SUPPLY CHAIN MANAGEMENT IN

(NIKE, ADIDAS & REEBOK)

SUBMITTED TO:-

DR.NEENA SINHA

SUBMITTED BY:-

ROHIT LOHIA(99)

AASHISH KR.(076)

RAJ KUMAR(084)

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 Definition

Supply chain management (SCM) is the management of a network of interconnected

businesses involved in the ultimate provision of product and service packages required by end
customers

Supply chain management spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point of origin to point of consumption.

design, planning, execution, control, and monitoring of supply chain activities with the objective
of creating net value, building a competitive infrastructure, leveraging worldwide logistics,
synchronizing supply with demand and measuring performance globally.

Supply chain strategies require a total systems view of the linkages in the chain that work
together efficiently to create customer satisfaction at the end point of delivery to the consumer.
As a consequence costs must be lowered throughout the chain by driving out unnecessary costs
and focusing attention on adding value. Throughout efficiency must be increased, bottlenecks
removed and performance measurement must focus on total systems efficiency and equitable
reward distribution to those in the supply chain adding value. The supply chain system must be
responsive to customer requirements."

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According to the Council of Supply Chain Management Professionals (CSCMP), supply chain
management encompasses the planning and management of all activities involved in sourcing,
procurement, conversion, and logistics management. It also includes the crucial components of
coordination and collaboration with channel partners, which can be suppliers, intermediaries,
third-party service providers, and customers. In essence, supply chain management integrates
supply and demand management within and across companies.

Buy
Buy

 Also referred to as the logistics network

 Suppliers, manufacturers, warehouses, distribution centers and retail outlets – “facilities”

 Raw materials

 Work-in-process (WIP) inventory

 Finished products, that flow between the facilities

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 Suppliers Manufacturers Warehouses & Customers
Distribution Centers

Transportation Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs Inventory Costs Costs

Importance of supply chain management.

The objective of every supply chain is to maximize the overall value generated.

The value a supply chain generates is the difference between what the final product is

Worth to the customer and the effort the supply chain expends in filling the customer’s

Request. For most commercial supply chains, value will be strongly correlated with

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supply chain profitability, the difference between the revenue generated from the

customer and the overall cost across the supply chain.

Strategic Advantage – It Can Drive Strategy

* Manufacturing is becoming more efficient

* SCM offers opportunity for differentiation (Dell) or cost reduction (Wal-Mart)

Globalization – It Covers the World

* Requires greater coordination of production and distribution

* Increased risk of supply chain interruption

* Increases need for robust and flexible supply chains

At the company level, supply chain management impacts

* COST – For many products, 20% to 40% of total product costs are controllable
logistics costs.

* SERVICE – For many products, performance factors such as inventory availability

and speed of delivery are critical to customer satisfaction the choice of an internal management
control structure is known to impact local firm performance.

The benefits too would be reflected in terms of:

 Lower costs

 Better customer service

 Efficient manufacturing

 Better trust among the partners leading to win-win

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  Supply chains are very important because of flow of goods from one destination to other
destination with cost effective and on timely delivery of goods to the business needs and
give the profit to the organization.
Supply Chain consists of many trading partners, from raw materials to finished products.
Typical supply chain is denoted as below,

Supplier-->Manufacturer-->Wholesaler-->Retailer

each party consists of 5 logistics activities, namely, customer service, production

planning, purchasing, warehousing and transportation.

Logistics focuses on activities inside a company while supply chain focuses on

relationship between each company.

Supply Chain Management is important because of relationship between each party. If

every party joins hand and work together, it will create cost savings and time to market
reduction and everyone will enjoy the benefit.

Problems addressed by supply chain management

 Distribution Network Configuration: number, location and network missions of

suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.

 Distribution Strategy: questions of operating control (centralized, decentralized or

shared); delivery scheme, e.g., direct shipment, pool point shipping, cross docking, DSD
(direct store delivery), closed loop shipping; mode of transportation, e.g., motor carrier,
including truckload, LTL, parcel; railroad; ocean freight;

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 Trade-Offs in Logistical Activities: The above activities must be well coordinated in
order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only
one of the activities is optimized.

