Nike is considered by many to be one of the most innovative companies in the world – consistently showing up in Fast Company’s “Most Innovative Companies” rankings, even taking home the top spot in 2013 beating out companies like Amazon and Uber. (1) Although Nike’s innovation is clearly visible in its products and marketing, recently, Nike’s greatest innovation may be in an aspect of the business that most consumers overlook – its approach to sustainability in its supply chain.
In the 1990s, Nike came under intense public pressure for its unfavorable labor practices (e.g., use of child labor, poor working conditions), which eventually manifested in a YoY revenue decline of nearly $800M in 1999.(2) This caused Nike to rethink its entire supply chain to enhance its corporate image – including the issue of sustainability. Hannah Jones, Chief Sustainability Officer & VP Innovation Accelerator at Nike, summarized the company’s thinking behind this approach –
“We really started to look into what were the things within our business that we could change or do better, such as our purchasing practices, such as teaching designers how to design with sustainability in mind. [Sustainability] moved from being a risk and reputation function to being a business lever function to being an innovation function.” (2)
However, even with this new approach to sustainability, each component of Nike’s supply chain continues to pose a unique, yet significant, risk to the environment.
- Raw Materials – Nike uses six main raw materials in its products (see below) each of which requires enormous amounts of resources (e.g., water) and energy (emitting greenhouse gases) to produce. (3) In one pair of shoes, 60% of the environmental impact comes from materials. (4)
- Manufacturing – Nike outsources its manufacturing to third parties outside the US, which use machines that consume vast amounts of energy (again, emitting greenhouse gases) and produce waste in the form of excess fabrics. (5)
- Distribution – Finished goods are taken from factories to Nike-owned distribution centers and shipped to end consumers all around the globe, requiring further energy consumption and increasing the company’s carbon footprint. (5)
- End Consumer – Even after products reach the end consumer, as much as 25% of the energy footprint of a product can come from consumer activities such as washing/drying and disposal (6)
In response to these on-going impacts of its operating model, Nike has taken a number of impressive steps to reduce its environmental footprint over the past decade – in fact, in 2015 Nike was awarded the top score among all footwear and apparel brands in Morgan Stanley’s Annual Sustainability Index. (7) Key examples of Nike’s sustainability actions include (4) –
- Raw Materials
- 71% of Nike’s footwear and apparel products use at least some recycled materials
- Nike’s contract manufacturers have cut energy use per unit in half since 2008, meaning it takes about half the energy and emissions to make a pair of shoes today
- In 2015 alone, 54M pounds of factory scrap was transformed into premium materials used in Nike footwear and apparel products
- By 2025, Nike aims to use 100% renewable energy in its owned and operated facilities, and has already implemented on-site renewable energy generation at some of its largest facilities
- End Consumer
- Nike’s “Reuse a Shoe” Program has recycled approximately 30 million pairs of shoes (which among other things are used to create new running tracks)
Nike has taken sustainability beyond its supply chain, and embedded it as a tool in recent innovations. For example, Nike’s Flyknit shoes are made from a specialized yarn that knits the shoe’s body into one piece (rather than stitching together multiple pieces of a traditional running shoe). (4) This process yields a lighter-weight, higher-performance shoe while producing 60% less fabric waste than a traditional running shoe. Further, Nike produced its soccer kits for this year’s Euro Cup from recycled water bottles. (4)
Moving forward, Nike has set a goal of doubling its business while halving its environmental impact by 2020. Perhaps even more ambitious, Nike’s eventual vision is to shift its entire supply chain to a “closed loop” ecosystem, embedding sustainable innovation from design to finish. Says Jones, “imagine your old running shoes being disassembled into their parts, recycled into new materials and designed to produce a new pair or running shoes.” (2)
While Nike has clearly positioned itself as a leader in sustainable innovation, one area I would like see them make more of an impact is within the manufacturing process. Nike is an enormous company with over 600 manufacturing partners outside the US, many in developing countries, and as such has an opportunity to have a tremendous environmental sustainability impact on the world. If they can work with their partners and hold them to higher environmental standards (beyond local government requirements) – Nike can impact a significant part of the global supply chain.
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(1) Fast Company, 2013. Most Innovative Companies 2013. https://www.fastcompany.com/section/most-innovative-companies-2013
(2) Abnett, Kate, 2016. Just Fix It: How Nike Learned to Embrace Sustainability. https://www.businessoffashion.com/articles/people/just-fix-it-hannah-jones-nike
(3) Nike, 2015. Sustainable Business Report FY14/15. http://about.nike.com/pages/environmental-impact
(4) The Ohio State University, 2014. Nike Shoes. https://u.osu.edu/nikeshoes/raw-materials/
(5) Phalguni Soni. 2014. An Overview of NIKE’s Supply Chain and Manufacturing Strategies. http://finance.yahoo.com/news/overview-nike-supply-chain-manufacturing-130048337.html.
(6) Abnett, Kate, 2015. What the COP21 Climate Agreement Means for Fashion. https://www.businessoffashion.com/articles/intelligence/what-the-cop21-climate-agreement-means-for-fashion
(7) Duggan, Wayne, 2015. The Most Sustainable Apparel & Footwear Companies Might Surprise You. http://finance.yahoo.com/news/most-sustainable-apparel-footwear-companies-194214783.html