Tuesday, June 29, 2010

The labor standards at Nike

As early as 1988 Nike has been taking a beating for the working conditions in the factories that source many of it’s products1. While they where slow to react in recent years, much of the heat has subsided as Nike takes steps to promote fair treatment of employees in the factories they buy from. While some steps are counter-intuitive or simply meaningless, they have shown that they are serious about making things better. In 2006 they cut ties with a supplier for non-compliance2. Though it was a last ditch effort it sent waves through their supplier network. Nike’s efforts include establishing operational goals for all their suppliers as well as strengthening supplier relationships through audits and active relationship management.

Measure twice, cut once… or twice
Nike has taken a much stronger stance in regards to supplier working conditions. They developed a series of audits that measure many aspects of those conditions. They wanted the audits to be able to answer several questions such as “wages”; is the factory adhering to local wage laws and regulations? “Employee satisfaction”; are the workers satisfied with where they work, do they work in teams? “Participation in Production Planning”; is production planned on all levels with a high amount of feedback coming from entry levels of the organization? and “Hours and Overtime”; are the workers working to exhaustion, are they getting the hours they want? These are all good goals; however having such a diverse goal set can be problematic, leading to loss of focus and ultimately failure to achieve any of those goals. Looking at a case focused on two Mexican factories that received almost the same score on the audits it is easy to see how this is the case.3
One thing that the audit measures is pay. Two factories that where examined in the case obeyed the law and requirements from Nike, however “plant A” workers took home much more (almost $1000 annually) because they received incentive pay and production bonuses. This is the behavior that Nike had hoped to stimulate, however, by creating a standard it allowed “Plant B” to fulfill the standard and nothing more.
Nike also attempts to limit the number of hours worked by each employee in a given week. Again, they set a standard and allowed minor infractions of that standard to go unnoticed. They wanted to make sure that employees are not worked literally to death, but this standard in the long run will lead to fraud as factory managers attempt to hide forced overages to increase output.

Lengthen your stride
Nike needs to take a close look at the performance criteria it imposes on its’ suppliers. It has been known for many centuries that money talks, and if anyone should know this it is the owner/operators of low wage factories. Rather than being afraid of loosing Nike as a customer should they fall behind in production, Nike should reward long term contracts based and contingent upon continued compliance with fair labor standards.
Nike should further reward suppliers for actions above and beyond, or even offer to subsidize bonus programs. Certainly Nike knows the benefit of developing close ties with all its’ suppliers and there should be a better effort to shift to a cooperative relationship with distant suppliers.
Nike has already seen the benefits of this ideological approach. “Plant A” was near regional headquarters in Mexico City and as such developed strong ties and eventually, with the help of Nike, switched to a lean manufacturing process. Production improved, employee moral improved and cost went down3. Great, lasting improvements could be realized around the world if Nike implemented this one change institutionally. The process of doing that would be monumental in scope, but judging from the returns that have been realized they stand to make astronomical sums of money, not to mention the social capital that would result.

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