 Information: Integration of processes through the supply chain to share valuable

information, including demand signals, forecasts, inventory, transportation, potential
collaboration, etc.

 Inventory Management: Quantity and location of inventory, including raw materials,

work-in-process (WIP) and finished goods.

 Cash-Flow: Arranging the payment terms and methodologies for exchanging funds
across entities within the supply chain.

Activities/functions

Supply chain management is a cross-function approach including managing the movement of

raw materials into an organization, certain aspects of the internal processing of materials into

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finished goods, and the movement of finished goods out of the organization and toward the end-
consumer. These functions are increasingly being outsourced to other entities that can perform
the activities better or more cost effectively. The effect is to increase the number of organizations
involved in satisfying customer demand, while reducing management control of daily logistics
operations

Strategic level

 Strategic network optimization, including the number, location, and size of warehousing,
distribution centers, and facilities.

 Strategic partnerships with suppliers, distributors, and customers, creating

communication channels for critical information and operational improvements such as cross
docking, direct shipping, and third-party logistics.

 Product life cycle management, so that new and existing products can be optimally
integrated into the supply chain and capacity management activities.

 Where-to-make and make-buy decisions.

 Aligning overall organizational strategy with supply strategy.

Tactical level

 Sourcing contracts and other purchasing decisions.

 Production decisions, including contracting, scheduling, and planning process definition.

 Inventory decisions, including quantity, location, and quality of inventory.

 Transportation strategy, including frequency, routes, and contracting.

 Benchmarking of all operations against competitors and implementation of best practices

throughout the enterprise.

 Milestone payments.

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 Focus on customer demand and Habits.

Operational level

 Daily production and distribution planning, including all nodes in the supply chain.

 Production scheduling for each manufacturing facility in the supply chain (minute by
minute).

 Demand planning and forecasting, coordinating the demand forecast of all customers and
sharing the forecast with all suppliers.

 Sourcing planning, including current inventory and forecast demand, in collaboration

with all suppliers.

 Inbound operations, including transportation from suppliers and receiving inventory.

 Production operations, including the consumption of materials and flow of finished

goods.

 Outbound operations, including all fulfillment activities, warehousing and transportation

to customers.

 Order promising, accounting for all constraints in the supply chain, including all
suppliers, manufacturing facilities, distribution centers, and other customers.

 From production level to supply level accounting all transit damage cases & arrange to
settlement at customer level by maintaining company loss through insurance company.

 Managing non-moving, short-dated inventory and avoiding more products to go short-

dated.

Background of companies

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Nike
Nike is a major publicly traded sportswear and equipment supplier based in the United States
The company initially operated as a distributor for Japanese shoe maker Onitsuka Tiger (now
ASICS), making most sales at track meets out of Knight's automobile.[5]he company was founded
on January 25, 1964 as Blue Ribbon Sports by Bill Bowerman and Philip Knight,[1] and
officially became Nike, Inc. on May 30, 1978.

Nike markets its products under its own brand, as well as Nike Golf, Nike Pro, Nike+, Air
Jordan, Nike Skateboarding, and subsidiaries including Cole Haan, Hurley International, Umbro
and Converse.

By 1980, Nike had attained a 50% market share in the U.S. athletic shoe market, and the
company went public in December of that year. [8] Its growth was due largely to "word-of-foot"
advertising (to quote a Nike print ad from the late 1970s), rather than television ads. Nike's first
national television commercials ran in October 1982, during the broadcast of the New York
Marathon. The ads were created by Portland-based advertising agency Wieden+Kennedy, which
had formed several months earlier in April.

Throughout the 1980s, Nike expanded its product line to encompass many sports and regions
throughout the world.

