At the end of FY09, Nike contracted with approximately 600 factories in 46 countries to manufacture Nike products.
Our contracted manufacturing base is changing. Nike is executing a long-term sourcing consolidation strategy and streamlining its supply chain operations, which has, thus far, resulted in a 10-percent decrease in suppliers from FY06 to FY09. In 2007 we began assessing the contract manufacturing base and undertaking a multi-year strategy to:
Nike contracted with 618 factories to manufacture product in FY09, down from previous years and reflective of our consolidation strategy that focuses on contract manufacturing group optimization to build a long-term sustainable sourcing base capable of delivering product, innovation and reinforcing relationships with factories committed to our corporate responsibility principles.
When you look at the reach of Nike's contracted manufacturing base and the potential risk, it becomes clear why global supply chains face such serious issues around working conditions. Working in different countries, each with different regulations and operating environments means there is no one-size-fits-all approach.
Our overall manufacturing base is generally comprised of long-term partnerships, with some fluctuation based on product sourcing requirements, changing business and fashion trends or general factory performance.
In 2005, Nike was the first company in the industry to disclose its factory list. Nike is committed to supply chain transparency by updating public disclosure of the contract factories worldwide that are producing Nike-branded product. We also disclose those factories that make licensed collegiate apparel. Our goal in disclosing our factory base is to encourage transparency and collaboration with other companies to improve conditions across the industry.
All NIKE, Inc. affiliates are also working to increase transparency around their supply chains. This work will continue as we anticipate future reporting on all contracted factories serving NIKE, Inc. affiliates.
In FY07-09, we prioritized monitoring by focusing on the 20 percent of key contracted factories that account for approximately 80 percent of Nike's production by volume.
To identify focus factories, we rate high-volume factories using a risk index that assesses five primary factors designed to focus on the most vulnerable workers:
This index has evolved from FY05/06, as we continue to refine our approach to assessing risk. To further understand the full range and nature of risks across the NIKE, Inc., supply chain, in 2009 we partnered with Maplecroft, a firm specializing in global risk assessment around areas such as climate change, pandemics, resource security, terrorism and human rights. The Maplecroft work will supplement Nike's current risk criteria around focus factories by providing an additional geographic and specialized issue lens to our current analysis. We expect our relationship with Maplecroft will deepen our understanding of existing and emerging challenges in work force and environmental, health and safety management.
In FY09, approximately 180 factories met the criteria of focus factories. For many of our assessments and business targets, we report on efforts with these focus factories.
We continue to evaluate our risk-based monitoring approach. We anticipate revising our risk index to cover additional areas, including new source approval, new country approval and other factors.
For new factories to enter Nike's supply chain, they must go through our new source approval process. Factories that have not actively produced with Nike in the past 18 months also must go through this process. In FY07, we added 67 new factories to our contract manufacturing base through this process. In FY08, we added 57 new factories and in FY09 we added 42.
The majority of new factories were in apparel, due mostly to additions by licensed and agent business and sources needed for the local market.
In FY05/06 we released details about our process for discontinued orders. In FY08, we created a more formalized process for discontinuing orders at contracted factories. We discontinue orders based on factory performance, compliance performance or business consolidation.
The process includes notice to relevant departments within Nike of the closure, assessment to determine an action plan or response, appointment of a factory exit response team, and development and execution of a Nike action plan.
In March of 2009, Nike announced it would discontinue orders with four footwear factories and a number of apparel factories within the year. In apparel contract factories, Nike is often one of several buyers and therefore does not comprise a majority buyer at any one factory. We anticipate further consolidation will occur across all product areas. As we implement these plans and respond to new and changing business needs, we continue orders over six to 12 months as we engage with stakeholders and government on a responsible transition out of these factories.
To evaluate where to discontinue orders, Nike considers a variety of factors such as innovation, overall performance, management, strategic capabilities, productivity, quality, craftsmanship and commitment to Nike's corporate responsibility principles.