At Levi’s, a Sustainable Supply Chain Improves Performance and Profitability
When asked about sustainability in the future, Levi Strauss & Co.’s Vice President of Sustainability Michael Kobori comments that “the circular economy is going to be the way of business” in 10 years. Successful companies will eliminate waste and find new ways to reuse materials. Programs for workers to improve their well-being are going to be critical. Executing these types of programs and strategies across a global supply chain will be a challenge. It will require close partnership and collaboration. And an investment in trading partners overseas.
For companies like Levi’s that see the big picture – and recognize the importance of investing in supplier health – there will be a clear advantage in the eyes of customers and trading partners.
Being Sustainable and Profitable – Today
“When we step back and look at the broader world of sustainability, how do we grow our revenues while reducing our environmental and social impacts?” Kobori questioned.
Speaking at the recent GT Nexus Bridges supply chain conference in New York, Kobori points out that one of the biggest environmental impacts of producing jeans is water use. So Levi’s recently came up with what they call WaterLess jeans. They use up to 96% less water but surprisingly cost five cents less to produce. Here’s another win-win move: last year, Levi’s opened up recycling bins in all its stores. This encouraged recycling but also increased foot traffic. From there, designers took the used Levi’s and refurbished them, and are selling them as authentic vintage Levi’s. It’s environmentally responsible and great for business.
What About Sustainability in the Supply Chain?
Sustainability issues in the clothing industry bring to mind harsh working conditions in emerging countries. We think about collapsing factories and disasters like Rana Plaza. Engaging the supply chain in responsible production practices and compliance is not an easy task. Twenty years ago Levi’s established a code of conduct for its suppliers. It continues to seek and deploy partnership programs with suppliers that benefit everyone – Levi’s, the supplier, factory workers and the environment. Here’s a good example:
Levi’s works closely with the IFC, the World Bank’s lending arm that serves private companies in emerging regions. The IFC has a mission of providing opportunity to all. Levi’s saw a unique opportunity to strengthen its supply chain and improve the health of its suppliers in emerging regions by joining forces with the IFC.
In a world where manufacturers and retailers are extending payment terms out by as far as 90 or 120 days, Levi’s looked deeper into the true long-term impact. Recognizing the pain it caused on factories, it chose instead to help suppliers get paid faster – to improve their performance, remove risk and reduce costs in the supply chain. As Kobori calls out, there is also a significant social and ethical responsibility play here. When it comes to sustainability in the supply chain, companies can use a carrot, or a stick approach to gain compliance. Levi’s uses access to inexpensive short term financing as an incentive to improve conditions and responsibility with trading partners overseas.
Here’s how it plays out: suppliers are paid early – in just days – on invoices to prevent cash flow issues. Instead of paying high interest rates locally on the street in emerging regions, suppliers obtain capital from the IFC at rates based on the financial strength of Levi’s. Levi’s suppliers get cash faster and cheaper. It’s a win for both Levi’s and the supplier. A healthy supplier with access to cash to fill orders is likely to be more reliable, responsible and cost effective as capital-related costs and risk are removed. But Levi’s and IFC go a step further. Suppliers are scored on specific metrics related to working conditions, environmental responsibility and overall responsible production. Suppliers who score higher on their sustainability scorecards are rewarded with even better rates.
The only way to get better supplier compliance is by helping them, partnering with them – not beating them up. Levi’s partners with suppliers to foster a healthier environment for factories, workers, the local community, and consumers around the world.
Responsible production and sustainable business don’t have to come at a financial cost or impact to profitability. As Levi’s demonstrates, sustainability and profitability can go hand-in-hand.