Reebok

Reebok International Limited, a subsidiary of the German sportswear company Adidas since
2005,[2] is a producer of Athletic shoes, apparel, and accessories. The name comes from the
Afrikaans spelling of rhebok, a type of African antelope or gazelle. In 1890 in Holcombe Brook,
a small village 6 miles north east of Bolton, England, Joseph William Foster was making a living
producing regular running shoes when he came up with the idea to create a novelty spiked
running shoe. After his ideas progressed he joined with his sons, and founded a shoe company
named J.W. Foster and Sons in 1895.

In 1960, two of the founder's grandsons Joe and Jeff Foster renamed the company Reebok in
England, having found the name in a dictionary won in a race by Joe Foster as a boy; the
dictionary was South African edition hence the spelling. The company lived up to the J.W.
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Foster legacy, manufacturing first-class footwear for customers throughout the UK. In 1979,
Paul Fireman, a US sporting goods distributor, saw a pair of Reeboks at an international trade
show and negotiated to sell them in North America.

Reebok in India

Reebok sponsored kits for Indian Premier League teams, such as the Royal Challengers
Bangalore, Kolkata Knight Riders, Rajasthan Royals and Chennai Super Kings in the first
edition of the league held in 2008. However, for the second edition held in 2009, the
sponsorships included Royal Challengers Bangalore, Kolkata Knight Riders, Chennai Super
Kings, Kings XI Punjab kits.

The Brand Trust Report, India Study, 2011 published by the Trust Research Advisory ranked
Reebok as the 14th most trusted brand in India.

Adidas

Adidas AG is a German sports apparel manufacturer and parent company of the Adidas Group,
which consists of the Reebok sportswear company, TaylorMade-adidas golf company (including
Ashworth), and Rockport. Besides sports footwear, the company also produces other products
such as bags, shirts, watches, eyewear, and other sports- and clothing-related goods.The
company is the largest sportswear manufacturer in Europe and the second-biggest sportswear
manufacturer in the world, with American rival Nike being the biggest.[3]

Adidas was founded in 1948 by Adolf "Adi" Dassler, following the split of Gebrüder Dassler
Schuhfabrik between him and his older brother Rudolf. Rudolf later established Puma, which
was the early rival of Adidas. Registered in 1949, Adidas is currently based in Herzogenaurach,
Germany, along with Puma.

The company's clothing and shoe designs typically feature three parallel bars, and the same motif
is incorporated into Adidas's current official logo. The "Three Stripes" were bought from the
Finnish sport company Karhu Sports in 1951. The company revenue for 2009 was listed at
€10.38 billion and the 2008 figure at €10.80 billion.

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Our vision is clear: to enhance social and environmental performance in the company and the
supply chain, thereby improving the lives of the people making our products.
 
We are striving to be the global leader in the sporting goods industry and this demands that we
return strong financial results. But leadership is not only about results, it is also about how
success is achieved. We are accountable for the way we do business. In particular, we accept
responsibility for the way our products are manufactured by our suppliers. By our actions we can
– and should – improve the lives of workers who make our products.
 
We are committed to good governance, and use our stainability statement and our corporate
missions on Social and Environmental Affairs, Human Resources and Community Affairs to
achieve our vision.

2% Organized and rest are unorganized sector in sports and accessories industry.

In India the revenues of companies are:-

Nike ---- 300cr

Adidas--- 700cr

Reebok ----1300cr

Supply chain management of sports industry

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 Deman
d estimating: this shows the demand of the particular product and for the particular industry.
Demand estimating helps in sufficient supply the units. Demand estimating done by the market
research.

Fashion calculation: we know the trend do vary by changing the time and companies have to
move on with the changing fashion trend they have to calculate the fashion trend and preferences
of the demanded product.

Shortlist and finding the demand: the company shortlist the research paper and finally reach to
real demand of the population , according to area and region demand may be vary, so companies
have to keep in mind that when they shortlist the demand.

Vendor: vendor plays an important in supply chain; either in procurement of raw material or in
the provider of demand estimation, always vendor gives the order to the company for particular
demand and supply.

