Tag: sustainability index

OM in the News: Nike’s Struggle to Balance Cost and Worker Safety

 

Nike's factory in Vietnam
Nike’s factory in Vietnam

Nike’s head of sustainable business had been lecturing colleagues for years about the dangers of manufacturing in Bangladesh, reports The Wall Street Journal (April 22, 2014). Yes, the country featured some of the cheapest factories in the world, she argued, but the athletic-gear maker could ill afford another public pasting over its labor practices. Her counterparts in operations, charged with squeezing costs, countered that they should all visit the place together and then decide. So one day last year, they popped into a Dhaka building that housed one of Nike’s suppliers, Lyric Industries. Rolls of fabric were strewn across the production floor and some windows were bolted shut, clear-cut hazards in the event of a fire. The team flew home and decided to cut ties with the company.

Nike’s internal conflict over Bangladesh shows that its effort to clean up its act in the developing world, which began about 20 years ago, remains a work in progress. As the U.S. apparel industry sends more production to low-cost nations, Nike’s experience offers a lesson in the difficulty of managing the twin priorities of controlling costs and maintaining acceptable working conditions.

Nike was founded in 1964, in part on the premise that it could produce quality footwear at lower costs by using cheap labor at overseas factories. At the time, only 4% of U.S. footwear was imported. Today, the figure is 98%. But by 1998, the Nike CEO stated: “The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse.”

So Nike released the names and locations of its factories—the first major retailer to do so—to be more transparent about its supply chain. It improved air quality for workers and stationed dozens of people in countries where it manufactured products to help find cost savings and improve worker treatment. In 2008,  Nike created a “country risk index” to score the potential downside of doing business in certain locations. Bangladesh ranked near the bottom, with over 5,400 garment factories churning out $20 billion of clothing exports.

Classroom discussion questions:

1. Since Nike has 1,000,000 workers in 744 factories worldwide, how can it monitor both quality and sustainability?

2. What major disaster occurred in Bangladesh recently that highlighted the problems of manufacturing there?

OM in the News: How “Green” is That Company?

A Rollins College colleague stopped by yesterday to tell me about his research relating sustainability to corporate success. He has shown that “greener” companies yield higher net profits than their less-ecologically responsible competitors. But who determines each firm’s water usage, carbon emissions, workforce well-being, recycling  levels, and a score of other sustainability factors? The new Businessweek (Dec. 4,2011) tries to address who the arbiters of sustainability are with its article “The Race to Decide Who’s Greenest”.

It turns out that investors and the public are demanding detailed information on metrics that define sustainability. And in response, scores of rating outfits have sprung up, each trying to be the judge of who’s really green. One of the largest, Global Reporting Initiative (GRI), provides over 100 metrics on such areas as workplace safety, toxic waste spills, and recycled materials. But GRI does not audit company survey replies and does not judge performance. Newsweek rates companies on their commitment to the environment. Dow Jones publishes an index of “most sustainable companies”.  And the Ethisphere Institute ranks the “World’s Most Ethical Companies”.

In 2000, there were 21 such raters. By 2010, that number swelled to 108. IBM’s environmental affairs chief says: “It’s our collective American culture to rate. Look at Dancing with the Stars“.

Wal-Mart has created its own Sustainability Consortium and index for tracking its 1,000’s of suppliers’ green efforts. It is creating standards for cotton towels, TVs, yogurt, and scores of other products. Each product has its own specific set of metrics. “We want to make sure we are measuring the right things”, says Wal-Mart’s director of sustainability.

The bottom line: With more than 100 groups ranking companies on sustainability, is it time for global reporting and assessment standards?

Discussion questions:

1. How is sustainability good for operations management?

2. Why do OM managers need a “green” index?

OM in the News: Is Wal-Mart’s Sustainability Index Sustainable?

Two years ago, Wal-Mart CEO Mike Duke dropped a bomb on the retailing world when he announced that his firm would be creating a “sustainability index” to measure the environmental and social impact of every product sold in its stores. Wal-Mart had not suddenly turned green (see our blog of  May 17, 2011 )–it turns out that a vast amount of money is to be made by reducing energy and waste up and down the supply chain. Duke’s message suppliers was clear: “Treat the planet well and get prime access to its 200 million customers each week; pollute and despoil, and you will be shunned”.

But as Fortune (July 25, 2011) reports, Wal- Mart had no idea how hard the job of creating the index would be.  Five million dollars into the project, it has only examined 7 products closely so far. The trouble with a scoring system (and others have tried it), is that in the end consumption is about trade-offs. How much phosphate was used to make a laundry detergent? How much waste was generated by the zipper factory in China? Is soil erosion less important than carbon emissions? A company may get high marks for recyclable packaging, but Stonyfield reduced its carbon footprint by switching to yogurt cups that aren’t recycled. (Cups made from plants, it turns out, generate fewer greenhouse gasses than recycled plastic ones). And Patagonia’s switch to organic cotton for jeans (from synthetic fabrics) now requires 1,200 gallons of water to manufacture a single pair!

Many companies in the developing world don’t even recognize the words “corporate sustainability policy”. Hank Paulson says he asked the manager of a Chinese factory about the belching smoke pouring out of his plant. The response: “See those two camels and a goat? When they fall over from pollution, we turn off the factory”.

Discussion questions:

1. Why is the index so hard to create?

2. Name some products with trade-offs that would impact their score.