Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Adidas Pitches More than a Dozen Suppliers for Non-Compliance

Posted April 30, 2015

Trade compliance is often regarded by many organizations in quite narrowly defined terms as merely following the rules and regulations pertaining to importing and exporting; ensuring that all the needed documentation is properly completed, merchandise is accurately classified, the right amount of duties paid, and all the applicable customs requirements are being adequately and consistently met in a timely manner.

While it goes without saying that all those basic imperatives are absolutely essential to the process, we have long and strenuously argued that trade compliance actually comprises a broader, more expansive set of risk management concerns involving a holistic, cohesive approach not strictly confined just to an organization’s customs or logistics functionality.

Generally speaking, the most effective trade compliance programs are those which reflect an organization’s overall value system and are the natural outcome of a risk-savvy attitude that has been deliberately cultivated throughout all levels of the organization’s operations and successfully embedded in virtually every stage of the business cycle from start to finish.

This holistic, comprehensively integrated approach to the matter was brought keenly to mind recently with news that sports apparel giant Adidas summarily jettisoned 13 companies from its supply chain last year for “severe or repeated non-compliance,” according to the German multinational’s 2014 sustainability report.

As noted by Supply Management magazine, “The company’s global sourcing team, which works to pre-screen potential new suppliers, assessed 226 factories last year, rejecting 104. Some are rejected on a first visit; others, that have serious but correctable non-compliance issues, got three months to fix problems before being re-audited. The final rejection rate in 2014 was 10 per cent, the company, said.”

In addition to egregious problems such as the non-payment of wages and benefits to employees or shoddy electric, fire or chemical safety standards, other areas of fatal non-compliance included somewhat less obvious criteria such as “poor management commitment” and “poor communication and transparency problems.”

In its sustainability report, Adidas states that compliance is part of its mandatory “Fair Play Compliance” plan, which aims “to ensure that all employees understand and adhere to the Group’s compliance and ethics requirements.” In addition to its own employees, the plan’s compliance standards apply equally to “relevant third-parties, wherever they are located.”

The company’s CEO Herbert Hainer says, “While the Group’s reputation has been hard won, it can easily be lost. It is our responsibility to live up to the spirit of the Code of Conduct and to make decisions only in accordance with our Group’s values.”