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Company warehouse: company warehouse plays the fulfillment the supply with a rule. For ex.
A vendor gives order to the company for demand for coming after six month, then the company
supply of the one forth demand at the given period. Rest of remaining demand will be satisfied
in upcoming three months with the proportion. The major benefit of this rule is to replenish the
fund and allocate the fund. It also helps in avoiding the surplus and short comes.

This is because many variable affect the supply like fashion change, taste and preferencies,
economy stabilities, legal, technological etc.

Division and distribution are:

Store

Distribution agents

Large formed retailers

Exporters

E- Commerce, online.

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 Market share of companies

Nike

Nike currently enjoys a 47% market share of the domestic footwear industry, with sales of $3.77
billion. Nike has been manufacturing throughout the Asian region for over twenty-five years, and
there are over 500,000 people today directly engaged in the production of their products. They
utilize an outsourcing strategy, using only subcontractors throughout the globe. Their majority of
their output today is produced in factories in China, Indonesia, and Vietnam, but they also have
factories in Italy, the Philippines, Taiwan, and South Korea. These factories are 100% owned by
subcontractors, with the majority of their output consisting solely of Nike products. However,
Nike does employ teams of four expatriates per each of the big three countries (China, Indonesia,
Vietnam), that focus on both quality of product and quality of working conditions, visiting the
factories weekly. They also developed their code of conduct in 1992 and have implemented it
across the globe, as its goal is to set the standard for subcontractors to follow if they wish to do
business with Nike. However, due to a manufacturing network of this magnitude, they have
faced numerous violations involving factory conditions and human rights issues, which have
been widely publicized. They have responded to these issues through the Andrew Young report,
the Dartmouth Study, and Ernst & Young’s continual monitoring, but are still approximately two
years away from completely addressing these problems throughout the globe.

Reebok

Reebok, as the second leading manufacturer of footwear, has domestic revenues of $1.28 billion
and a market share of 16%. Similar to Nike, they also utilize a 100% outsourcing strategy and
manufacture their products throughout Asia. They have created and implemented their own code
of conduct for manufactures to follow, but have less infrastructure than Nike across the globe to
enforce it. They are facing scrutiny in regards to wage, overtime, and air quality issues, and like
Nike, are working to address these issues. However, their strength, the creation and distribution
of a global brand, is allowed to foster under this manufacturing strategy, as they focus on their
core competencies, and outsource their production.

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Adidas

Adidas is currently enjoying the fastest growth of any brand domestically, with a market share of
6% and revenues of $500 million. They have been shielded from bad publicity by the two
Goliath’s of the industry, Nike and Reebok, and are reaping the rewards substantially. They have
adjusted their manufacturing strategy, from a vertical operation in Germany in the 60’s and 70’s,
to an outsourcing focus today throughout Asia. Unlike the big two, they do not have a code of
conduct, and their factories are considered to be the worst in the industry. It is just a matter of
time before they are exposed, with an underground swelling of negativity already occurring
today. In order to avoid the negative effects and lost revenues that Nike and Reebok have
received, they need to immediately begin to take a proactive stance in regards to the working
conditions of their factories.

market share

nike
reebok
adidas
others

Reebok and Adidas: A Good Fit

Their merger could put the combined outfit on the fast track. Then again, Nike may still prove to
agile to catch. Germany’s Adidas-Salomon agreed to buy Reebok International for 3.1 billion
euros ($3.78 billion), or $59 a share -- a 34% premium over the $43.95 at which its shares closed
the day before the announcement. Adidas has a market capitalization of about $8.4 billion, and
reported net income of $423 million last year on sales of $8.1 billion. Reebok reported net

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income of $209 million on sales of about $4 billion.

GROWING SHADOW.  The objective of the tieup is clear. The two companies, which jockey
for No. 2 and No. 3 slots behind Nike (NKE ), view their prospects for competing against the
Beaverton, Ore., behemoth as better together than apart.

In the U.S., Nike reigns supreme. In 2004, it had about 36% market share in the athletic-footwear
market, according to the Sporting Goods Manufacturers Association International, while Adidas
has 8.9% of the U.S. market and Reebok 12.2%. The U.S. ranks as the world's biggest athletic-
shoe market, accounting for half the $33 billion spent globally each year on athletic shoes.

