Intersecting Lean, CSR & Procurement: Nike’s New Supplier Sustainability Index and Program (Part 3)

Please click here for the first and second posts in this series.

In the initial posts in this series, we shared what Nike is up to in revisiting how it measures and manages suppliers to include a range of CSR elements tied to overall lean sourcing and supply chain efforts, not just check-the-box sustainability-type initiatives. Hannah Jones, Nike's vice president of sustainable business and innovation, was featured in an excellent interview in GreenBiz.com (which we link to in the previous posts). She notes changing the DNA to link lean to CSR is key: "We have been rewiring the conversation internally and rewiring the conversation with our suppliers in which we really explain to them that there are some new rules of engagement."

As part of this effort, Nike has a "whole set of indicators, performance indicators that they [suppliers] need to be meeting. So there are kind of incentives along the way, but there are also sanctions for failing to meet standards and [for] repeat offences." These sticks have teeth. To wit, "If you look at some of the data in the labor section of [Nike's sustainability report], you'll see that we have eliminated a number of factories because of their unwillingness to consistently shift management strategy and culture [and] to build in sustainability and workers' rights." Contrast this with Apple, which has generally only shifted out suppliers as a last resort to solve CSR-related issues.

How can companies pursue a Nike-like strategy to incorporate sourcing, lean and supplier management programs focused on enhanced CSR outcomes together? We believe that a combination of internal stakeholder alignment, supplier engagement/communication and measurement are all key. Among the recommendations we've implemented over the years at various organizations in this area, we suggest:

  • The creation of a lean sourcing process that can be mapped and communicated to all team members
  • Making the entire team aware of project milestones, deadlines and target dates that are critical to getting the job done
  • Creating team member incentive structures and compensation that are tied to process outcomes (this goes for suppliers as well!)
  • Getting the two parties (procurement and operations) to come to the table and work together is the most important step -- bridge the gap!
  • Remember that process is key, but technology can be a significant enabler (in this case a combination of supplier management and sourcing tools)

In one scorecard we've used to gauge the success of lean sourcing programs in manufacturing, we suggest considering:

  1. Annual savings by category
  2. Compliance with contract/negotiated prices
  3. Defects
  4. Purchase order reliability (e.g. quality and price discrepancies)
  5. On-time deliveries
  6. Supplier responsiveness to company corrective action requests
  7. Actual cost of purchases vs. budgeted costs

Adding CSR related factors to this would only tack on a few more bullets -- and would tie well to some of the earlier KPI areas (e.g., 3, 4, 6).

- Jason Busch

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