Frank Henke, global director of social and environmental affairs at Adidas Group

Frank Henke, global director of social and environmental affairs at Adidas Group

“You cannot solve the sustainability agenda overnight,” explains Frank Henke, global director of social and environmental affairs at German sporting goods giant Adidas Group. Indeed, as he tells just-style, the company has faced a moving target since it launched its first sustainability programmes some 15 to 20 years ago – and that target is today moving faster than ever.

A case in point is the company’s commitment to managing chemicals in its supply chain, which is one of the key issues identified for the year ahead. But as soon as one challenge is out of the way then another, or more, take its place.

Having just completed a full screening of all chemical inputs in the materials used to make its apparel – a “tremendous effort,” according to Henke with some understatement – the next step is to set two new targets requiring that 50% of all dyes used in apparel, and 10% of all auxiliary chemicals (those that support the production process but don’t add a function to the product), will be Bluesign-approved by the end of the year.

Tackling chemical inputs is “the next phase of chemical management,” he explains, and builds on Adidas’s already-strong track record in auditing supplier performance, handling and storage of chemicals, as well as wastewater management and recording.

But crucially, it is “not something we can solve on our own, which is why we really put industry collaboration at the forefront. You need the expertise and leverage of other players.” Partnering with Bluesign, he believes, will give suppliers the “orientation, guidance and support they can really work with.”

Targets will be increased on a yearly basis, with this also chiming with the Adidas Group’s approach to continuously improve its environmental impact.

In the same way, the company was the second signatory of the Zero Discharge of Hazardous Chemicals (ZDHC) campaign spearheaded by Greenpeace four years ago. It currently involves 20 companies working together in what has been described as a “game-changing collaboration,” with Adidas committing to ensure 99% of all its products are PFC-free by 2017, leading to full elimination by 2020.

Another example of how there’s no quick fix when it comes to sustainability is the Better Cotton Initiative, which works with cotton farmers to promote fair working conditions.

“We were one of the founding members in 2004 – over ten years ago. But the way it is now managed, addressed, is exactly where it should go, building leverage and critical mass. And in a way we also tested this in the beginning and saw that it worked out.”

More than 30% of all cotton used by Adidas Group sourced last year was Better Cotton, exceeding its 25% target and marking the highest volume of sustainable cotton used in the company’s history. The next goal is to use 40% Better Cotton by 2015 as the company heads towards its ultimate commitment to source 100% ‘sustainable cotton’ across all product categories and brands by 2018.

Sustainability led by sportswear
Adidas’s initial focus back in the late 1990s was on its social and environmental footprint in core sourcing countries, and the company’s entire strategy has been developed from here.

“We take our responsibility very seriously,” Henke explains. “Our global organisation is very much value driven, because we live the values of sport, of fairness and integrity.” Not to mention the obvious sporting analogies like ‘setting goals,’ ‘managing progress,’ ‘tackling challenges.’ “Our sustainability programme is like ‘climbing a mountain’. This really comes from the heart.”

The “enormous visibility” of the major sportswear brands - Adidas alone boasts an annual turnover in the region of EUR14.53bn (US$15.5bn) across its namesake, Reebok and TaylorMade-Adidas Golf lines - has also contributed to their leading role in driving sustainability.

“Our learning process in dealing with, and responding to, these issues definitely puts us ahead in the way we manage our supply chain – and that makes the sector unique. It is a huge advantage for us.” As an example, Adidas pioneered its Restricted Substances Policy way back in 1998, prohibiting the use of chemicals considered harmful or toxic.

In addition to ongoing financial and personnel investment from executive management, Henke believes one of the keys to success is failure. “Testing things helps your learning, which is really, really critical. No-one can tell you the right way to go; you have to test it for yourself, and if it works for the company.”

He also dispels the belief that everything can be 100% controlled. “Looking at our vast supply chain with about 1m people doing Adidas approved product in more than 1200 factories, I cannot guarantee that something will not go wrong.

“But it is more important that you have the right mechanism in place to address and remediate things. That's why we have invested so heavily in worker complaint mechanisms, and worker hotlines. These channels help us understand needs and concerns at an early age and then readdress for change.”