The New Nike No longer the brat of sports marketing, it has a higher level of discipline and
performance
In the past few years, the company has devoted as much energy to the mundane details of
running a business -- such as developing top-flight information systems, logistics, and (yawn)
supply-chain management -- as it does to marketing coups and cutting-edge sneaker design.
More and more, Nike is searching for the right balance between its creative and its business
sides, relying on a newfound financial and managerial discipline to drive growth. "Senior
management now has a clear understanding of managing the creative process and bringing it to
the bottom line. That's the big difference compared to the past," says Robert Toomey, an equity
analyst at RBC Dain Rauscher Inc. in Seattle.
FILLING THE ORDERS 
Nike also overhauled its supply-chain system, which often left retailers either desperately
awaiting delivery of hot shoes or struggling to get rid of the duds. The old jerry-built compilation
strung together 27 different computer systems worldwide, most of which couldn't talk with the
others. Under Denson's direction, Nike has spent $500 million to build a new system. Almost
complete, it is already contributing to quicker design and manufacturing times, and fatter gross
margins -- 42.9% last year, up from 39.9% five years ago. Nike says that the percentage of shoes
it makes without a firm order from a retailer has fallen from 30% to 3%, while the lead time for
getting new sneaker styles to market has been cut to six months from nine.

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Meanwhile, Nike has started paying serious attention to its handful of acquisitions, once treated
as more of an afterthought. After buying up Cole Haan almost 15 years ago, Nike struggled to
add any real value at the dress-shoe outfit. But lately, Nike managers have figured out that by
giving their acquired brands some independence, rather than forcing Nike's testosterone-laced
corporate culture on them, they can achieve better results. "We've learned to let those brands pull
resources and expertise out of the mother ship as opposed to pushing the mother ship onto the
brands," Blair says. Nike doesn't break out results for each sub-brand, but the group's sales grew
51%, to $1.4 billion last year. With nearly a quarter of the sales growth, Converse was the star.

That still-modest portfolio of different brands helps to lessen the company's dependence on hit
shoes and could help Nike turn in a more consistent performance. That's why Nike is eager to
snap up complementary brands as they become available. In mid-August it paid $43 million for
Official Starter Properties, licensors of sneakers and athletic apparel whose brands include the
budget-level Shaq label. "What we're trying to do is move toward more of a consumer,
noncyclical model," says Blair. "The key is trying to find the right balance of discipline,
innovation, creativity, and structure."

Nike has also had to grapple with the touchy topic of sweatshop labor at the 900-odd
independent overseas factories that make its clothes and sneakers. When Nike was getting
pummeled on the subject in the 1990s, it typically had only two responses: anger and panic.
Executives would issue denials, lash out at critics, and then rush someone to the offending
supplier to put out the fire. But since 2002, Nike has built an elaborate program to deal with
charges of labor exploitation. It allows random factory inspections by the Fair Labor Assn., a
monitoring outfit it founded with human rights groups and other big companies, such as Reebok
International Ltd. and Liz Claiborne Inc., that use overseas contractors. Nike also has an in-house
staff of 97 which has inspected 600 factories in the past two years, grading them on labor
standards. "You haven't heard about us recently because we have had our head down doing it the
hard way. Now we have a system to deal with the labor issue, not a crisis mentality," says Maria
S. Eitel, Nike vice-president for corporate responsibility.

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It's overseas, in fact, where most of Nike's sales now come from. Last year, for the first time,
international sales exceeded U.S. sales -- still the company's single largest market. Under
Grossman, Nike is making sports fashion a core business, something unthinkable until recently
inside Nike's male-dominated culture. Thanks to stylish athletic wear -- think tennis star Serena
Williams at the U.S. Open -- Nike's worldwide apparel sales climbed 30% in three years, to $3.5
billion in fiscal 2004.

