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NOPE! cycles Moritz Ploss

A Responsible Sourcing
Strategy for Bicycle
Components

by Moritz
14th April 2018
#FrameWorks

But how do you make it?

A big part of my job is to source bicycle components from all over the world. Thus, I spend considerable amounts of time browsing manufacturer websites and talking to distributors. While this helps me to keep an overview of the latest developments in the market, the information I'm most interested in is often the most difficult to find: Where do you make it? And under which conditions?

After all, focusing on performance rather than the marketing hype, a stem is a stem is a stem, no matter who made it (at least in many cases). Unfortunately, the same cannot be said about the circumstances under which it was made. Rumors (and evidence) about questionable working conditions in the bicycle industry are as old as the word "offshoring", and, as for many consumer goods, customers are increasingly asking for background information on products, from working conditions to manufacturing sites.

In a world where product quality depends more on machines and materials than the location of production sites, I wanted to learn more about the actual differences between "made in the USA/Europe" and "made in Asia"? In particular, why is it okay to be proud of one but not the other? Is it all just a bad case of prejudice and a big superiority complex, or is there really anything fundamentally "better" when we manufacture products in the western world? And can I use this information to narrow down the large number of suppliers?

Getting to Work

With these questions in mind, I set out to evaluate manufacturing conditions and environmental standards for every supplier and factory in the bicycle industry. Unfortunately, after a couple of days on the internet, I realized that gathering sufficient data on even a single company is virtually impossible. Somewhat disillusioned, I decided on a more approachable strategy: firstly, create base ratings for every manufacturer based on its country of manufacturing, and then, if possible, adjust the rating based on publicly available information for each company.

In the following, I present my approach in more detail and share some of my findings. While the strategy outlined below is far from ideal, I hope this post can spark a discussion and get us closer to a responsible sourcing strategy for bicycle components.

Measuring "Better"

In order to take the first step, I needed to define what "better" actually means. While you might disagree with me here, my personal definition is that "better" manufacturing sites are those that firstly enable workers to have a "better life", and secondly strive to minimize the environmental impact of all manufacturing activities.

Whereas environmental impact is measurable, "better life" is somewhat abstract. Although there are various indexes that try to measure the quality of life in different parts of the world, the answer is not quite so easy. For example, simply because general education is poor in a country, that doesn't mean that you shouldn't support its economy. After all, insufficient funds might be the cause of poor education in the first place.

Once I started to think about it, I realized that there are no easy answers and that all attempts to define "better" boil down to personal preferences and beliefs. Therefore, I decided to measure "better" based on parameters that represent what I think is the mindset of NOPE! cycles.

With that in mind, the parameters I came up with are (1) democracy, (2) corruption, (3) gender equality, (4) workers rights, (5) human freedom, and (6) environmental protection. A more detailed explanation of each parameter and the indexes used to quantify them is provided below.

Some Parameters to Quantify "Better" *

Democracy

Measured using data from The Economist Intelligence Unit’s Democracy Index 2016, which assesses the level of democracy for 165 independent states. The index is based on five categories: electoral process and pluralism, civil liberties, the functioning of government, political participation, and political culture. Countries are ranked on a continuous scale from 0 to 10, which correspond to "authoritarian regime" and "full democracy" respectively.

Corruption

Measured using data from Transparency International's Corruption Perceptions Index 2016, which is based on parameters such as trustworthiness and integrity of public institutions, enforcement of anti-corruption laws, bribery, extortion, misappropriation of funds, consistency of law enforcement, and the dependence of judicial systems. Countries are rated on a scale from 0 to 100, where 0 corresponds to "highly corrupt" and 100 to "very clean".

Gender Equality

Measured by averaging data from the 2016 Global Inequality Index (GII) and the 2016 Global Gender Gap Index (GGGI), which are issued by the United Nations Development Programme and the World Economic Forum respectively. The GII measures gender inequalities regarding reproductive health, empowerment, and economic status; the GGGI is designed to measure gender gaps independent of a country's overall level of development, and it is based on four subindexes: economic participation and opportunity, educational attainment, health and survival, and political empowerment.

The GII measures inequality on a continuous scale from 0 to 1 (where 0 indicates no inequalities) and the GGGI measures gender gaps on a continuous scale from 0 to 1 (where 1 indicates no gender gap). Since neither of the indexes produces scores for Taiwan, the country's GII is based on a re-calculated score from 2012 (as stated on the GII Wikipedia page) and its 2016 GGGI is based on the re-calculated score as reported by Taiwan's Directorate General of Budget, Accounting and Statistics.

Environmental Protection

Measured using data from Yale University's Environmental Performance Index 2016 (EPI). The EPI derives national scores (0-100) for a wide range of criteria from two broad categories: protection of human health and protection of ecosystems.

Workers Rights

Based on data from the International Trade Union Confederation's (ITUC) Global Rights Index 2017. The index is based on an evaluation of recorded violations of "internationally recognised core labour standards, specifically civil rights, the right to bargain collectively, the right to strike, the right to associate freely and access to due process rights". (Quote from report). Unlike other indexes, this index is based on a six-tier ranking system (1, 2, 3, 4, 5, 5+) where 1 corresponds to "Not regular violations of rights" and 5+ corresponds to "No guarantee of rights due to the breakdown of the rule of law".

