Sustainability

Supply Chain Management

Supply Chain Management

The Group is determined to extend our sustainability efforts to the broader supply chain. We exert our influence as a leading professional sports brand with an extensive distribution network and utilize our purchasing power to promote suppliers’ sustainable business practices. By integrating ESG-related criteria into the Group’s assessment of potential and existing suppliers, we ensure supply chain partners fulfil our sustainability requirements. Please refer to our Supplier Corporate Social Responsibility Management Manual below for further details.


Supplier Corporate Social Responsibility Management Manual

To address stakeholders’ concerns about product quality and safety, the Group implements various product quality control measures, including regular monitoring and assessing suppliers’ performance. The different initiatives ensure consistent, high-quality products are manufactured and minimize the risk of large-scale recalls.

Supplier Assessment

Our Supplier Portfolio

We rely on our suppliers to provide materials and manufacture a significant portion of our products. Our global supply chain network involves various environmental and social risks, and we carry out comprehensive, fair and transparent procurement procedures to minimize such risks. The Supplier Management Centre and dedicated teams from different brands work closely with suppliers to ensure high performance. We encourage all suppliers, business partners, and associates to uphold standards on environmental, social, and ethical business practices that align with the Group’s requirements. All these requirements are demonstrated in our Supplier Code of Conduct and Supplier Management Manual, and we expect our partners to comply with them throughout our collaboration.

Our suppliers are regularly monitored and evaluated on their ESG performance. As of 2022, 65% of our footwear and 91% of our apparel manufacturing were outsourced. The Group engages with 391 suppliers globally, with 387 in Mainland China and 4 overseas. The breakdown of our suppliers by nature is as follows:

In supporting the Group’s sustainability plan regarding the supply chain management, we have established four targets to enhance our supplier chain ESG performance and management. Please refer to the focus areas and progress of sustainability targets listed in the “10-Year Sustainability Plan” in “Our Sustainability Framework and Initiatives” section for details.

Supplier Definitions

4 The data does not include tier 2 and tier 3 suppliers of K-Swiss, Palladium, Saucony and Merrell. It is because we directly import finished products from our business partners for K-Swiss, Palladium, Saucony and Merrell, and do not directly engage with such suppliers.

ESG Assessment for New Suppliers and Ongoing Evaluation


New supplier admission process
In 2022, all new suppliers in China were assessed by our in-house team, while overseas suppliers were evaluated by third-party auditors. Below is the summary of the new supplier admission process:

Ongoing Supplier Evaluation

In 2022, our Supplier Management Centre performed ongoing assessments of document review and on-site inspection on suppliers that have collaborated with the core Xtep brand for at least one year. K-Swiss and Palladium also inspected its Tier 1 suppliers locally through the Supplier Management Centre and thirdparty auditors for suppliers overseas. Suppliers who fail to meet bottom-line requirements, such as labour rights violations and fire safety non-compliance, shall not remain in our supply chain system.

By the end of 2023, the core Xtep brand will cease or terminate its collaboration with Tier 1 suppliers who failed the CSR assessment. During the year, the Group performed ongoing assessment for 23 Tier 1 suppliers of core Xtep brand’s apparel and footwear suppliers, and completed all Tier 1 suppliers assessment in March 2023. The brand is also extending its evaluation scope to Tier 2 suppliers as a trial environmental assessment standard targeting fabric suppliers is developed. During the year, we performed trial assessment to one fabric supplier on its performance in energy conservation, pollution reduction efforts, regulatory compliance, and energy data collection. On the other hand, Saucony and Merrell5 inspected their suppliers’ manufacturing procedures, basic facilities, CSR performance, and machinery safety provisions.

The assessments allow the Group to identify various areas of improvement for the suppliers. Where applicable, re-assessments were arranged to follow up on the suppliers’ implementation progress of improvement suggestions. For case where the suppliers fail to implement adequate corrective measures, we will cease our collaboration with them and seek alternative suppliers.

There are four levels of improvement requirements depending on the score of the supplier receives:

During the year, our assessments have identified performance gaps in product research and development training for staff and fire safety equipment maintenance. The inspection team provided practical improvement suggestions, and the suppliers concerned had enforced the suggested corrective actions timely. The core Xtep brand completed all Tier 1 supplier assessments in March 2023. Around 70% of suppliers scored above 70, which aligned with the Group’s current target for supplier capability development. Suppliers with lower scores were required to provide a specific rectification plan and the review of the improvement progress will be conducted from June to August 2023.

Engaging Suppliers and Build Up ESG Capabilities

To support suppliers in meeting the Group’s expectations regarding environmental and social performance, we continuously engage with our suppliers to understand their limitations and equip them with the skills and knowledge necessary for better ESG performance. These engagements also enable us to identify and minimize potential environmental and social risks along the supply chain.