Of course, Nike still faces challenges. After several years of red-hot growth, European sales of
higher-priced shoes have started to slide. In the U.S., retro-sneaker makers like K-Swiss, Diesel,
and Puma are filling a rising demand. And adidas-Salomon has redoubled efforts to attack the
North America basketball market, where Nike has a 60% share. Taking a leaf from Nike's book,
Adidas just signed three NBA all-stars: Tracy McGrady, Tim Duncan, and Kevin Garnett, each
of whom will have his own sneaker. On the technology front, Adidas has unveiled the Adidas 1,
a $250 shoe slated for December that has a computer chip that automatically adjusts the fit as the
wearer runs.

Nike aims to keep pace in the techno-battle with Nike Free, a shoe still being tested, that makes
runners feel as if they were barefoot. It's inspired by the barefoot runners of Kenya, who have
proved that shoeless training builds strength and improves performance. Meanwhile the company
continues to refine its Shox technology -- a special cushioning system first developed for
runners, which is now becoming a top seller in categories from running to basketball to cross
training. The shoes, which sell for up to $135 a pair, helped put to rest the idea that high-priced
sneakers no longer sell well in the U.S.
Supply Chain of adidas

On 31 December 2010, we worked with more than 1,230 independent factories from around the
world who manufactured our products in 69 countries. Many of these are in one of the following
five countries: China, India, Indonesia, Thailand or Vietnam.
 
Workers in our suppliers' factories play a central role in our programme. It was concern for their

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working conditions that led us to write our 'Workplace Standards'. These standards set out the
Group’s position on a number of challenging labour issues workers can face including:

 Working hours

 Fair wages

 Freedom of association

 Child labour.

Our strategy is based on a long-term vision of self-governance in our supply chain where
suppliers take ownership of their compliance programme. To achieve this, we need to act both as
inspectors and advisors – assessing management commitment to compliance and the
effectiveness of the programme, and providing help and support to suppliers to ensure success in
the long term.

Supplier factory list and licensee factory list

In early 2007, the adidas Group published a question and answer booklet on the integration of
the adidas and Reebok social compliance programmes. In that booklet, we pledged to finalise our
Group-wide compliance data management system – that is, the Fair Factories Clearinghouse
(FFC) – and achieve greater supply chain transparency. We have met our target and as a result
we are posting a global supplier factory list and a licensee factory list which we regularly update.
You find the lists on the top right side of this page. The first list includes international export and
local market factories as well as sewing subcontractors but excludes our licensees’ factories.
These are disclosed in the second document.

Our Workplace Standards

PERFORMANCE. PASSION. INTEGRITY. DIVERSITY

These are the core values found in sport. Sport is the soul of the adidas Group. We measure
ourselves by these values, and we measure our business partners in the same way. Consistent
with these values, we expect our partners – contractors, subcontractors, suppliers, and others – to

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conduct themselves with the utmost fairness, honesty and responsibility in all aspects of their
business. We use the adidas Group Workplace Standards as a tool to assist us in selecting and
retaining business partners who follow business practices consistent with our policies and values.
As a set of guiding principles, the Workplace Standards also help identify potential problems so
that we can work with our business partners to address issues of concern as they arise. Business
partners will develop and implement action plans for continuous improvement in factory
working conditions. Progress against these plans will be monitored by the business partners
themselves, our internal monitoring team and external independent monitors.

Specifically, we expect our business partners to operate work places where the following
standards and practices are implemented:

How We Work With Suppliers

Over the past ten years, we have continually refined our methods, tools and techniques to
promote compliance in our supply chain. The principal cornerstones of our management
approach are described below.

Standards and guidelines

We have had a supplier code of conduct for more than ten years – the latest version is our
“Workplace Standards“. Based on extensive experience of applying the Standards, we have
produced guidelines for our suppliers, which help us to work together to find solutions to
problems in the workplace. The “Workplace Standards” are part of the manufacturing agreement
that the adidas Group signs with each business partner. An approved factory has to place a poster
with our Standards distinctly and visibly on the wall that tells workers in local language that it is
now making products for the adidas Group. The poster also informs workers that we will help
them find solutions to factory issues, and it gives them local numbers to call and addresses to
write to. In some cases the telephone hotlines that we use are run by non-profit organisations and
in other cases our own field staff take the calls and respond to the workers' concerns.

