adidas-Salomon - Labor Compliance Program in Year TwoOverview of the Program
Program Features
- Compliance Systems Developed in Year Two
- Improvements in Implementing the FLA Requirements
Overview of the Program
The Social and Environmental Affairs department (SEA) administers adidas' Standards of Engagement, which correspond with the standards enumerated in the FLA's Workplace Code. The SEA team is comprised of 32 full-time and one part-time staff members, who are based in three regions, Asia, the Americas, and Europe. The department is overseen by a global director, who shares decision-making and operational management with three regional heads. The leadership team reports to adidas-Salomon's General Counsel, who sits on adidas-Salomon's Executive Board.
In Year Two, with the exception of licensees' facilities, adidas did not rely on third parties to conduct internal monitoring visits. In some particular circumstances, the company did work with some third parties for capacity-building and training (click here to see list).
The company has developed a "Lean" manufacturing1 production model, which requires collaboration between SEA and the teams implementing this model. As a result, SEA conducted several joint audits with Lean teams. Moreover, staff from other departments, including Quality Control and Operations, has been involved in remediation of particular issues, such as verification of workers' hours in China. Senior sourcing management also used their influence with suppliers to address serious noncompliance issues in various instances.
A notable example of adidas' compliance mainstreaming within adidas' corporate structure is the development of SEA's factory rating tool in Year Two. Factory compliance ratings are among the factors used to determine where adidas sourcing takes place (other factors are quality, delivery, and product development), and the amount of orders any given factory receives. adidas consolidated more than a quarter of its supply chain in Year Two, based on combined ratings in these categories.
Program Features
A. Compliance Systems Developed in Year Two *
1. Freedom of Association in Central America
With a view to addressing the endemic problems facing fledgling unions in Central America, adidas conducted an assessment of the underlying causes of freedom of association issues in the region. Among key issues were perceptions among some workers that unions were corrupt; the pre-screening of job applicants by export processing zone administrators in order to ensure that union-affiliated workers do not access zone workforces; and, government's ineffectiveness in addressing hiring discrimination, blacklisting, and union-busting.
The company has taken several steps towards remediation and prevention of this major noncompliance issue in all factories in the region.
- adidas' factory team interviewed hundreds of workers (of a 2,500 worker population) to gain a better understanding of problems, and tailor future trainings to workers' needs.
- adidas encouraged factories to hire SOE coordinators, and has since trained those coordinators, and conducted two self-audit pilots at the end of the reporting period.
- adidas also worked with management and workers to establish worker-management communication committees. (Notably the company acknowledges that the committees need improvement with regard to their representativeness, depth of topics addressed, and clarity of purpose among participants.)
- With a view to improving worker and management understanding about freedom of association, adidas cooperated with Reebok to sponsor an interactive training session for 155 factory managers and workers conducted by Verite. More trainings are planned in all facilities for the next reporting period.
According to reports from FLA Year Two monitoring visits to adidas' applicable facilities in Guatemala, Honduras, and Mexico, monitors did not observe noncompliance with freedom of association standards. Click here to access reports from FLA independent external monitoring in adidas' applicable facilities.
2. Hours of Work in China
In two of adidas' applicable facilities in China, FLA-accredited monitors observed that hours of work exceeded the acceptable hours delineated in the FLA Workplace Code. It was also reported that overtime was not fully paid in some cases. As reported in the tracking charts, adidas devised plans to remediate these issues. Click here to access adidas' tracking charts.
adidas observed that these cases illustrated some of the problems that arise in the majority of its apparel and accessory suppliers in China, where it is common for workers to work excessive hours.
In response to this issue, in 2002, adidas' SEA team formed a Working Hours Taskforce to investigate root causes. The taskforce traced long hours to poor production planning, inefficiencies on the production floor, delays in raw materials, and demands from purchasing companies. Relating to this last point, in 2003, the taskforce reviewed adidas' sourcing, development and production systems; customer expectations; and the performance of material supplier to determine if they affected working hours in the supply chain. After finding that these factors did, indeed, impact supplier working hours, they adopted recommendations for sourcing managers, which included:
- A revised method of calculating supplier production capacity, order forecasting and dealing with unplanned orders
- Suggestions for monitoring the quality and delivery performance of raw materials suppliers
- Guidelines for adidas staff who are making last-minute orders.
At the local level, the SEA staff has started to work with factory management to implement the company's standardized remediation policy for hours of work noncompliance. The policy requires that they:
- Develop management system for working hours and payroll
- Eliminate excessive hours from the factory work schedule, as well as double bookkeeping systems
- Set up monitoring systems to help managers identify when workers or departments are approaching legal limits
- Develop overtime sign-up lists for workers as proof that overtime is voluntary
- Submit overtime approval request forms to adidas country managers prior to working overtime
For factories that were less responsive to these remediation efforts, SEA developed formal enforcement policies including warning letter protocols and factory performance ratings that ultimately would affect the level of production volumes awarded. SEA staff and sourcing management also were expected to follow up with management (via phone, email, joint factory visits and face-to-face meetings) consistently to address working hour compliance. While there is anecdotal evidence that this strategy can, indeed, decrease working hours, the program had not been rolled out in all facilities, and its impact is still to be measured at the end of the Year Two reporting period.
Click here to see the Year One report on adidas.
B. Improvements in Implementing the FLA Requirements *
- The SEA department moved towards a monitoring system that can identify underlying causes of noncompliance findings. To this end, the team began using a new audit tool and factory rating system during the reporting period (described in section 2). According to adidas, the tools prompted deeper evaluation of the standards, provided standardized remediation steps, and resulted in more objective factory performance ratings.
- In Year Two, the department focused resources on training and capacity-building for suppliers with a view to addressing the systemic causes of noncompliance. In Year Two, adidas conducted more than 90 factory management trainings in Asia, Europe and the Americas.
- adidas' Fair Wage Study in Indonesia focused on finding ways to define, measure and implement a fair wage. The study was conducted by an Indonesian NGO and an independent expert analyzed the findings. The company used the findings to develop the company's wage policy.
- adidas organized stakeholder dialogue meetings in Guangzhou, China in November 2003, and Brussels, Belgium in October 2003. The meetings involved representatives from academia, investment groups, labor and advocacy groups, and factory workers, and focused on areas where adidas could improve its approach to compliance. The company reported that it needed to further improve its approach to these consultations, but that the meetings helped to focus the SEA program's plan for the following year.
- In Portugal and Turkey, adidas piloted worker consultations in which a cross-section of apparel factory workers participated in discussions about compliance, led by third party groups. adidas staff were observers at the meetings. The worker discussions revealed that top-down and bottom-up methods of communication about compliance were not working, so adidas reported that it was working to change these structures.
Click here to review adidas' activities in Year One.
1In this context, "Lean management" is an approach to managing supply chains to improve quality, eliminate waste, reduce total costs, and shorten lead times. The methodology includes fostering a company culture of continuous improvement in which all employees improve their skill levels and production processes so that the organization achieves just in time delivery and efficiency goals.
*Please note that this section in no way seeks to capture all of the compliance activities reported to the FLA by companies. Instead, the FLA considers it an overview of company activities that will provide the reader with a better understanding of each company's approach and focus in Year Two.
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