited a panel of external experts to review a draft of its 2004 corporate responsibility report. The committee concluded that Nike would not receive the credit it craved from the NGO community unless it released the names and addresses of its entire factory database.

From Supply Chain Crisis to Sustainability Leadership

These supply chain monitoring and enforcement systems created confidence internally, which was necessary before releasing the list externally in 2005. Nike turned this unprecedented response to its supply chain crisis into a lucrative marketing opportunity that outweighed competitive risks associated with factory disclosure. It advertised its new supply chain transparency as evidence of its new commitment to labour practices. In fact, the company turned its full disclosure into a badge of honour among the apparel industry.

Seeing the success that Nike enjoyed from this strategic move, many of Nikes competitors disclosed their factory lists, including Levis, Timberland, Puma, Adidas and Reebok.

Better Strategies for Sustainable Supply Chain Management

What can other organizations take from Nike’s experience to avert their own supply chain crisis?

1. Systematic Supply Chain Monitoring Mechanism

A systematic supply chain monitoring mechanism can help address the worst practices. Moreover, this mechanism is foundational prior to adopting greater transparency. If you don’t know about it, you can’t fix it.

2. Defensive Strategy

A defensive strategy is not a realistic long-term approach. Companies have difficulty hiding from the media and should replace defensiveness with a proactive strategy that uses code monitoring and enforcement — and eventually full disclosure — to their advantage.

Companies should replace defensiveness with a proactive strategy that uses code monitoring and enforcement — and eventually full disclosure — to their advantage.

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Author

  • Bushra Tobah
    Doctoral Student
    Schulich School of Business, York University
    MSc in Management, International Business, Ivey Business School

    View all posts
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