Capacity building and outreach

We train our suppliers so they understand the importance of establishing and maintaining

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management systems and open lines of communication with those concerned about how they
operate, such as government officials, local communities or the workers themselves.

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Monitoring and verification

We have a dedicated team of auditors, which monitors suppliers’ performance against our
Standards. We also value independent monitoring by third parties because it helps us to improve
how we work and adds credibility to our programme. So in 1999 we joined the Fair Labor
Association (FLA) in the United States, which is a non-profit organisation dedicated to
improving working conditions in factories around the world. By working cooperatively with
companies, NGOs and universities, the FLA developed a workplace code of conduct based on
International Labour Organization standards, and appoints accredited inspectors to conduct
unannounced factory visits and check if suppliers are meeting the standards

Rating
We audit our suppliers against our Standards and rate them according to their performance. We
use an innovative way to rate the supplier on its ability to deliver fair, healthy and
environmentally sound workplace conditions in an effective manner.

Sourcing decision
Rating results are incorporated in the overall supplier rating that informs our decision of which
suppliers to use.

Responsible Management of Factory Closures and Downsizing

The economic downturn is having a significant adverse impact on global supply chains. In
March 2009 WTO economists reported a “precipitous drop in global production and trade”
which began first in the developed economies and then in the developing world, which is more
heavily dependent on exports for growth. In China for instance, total exports for the month of
February 2009 were down 26% compared with the same month in the previous year and 28%
compared with January 2009. Due to weak consumer demand and a declining order book,

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suppliers are being forced to make difficult decisions. It is requiring them to become leaner and
more efficient and to “right-size” their businesses. And in some cases, it is leading to factory
closures and job losses.Over the past two decades the adidas Group has faced several periods of
consolidation and factory closures. Some have been planned: as part of our long term strategy to
concentrate more orders in fewer but better suppliers, or as a consequence of mergers,
acquisitions and divestitures. And some have been the result of past economic crises: the most
recent being the 1998 Asia Financial Crisis. Our previous experience in dealing with closures
and downsizing means that we have well-developed systems in place to monitor and manage
such eventualities, including the impact on workers and local communities.
 So what have we done in response to the current global financial crisis?
 

Our Social and Environmental Affairs team has worked collaboratively with our Global Sourcing
division to manage potential adverse impacts along our supply chain:

 As early as November 2008 all internal sourcing managers we reminded of the Group’s
long standing Termination Standard Operating Procedure, which details the ethical
handling of any planned order reductions or termination of our supplier relationships.
Moreover, as part of our commitment to transparency we have published these guidelines
on the adidas Group website.

 We have prepared and issued a Handling Layoffs and Redundancies Guideline to all
our sourcing partners globally. The guideline draws on international best practice for the
handling of layoffs and redundancies and also specifies the minimum expectations of the
adidas Group.

 We have intensified engagement with our suppliers, to understand their issues and
concerns and to be as transparent as possible about our plans and order situation.

 In our allocation system we have given priority in our order placement to our long term
core suppliers, some of which produce up to 100% for the adidas Group.

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  We are tracking individual suppliers to understand the actions they are taking to manage
their workforce during these challenging times, including any planned layoffs or
restructuring initiatives and the impact that reduced order volumes may have on worker
pay and benefits.

 We have reviewed and updated ourselves and our suppliers on the statutory requirements
for worker dismissals and mass layoffs in each of our primary sourcing countries in Asia
and have engaged with governments to understand how their response to the financial
crisis will impact on enforcement practices and policies, such as minimum wage setting
and social insurance.

Supporting Guidelines

The Workplace Standards are a set of rules that our suppliers must abide by, but to illustrate how
suppliers should implement our Standards, we have created a set of guidelines for use in factory
settings. These expand on our Workplace Standards, giving detailed instructions and practical
examples for implementation.