Suppliers’ communication and training
During the year, the core Xtep brand engaged with its suppliers and conducted a seminar on product quality management requirements. Representatives, mainly production managers and environmental safety officers, of 45 suppliers joined the training. Through this event, we communicated the social and environmental standards we expect suppliers in Mainland China to uphold. It also highlighted the added value of enhancing their social and environmental practices, raising their awareness of building a sustainable supply chain. In addition, we commissioned a third-party auditor to organize regular training on ESG-related matters for overseas suppliers.

The core brand is working with one of its suppliers in the PLA T-shirt lifecycle assessment. The collaboration enables the data collection of carbon emissions during the product’s weaving, dyeing and sewing processes. This exercise allows an in-depth investigation into the carbon reduction potential of product manufacturing. It also encourages the supplier to factor environmental concerns into production processes as the Group supports the “30 • 60” carbon neutrality target.

During the year, the Group’s Supplier Code of Conduct has been planned to be reviewed and updated. The content to be updated is based on the China CSR Due Diligence Guidance and the relevant requirements of the industry. The first draft is expected to be completed in May 2023 and issued to our core suppliers as one of the Group’s policies.

Product and material quality assurance

Quality specifications and assurance are integral parts of the Group’s production processes. Our products are subject to stringent quality control tests during the production process, which help ensure that only items that meet the Group’s quality requirements are sold to our customers. Our quality control teams are responsible for the quality control processes, which include sample testing and inspection to enhance supplier quality control.

Product quality control process and procedures
We have an ISO 9001-certified quality management system in place to ensure the consistent production of goodquality products and standardize the production process of the core Xtep brand. At the research and development stage, the Standard Teams perform thorough tests and verification of the product and the materials used and formulate standards for mass production. During the year, the Standard Teams developed and reviewed 25 quality management-related documents to enhance the quality management system. 134 documents were shared on the Xtep Quality Information Sharing Platform to improve the standardization of product quality management between the Group and its suppliers. In addition, we conducted training on quality management and procedures with more than 1,200 participants to improve our quality control process and procedures.

At the production stage, the quality management teams monitor the quality and safety of raw materials and finished products. They also perform regular quality control activities on the production process and conduct stringent product quality inspections to ensure the finished products from our suppliers pass physical and chemical standards before being delivered to customers. In addition, Xtep conducts monthly sample testing for its Tier 1 and Tier 2 suppliers. Raw materials, adhesives, and finished products are sent to nationally certified third-party laboratories every quarter, ensuring the final products align with national standards and product quality and safety regulations.

To improve product quality, the Group established a special quality control circle for items like down jackets and shoes, allowing steady quality enhancement for specific product categories. The team also conducts competitive product analysis to optimize product standards and testing methodology while promoting product quality and comfort.

The Group also performs a strict quality control process for other brands where the production process is entirely outsourced. Generally, quality tests are performed by our quality management teams either upon arrival at our Quanzhou Logistics Centre or directly on-site at the supplier factories. Monthly quality review meetings are also held to receive constructive feedback from the production departments. In 2022, to improve the product quality and the production process, K-Swiss and Palladium upgraded their manufacturing machinery, adopted raw materials of higher quality, and added new quality test items during the year. Saucony and Merrell upgraded their production process by introducing advanced machinery such as automated, computerized cutting machines and automatic printers.

Enhancing product quality control with suppliers and customers
We proactively help our suppliers build quality control and management capacity to promote the Group’s overall product quality. In 2022, we regularly held meetings with suppliers to reflect and analyse product recall trends and encourage continual product quality improvement across our supply network. We also continue to encourage suppliers to establish or upgrade their testing laboratories. In 2022, we helped 35 suppliers establish certified laboratories, including apparel and footwear suppliers.

The quality management team engages with customers by visiting our physical stores to understand market trends and customer needs and setting up communication channels such as the “400 Hotline” to readily receive customer feedback.

Customer relationship management and satisfaction
The Group strives to address complaints, information requests and customer feedback by establishing multiple communication channels. Robust internal policies are developed to illustrate procedures for handling customer complaints and product defects. Any customer complaint received at our branded stores, through the “400 Hotline” or other communication channels, will be addressed promptly and appropriately by our customer service team. For example, we provide one-to-one assistance to shoppers in our branded store to promptly deal with customer inquiries and complaints. In 2022, the “400 Hotline” received 2,317 product and service-related complaints.

To improve customer satisfaction, we have implemented the notice on The Return and Exchange Policy for Customers, which stipulates that all products that consumers want to return after wearing will be accepted unconditionally. Policies for handling products recalled due to quality issues or other reasons are in place. For any major product recall, the Quality Management Centre will comprehensively investigate the case and submit the investigation results to senior management and relevant departments. Responsible departments will implement appropriate corrective measures to mitigate the defects identified and prevent future incidents from occurring. In 2022, there were no major product recalls for health or safety reasons.

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