Co-locating teams alongside major sourcing operations has also played an important role in understanding the culture of its supply partners, and “translating our strategic decisions into country-specific execution. That's pretty unique.”

Suppliers are also measured against social and environmental performance, as well as the more typical range of indicators such as quality, delivery, costing and innovation, “to give a full picture of how a business partner is performing. There's quite a competition between suppliers to get better” which also enables Adidas to build longer-term relationships in terms of placing orders, with those who share its values.

Sharing information, not only with stakeholders but also with the wider industry, is another area in which Adidas has led the field, from publishing its first social and environmental report back in 2000, to disclosing its global supplier database in 2006. This is updated with a list of authorised suppliers ahead of major sporting events like the World Cup or the Olympics, “because [it’s better than] hiding things.”

Supply chain
The company’s core supply chain accounts for around 80-85% of global sourcing volume, and is “really, really stable,” Henke says. Last year it celebrated 25 years in Indonesia, one of its key supply locations and the source of the Adidas Predator football boot for the last 20 years.

“This is important because we see our business relationship with our suppliers as a sourcing approach and not as a buying approach. We don’t just buy products from our suppliers, we build long-term relationships, which means we leave certain critical functions in their hands. We have people from our organisation sitting in their factories (such as online quality staff and product development teams), so we really work hand-in-hand.

“If you look at the technological aspect of footwear, and increasingly, apparel, you really need to have expertise on both sides [in both production and product development] and that's why we have developers working at the factories. These are investments in lasting partnerships.

“We go in together and our product cycle is 18 months, so to develop such technologically driven products you really need to have a unique relationship, as the supplier also brings a lot of expertise to the table.”

There’s no doubt significant progress has been made. “Today, 95% of our global sourcing volume for footwear comes from ISO 14001and/or OHSAS 18001 certified factories. And I think that goes back to having stable sourcing relationships.”

Factories also have to go through a lengthy pre-selection process before they become authorised suppliers. “We keep the entry bar very, very high,” Henke explains, noting that this also helps prevent problems further down the line.

It’s also about commitment from local management. “Do they share the same values and ambitions as we share? Often this is under-estimated, but for us is really critical. Also the ability and willingness of suppliers to invest in a proper workforce, well-educated middle managers, good technicians, good HR managers.

“It’s really challenging to retain good, well-educated, qualified people in our industry, because once you invest they become more skilled and become more attractive for other branches of industry.”

It also means suppliers “expect some level of [order] stability because they are making investments.”

Ongoing evolution
The ongoing evolution of Adidas’s supply chain has most recently seen the company make a move towards sourcing from Myanmar, with the country in February making its first appearance on the Global Factory List. Footwear will be the first product produced here.

The pre-screening process took nearly two years, with input from international human rights organisations, the International Labour Organization (ILO), local trade associations and the Myanmar government. Specific issues for suppliers include guidance on land acquisition (land grabbing is a problem), as well as safety audits that cover earthquake activity, 100% compliance with Adidas’s health & safety guidelines due the absence of local regulation, and the presence of a human resources manager in factories.

“It's not that we went to Myanmar and looked for suppliers, but in many cases are in talks with our existing multi-country suppliers that want to build a factory in Myanmar.

“This is an approach that many of our core suppliers are doing; they're investing in production facilities in various countries, which is all about balancing risks and is a very important strategy. But it also allows this level of communication and trust because we've already been doing business with them for so many years, so can take the conversation with them to the very high level.”

As for China: “There's no second China...that's what our sourcing colleagues say. And that is why it's even more important to invest in existing facilities and driving efficiencies, investing in technology, investing in skills, in lean manufacturing. There are no similar sourcing countries on the radar.”

And Africa? “For the time being, we are not planning to enter new sourcing countries in Africa.”

Another challenge adding to the sustainability debate is that “many of the topics we're addressing are getting highly politicised, and this impacts the overall discussions. But the world is global; there is no place for domestic solutions any more,” Henke believes.

“The only thing to move programmes is that there must be a positive business case behind, a longer term investment in brand and group values. And if you have the ambitions to be one of the most desired brands then you need to deliver on certain expectations.”