The guidelines are also used by our SEA team to:

 Determine whether a supplier is complying with our Standards

 Advise and train our suppliers in improving their performance.

We regularly create new guidelines and revise existing ones. There are currently seven
guidelines and those seven are further complemented by specific supplementary materials. The
seven guidelines are:

 Health & Safety Guidelines

 Guidelines on Employment Standards

 Environmental Guidelines

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  Worker Cooperative Guidelines

 Enforcement Guidelines

 Guidelines on Sustainable Compliance

 Termination Guidelines.

Nike

Supply Chain

Freedom of Association. We are updating Nike's Code and Code Leadership Standards to make
clearer the responsibility of contracted factories to respect their employees' right to freedom of
association and collective bargaining to the extent permitted by local law. This includes the right
to form and join trade unions and other worker organizations of their own choosing without
harassment, intimidation, interference or retaliation. Where national law restricts freedom of
association, the contracted factories are required to facilitate alternate means to individually and
collectively engage with their employees and for employees to express their grievances and
protect their rights regarding working conditions and terms of employment.

The updated requirements will also address the obligation to comply with any local laws
providing special protection to employees or worker representatives engaged in union activities,
a prohibition on disciplining employees having engaged in legal strikes, the duty to bargain in
good faith and honoring the terms of any negotiated collective bargaining agreement.

Responsible Transitions. We are updating Nike's Code Leadership Standards to include worker
protections in the event of factory closure or retrenchment. These steps include standards for
factories that include, at a minimum, notice, consultation, severance and collective bargaining.

Contracted manufacturers are also required to make payment to workers of retirement or

severance funds, in compliance with local law. This requirement includes contracted

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manufacturers facilitating payments of social security provisions to which the employee may be
entitled, such as unemployment insurance, and accurate record keeping on payment into and
maintenance of funds to ensure workers are protected.

In addition, contracted manufacturers are encouraged to go beyond what is required by law or

collective bargaining to provide outplacement or retraining assistance, additional financial
support, medical benefits and assistance in obtaining government benefits. The contractor is
encouraged to provide these either directly or in coordination with governments, NGOs or third
parties.

Developing/Enabling Competitive Supply Chains. NIKE, Inc. recognizes the need for a well-
coordinated and efficient supply chain for its business and the industry. Because the supply chain
spans multiple jurisdictions from raw materials to production to shipping to retail and,
ultimately, to consumers, a consistent and mature public policy position is needed.

We support policies that deliver efficient, cost-effective delivery of NIKE, Inc. products in a
responsible manner. Our efforts concentrate on ensuring efficient transport, security and safety of
NIKE, Inc. products throughout the supply chain. In addition, we advocate for policies that help
to ensure that NIKE, Inc.'s supply chain - from factory to consumer - operates in a manner that
considers both people and the environment at each step of the way. We work with a number of
bodies to advocate for these policies. These include national governments, industry associations
and NGOs.

Infrastructure in Vietnam. Nike has played a leadership role, along with other businesses and
multilateral development organizations, in supporting infrastructure development in Vietnam.
Nike created and led a public-private partnership that offered an Infrastructure Exchange
Program for Vietnamese government officials. The first component of the program involved
having key Vietnamese government officials visit a Nike footwear factory in Vietnam and
subsequently physically follow the movement of finished products from the factory to the port.
The group traveled to southern China, an area well known for its development of physical
infrastructure. They also visited Singapore to see world-class port facilities and operations and
learn about infrastructure planning and financing. Each component included presentations and
dialogue with experts in various fields.

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We believe improved infrastructure, specifically roads and ports, will lead to additional
investment and job creation in Vietnam, thereby improving economic opportunities and the
standard of living.

Improved roads and related infrastructure lead to more efficient transport of goods, contribute to
a decrease in traffic congestion, and reduce emissions and related pollution. These improvements
benefit businesses, including Nike, that contribute to job creation and economic development.
This model of cooperation is an example of how the private sector can work with other key
stakeholders on important development issues and opportunities.

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