Apple should take cues from Nike on its supply chain

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Last week, on the way to a meeting in Portland I tuned into the local sports-radio station. Nationally syndicated sports commentator Dan Patrick was providing his one-minute "Above the Noise" segment. The focus was on if, how and when sports icons that have fallen from grace (due to an off-the-field indiscretion) could ever redeem themselves in the public court of opinion. Could they ever regain public acceptance to be ‘marketable’ commodities again? Think player product endorsements. Think Tiger Woods, Michael Vick, Ben Roethlisberger, Kobe Bryant, Ron Artest — the list is to lengthy to cover here, but you get the idea. Most who have regained endorsement status (like Bryant) have either redeemed themselves through community service and on-field performance, but often the public just forgets. The past indiscretions have faded from the tabloids.

This sounded very familiar when it comes to companies — manufacturers in particular — and the ways in which they address sustainability. I am thinking of manufacturers who have made environmentally impactful products, and willingly or knowingly conducted socially irresponsible or possibly unethical business practices that have led to public backlash. Some have been able to successfully "redeem" themselves and regain a positive marketplace reputation, while others never quite recovered.

According to a report issued by anti-pollution activists in China, Apple is more secretive about its supply chain than almost every other American company operating in the country. Apple came up among the laggards among 29 major electronics and IT firms in a transparency study drawn up by a coalition of China's leading environmental groups. The reports focused on "the openness of IT firms and their responsiveness to reports of environmental violations at suppliers." Though Apple is known in the industry for the secrecy it wraps around its newest product offerings, the "mystery of its supply chain is more a matter of covering up than preventing leaks," the report stated. The report claims Apple's suppliers have been involved in breaches of environmental regulation, including major waste discharge violations in recent years at several Chinese firms that are believed to be be part of Apple's supply chain. To be fair, Nokia, LG, SingTel, Sony and Ericsson also fared poorly in the survey, but Apple stood out in how it did not address and respond to the findings.

This revelation was not the first time that Apple’s supply chain management oversight (or lack thereof) has been 'shaken to its core.' Despite Apples Supplier Code of Conduct, it appears that they are not fully conforming to their own internal commitment and policies. An insightful post from back in mid 2009 highlighted the series of issues that Apple has had with its supply chain, from human rights violations and pollution to lax supplier oversight and unfortunate subcontractor worker suicides. Apple itself admitted its complacency in addressing social and environmental sustainability issues in a pragmatic but resolved manner.

Nike's redemption story: A work in progress

Apple's current predicament is not unlike another company that relies on a deep contractor supply chain, whose headquarters in my backyard: Nike. In the late '80s reports were starting to circulate from Indonesia and Asia concerning Nikes alleged sweatshops. Over the course of the 1990’s, continued exposure of unscrupulous labor and human rights practices, combined with intensive public protests and campaigns continued to hound Nike and dragged down its reputation.

By 2001, the issue erupted and Nike was stung by reports of children as young as 10 making shoes, clothing and footballs in Pakistan and Cambodia. Phil Knight, Nikes CEO admitted the company "blew it." Nike, like many other companies (like Nestle, PepsiCo Walmart and other consumer products manufacturers and retailers) learned the hard way that taking liberties with "social license" to operate (especially in foreign countries) has its negative financial and reputational consequences.

That's not to say of course that all is perfect in Niketown. But with the corporate and supply chain infrastructure now in place to monitor, validate and continually improve supplier relations and accountability, fewer violations have occurred. Nike has continued to push open innovation and environmentally focused product design with social accountability in mind. The Ethisphere Institute named Nike as one of the World’s Most Ethical Companies for 2010. The Institute recognizes organizations annually that "promote ethical business standards and practices by going beyond legal minimums, introducing innovative ideas benefiting the public and forcing their competitors to follow suit." Last October, Newsweek magazine took 500 of the largest publicly traded U.S. companies and produced a 2010 Green Rankings List. Nike, was 10th on the list, and was noted for having a strong commitment to evaluating and improving the environmental footprint of its suppliers. They also scored a 97 in the reputation category.

Apple by the way scored 65^th, with a reputation score of 71. I guess that low score represents that missing bite in Apple's iconic logo.

Stepping up to the plate on accountability

A great 2002 research study from the Center for the Study of law and Society at University of California Berkeley highlights the steps that companies in the apparel, forest products, consumer goods, oil and energy and other highly capitalized industries have gone through to redeem themselves and restore brand trust through "rigid compliance with local environmental rules, product and environmental stewardship, verification and proactive social engagement."

Apple needs to do the same thing and implement a proactive supplier sustainability and verification program. As I have laid out in prior posts, companies like Nestle, Corporate Express, Danisco, Starbucks, Unilever and the apparel industry stepped up in a big way to address human rights, fair labor and sustainable development in areas in which they operate throughout the world. So too have major electronics companies like Hewlett Packard and IBM in leveraging their supply chains in assuring that corporate sustainability performance objectives are met.

In 2010 the International Organization for Standardization unveiled its ISO 26000 Corporate Social Responsibility guidance document. In addition, two prominent organizations, UL Environment and Green Seal unveiled and vetted two sustainability focused product (GS-C1) and organization (ULE 880) standards this past year, both of which may markedly affect supply chain environmental and social behaviors in the future. That's not to mention the issue of conflict minerals, which strikes deep at the cell phone manufacturing sector. Finally, the age of openness and collaboration has arrived on the heels of Wikileaks and numerous high profile reputational back breakers.

Engaging and leveraging the supply chain

The most successful greening efforts in supply chains are based on value creation through the sharing of intelligence about environmental and emerging regulatory issues and emerging technologies. Leading edge, sustainability-minded and innovative companies have found "reciprocal value" through enhanced product differentiation, reputation management and customer loyalty. Suppliers and customers must collaboratively strengthen each other's performance and share cost of ownership and social license to operate. But supply chain sustainability and corporate governance must be driven by the originating manufacturers that rely on deep tiers of suppliers and vendors for their products.

Apple should take a cue from Nike's playbook: “Just Do It!” This issue will not go away on a wing and a prayer.

Dave Meyer is VP of Sustainable Economic and Environmental Development Solutions (SEEDS) Global Alliance (Northwest Operations), assisting organizations on business process improvement, “triple bottom line” sustainability, green supply chain and regulatory compliance management. You can follow Dave on Twitter@DRMeyer1. More supply chain advice is available via Dave's Valuestream blog.