Nike and leather traceability: just do it

Big consumer goods companies are becoming leaders in sustainability practices, in part to protect the positive public image on which sales rely. Apparel and footwear maker Nike is a case in point, as seen in its recent announcement on its Amazon leather sourcing policy.

Nike’s goal is make sure its supply chain doesn’t source leather from cattle raised in the Amazon rain forest region, much of which has been clear cut for large cattle ranching operations.  If you are a supplier to Nike, the degree to which you are worried about the link between deforestation and global warming doesn’t matter much to Nike: the mandate is that for their supply chain, you won’t source leather from the Amazon rain forest, and what’s more, they want a traceability system in place so you can prove you aren’t sourcing leather from there.

Personally, I think Nike is doing a responsible thing : making sure its supply chain practices don’t overly contribute to global warming. From the point of view of an observer of supply chain management technology, it’s interesting to see a company mandating traceability for reasons related to climate change. Traditionally, traceability has been needed for product health and safety concerns: tracing that bad shipment of spinach, for instance, or that recalled toy. It’s a sign of the times when global warming becomes a driver for supply chain traceability.

From a systems point of view for suppliers, this elevates the importance of good manufacturing execution system (MES) software, or if you are one step removed from the leather production, of e-sourcing systems. Ideally, one would have a MES or sourcing system that can instantly show the pedigree of leather goods down to the lot/batch level at individual leather tanneries. According to Nike’s Amazon Leather Policy, suppliers of Brazilian leather for Nike products have until July 1, 2010 to create an ongoing, traceable system to “provide credible assurances that leather used for Nike products is from cattle raised outside of the Amazon Biome.” Quarterly, Nike says it will review suppliers’ progress in establishing such systems.

We are living in rapidly changing times for global sourcing. Just a few years ago, the primary driver was to dramatically lower costs by sourcing materials from far-flung places, too many of which, in turns out, were lax on environmental and employee protection regulations. But large, public consumer goods companies have a lot more at stake than incremental savings on their operational balance sheets. Increasingly, public companies need to protect against big hits to their reputations and market caps by ensuring they aren’t in a position where they will be called out for harming the environment or exploiting work forces. The new reality is that in many cases, protecting brand reputation and market cap is more important than shaving a few percentage points off the costs of raw materials for a single product line. Maybe short term this will increase the cost of some goods, but it’s likely to help the environment in the long run, as well as put pressure on low-cost regions to strengthen environmental and employee protection rules.