“It can be very hard for companies in the apparel sector to understand where their products and materials are coming from. The challenge for these companies is to improve their understanding of the impact on their value chain. At the end of the day, consistently working on increasing transparency in the supply chain is actually going to help you to manage your business – including your impacts on people.”
Julie Schindall, Senior Adviser, Shift
Introduced back in 1993, PUMA’s Code of Conduct (CoC) sets a clear minimum standard for supply chain partners and is displayed in all of PUMA’s directly contracted partner factories. It also forms an essential part of our purchasing contracts.
The year 2015 saw the start of a shift in the context of social sustainability. As a member of the Fair Labor Association, PUMA has made a commitment to regularly audit 100% of its factories on Tier 1 level with regard to social as well as health and safety and basic environmental standards – for more than 10 years already. In the past years, we carried out these audits regardless of order volume, risk status of the country or processes covered at the Tier 1 supplier.
This has led to a workload of over 300 audits per year and more than 5,000 audits since the start of our audit program in 1999. It also led to a situation where a significant number of our Tier 1 suppliers have been audited by PUMA at least five times over the last ten years, while only a limited number of their subcontractors, component suppliers or key material suppliers were audited for social standards at all. The very same Tier 1 suppliers are also regularly audited by or on behalf of other brand customers, while the lower tiers of the supply chain remain largely without monitoring for social aspects. At the same time, we increasingly realize the same audit findings at the same factories over time, which means that the problems are not truly addressed despite multiple audits by multiple brands.
In other words, the auditing system alone does not deliver what it is supposed to and a substantial paradigm shift is required besides detailed follow ups on corrective actions from audit reports.
Realizing this challenge may not be entirely new for experts in the social compliance field – and various organizations and companies have tried to address the problem at its root cause.
Therefore, going forward, we plan to:
1) Focus our social compliance program with close follow up on those suppliers who are responsible for 80% of our business volume. By doing so, we cut out a larger number of factories with small order volumes from PUMA or our licensees, where we do not have much influence to push for improvements. Those factories will still be monitored via external assessment reports, ideally sharing those with other brands. At the same time, we free our own resources to work more closely with the factories that produce the vast majority of our products.
2) Expand the scope of our social/labor program beyond Tier 1 to cover also all key component and material suppliers. This means ending the separation into direct contract partners that suffer from audit fatigue and their suppliers that may have never experienced a social/labor audit at all.
3) Focus on the measurement and subsequent management of relevant and measurable KPIs such as staff turnover rates, average overtime worked, average payments compared to minimum wage, etc.
4) Step up multi-brand collaboration through organizations like the Sustainable Apparel Coalition, the Fair Labor Association and the Better Work Program of the ILO. This includes sharing of audit results and follow up, joint capacity building projects and eventually even the replacement of single-brand audits through an aligned industry approach.
Audit Statistics 2015
In total, PUMA carried out 384 audits in 2015 and assessed 332 facilities, meaning some of those factories have been audited more than once on the search of the effective implementation of corrective actions. Over 95% of the active supply base has been assessed under the Fair Factories Clearinghouse system as of year-end 2015. The remaining suppliers received an A grade during 2014 and they will only be re-assessed in 2016. In an effort to reduce audit fatigue, 21 PUMA factories have joined the Better Work Program of the International Labor Organization and were therefore not considered in PUMA’s own audit scope. At the end of theyear, 34 factories were made inactive and taken off the supplier base because of failure to meet our standards.
Resolution of Complaints
PUMA offers several grievance channels to the workers of our manufacturing partners. For example, our Code of Conduct is displayed in all Tier 1 suppliers worldwide, and holds the email addresses and phone numbers of our compliance team, which receives and processes over 100 worker complaints each year. Other mechanisms include the use of the social network “QQ” in China, SMS messages and the third party complaints procedure run by the Fair Labor Association, of which PUMA is a member.
Wages, general health and safety, working hours as well as benefits management ranked highest amongst workers’ complaints received in the supply chain. In total, 150 complaints from 51 facilities were received in 2015. The global resolution rate grew by 10.3% compared to 2014, and reached 98.7% in 2015. Three regions including EMEA, India/Bangladesh and Americas have a 100% resolution rate; followed by China (99.3%) and Indonesia, Malaysia and South Korea (50%). All Zero Tolerance and Critical Issues were resolved in 2015.
This year, we are reporting for the first time the results of our Social KPI survey amongst our key suppliers. Due to the fact that the collection and reporting of this data is new, we only report the KPIs from 16 of our Chinese suppliers (the ones with the largest production volume for each category). From next year onwards, we plan to expand our reporting scope to other major sourcing regions.
Description of Activities
The Better Work Program of the International Labor Organization (ILO) and the International Finance Corporation (IFC) is an initiative aiming to end audit fatigue and promote joint implementation of progress across multiple buyers at individual factories.
The program is currently active in eight sourcing countries, of which four are significant sourcing markets for PUMA, namely Vietnam, Bangladesh, Cambodia and Indonesia.
During the year 2015, PUMA had enrolled 21 factories under the ILO Better Work program, covering some apparel and accessories suppliers in Vietnam and mostly apparel production from Cambodia, where Better Work membership is mandatory for exporting garment factories.
From 2016 onwards, PUMA will ask all suppliers in Cambodia to join the program, irrespective of their product category. We also aim to expand the Better Work coverage in the current countries to allow for more shared audits and remediation efforts in line with our new compliance strategy.
Vendor Financing Program
Last year, PUMA’s compliance program SAFE was also formally accepted by the IFC Vendor Financing Program. In an effort to provide an incentive to suppliers with good compliance and sustainability ratings, the IFC offers attractive financing conditions for vendors who have achieved a Safe A or B+ rating.