Human Freedom

Measured using data from the Human Freedom Index 2016 (HFI) that is issued by a collaboration of the Cato Institute, the Fraser Institute, and the Liberales Institut at the Friedrich Naumann Foundation for Freedom. The HFI measures personal and economic freedom, defined as the absence of coercive constraint, based on a total of 79 indicators from areas such as rule of law, security and safety, relationships, legal system and property rights, and freedom to trade internationally. The index is scored on a continuous scale from 0 to 10, where 10 represents more freedom.

* In the future, I would also like to add LGTBQ rights to the list; however, the data sources I found at the time of writing were either incomplete or not easily approachable in the context of this article.

Doing the Math

To assess a country's overall performance, I normalized all datasets on a continuous scale from 0 to 1, where 0 corresponds to "worst performance" and 1 corresponds to "best performance". In particular, this means that the discontinuous scale of the Corruption Perception Index {1, 2, 3, 4, 5, 5+} was converted into a scale of {1, 0.8, 0.6, 0.4, 0.2, 0} where 1 corresponds to very low levels of corruption; also, the scale of the Global Inequality Index was inverted so that 1 corresponds to "no inequalities".

Performing the above normalization, it was then possible to combine all data into a single plot as shown in Fig. 1. Here, a country with perfect scores for all six subindexes would have an overall score of 100 %.

However, once I started to calculate an overall score based on the subindexes, it became obvious that I was comparing apples and oranges: are worker's rights as important as gender equality? If no, how much better does a country need to treat its workers in order to make up for a slightly less-than-average equality rating?

I'm afraid there are no easy answers here, and the weighting factor one gives to each of the subindexes strongly depends on one's personal approach to life. Therefore, for the results presented in Fig. 1, I did not assume a fixed set of weighting factors, and you should feel free to change them in the range from 0 to 10 to account for your personal preferences.

For readability, Fig. 1 is limited to a selected set of countries that are the main manufacturing sites of the bicycle industry. If you can't find information on a specific country, you can find the complete dataset here, which should cover most countries of economic relevance.

Fig. 1: Overall scores for a number of countries and regions that constitute the main manufacturing sites of the bicycle industry. Region scores are calculated as averages for all countries within the region. Norway and the Central African Republic were included for reference since these countries have the highest/lowest overall score if all indexes are weighted equally.

So What Do We Learn?

The first thing to notice is that the overall score seems to be relatively robust: changing the weighting factors within reasonable limits does not lead to major changes in the ranking. Thus, I will use the equally weighted scores to outline some major findings:

  • All Western European countries perform better than the United States, Taiwan, and the European average. The only two Eastern European countries in the list, Poland and Romania, both perform worse than Australia, the United States, Japan, Taiwan and the European average. This trend is confirmed in the complete dataset. Thus, there is a clear difference between "Made in Western Europe" and "Made in Eastern Europe", and no such thing as "Made in Europe" as a guarantee for good working- and living standards.
  • The United States performs worse than Western Europe, Japan, Australia and — maybe most notably — Taiwan. While the difference between Taiwan and the United States is small, it requires some effort to find a combination that gives the upper hand to the USA. Thus, my reading is that "Made in the USA" and "Made in Taiwan" boils down to largely the same standard, with a slight advantage for Taiwan.
  • Taiwan, the center of the world's bicycle industry, outperforms the European average by a small margin and is on eye level with large parts of Western Europe and the United States. Also, conditions in Taiwan are significantly better than those in China and Asia in general.
  • China performs significantly worse than Taiwan and Malaysia, and slightly worse than Indonesia, Thailand and the Asian average. Thus, confusing "Made in China" with "Made in Asia" is not a good idea, no matter which way around.

From Countries to Companies

At this point, it's important to note that the above findings should only serve as an initial baseline for your buying decision. While country A may clearly outperform country B, this says little about a particular company that is located in any of the two. Thus, it's best to consider company-specific information whenever available.

For example, I use the above scores to generate base ratings in three categories: social accountability, environmental performance, and local manufacturing.

The "Social Accountability Base Rating" is calculated based on equally weighted averages for all of the above parameters, except for environmental protection. To calculate the base rating, I average over all performance indexes of all manufacturing countries for a given supplier and its sub-suppliers.

The "Environmental Performance Base Rating" for each supplier is based on the data from the Environmental Performance Index.

Finally, the "Local Manufacturing Base Rating" is calculated based on a dataset that is not included above. Here, companies that operate manufacturing sites close to their headquarters are scored higher than those who offshore all manufacturing. It is worth noting that this base rating is independent of the headquarter location: a European-based company that manufacturers in Europe will score equally well as an Asian-based company that manufactures in Asia. This is because I want to support business models that are based on local manufacturing.

In the next step, I modify the three base ratings using company-specific information. What internal standards and initiatives does the company have? Which certifications and audit strategies? For bigger companies, where does the company stand on the California Transparency in Supply Chains Act? Are there known violations of workers rights and environmental protection laws? And so on and so forth.

In the end, the above process leaves me with three company-specific ratings for each supplier. And that's what I base supplier decisions on.

But wait a minute, ...

...shouldn't we discuss the weighting factors in more detail? And shouldn't we account for more parameters than the ones outlined above? And should you really calculate company ratings based on country data? And why do you bother anyway?

I believe that every manufacturer and customer has the power to influence the way business works. When it comes to manufacturing conditions, the first step is to understand the status quo; only then can we engage in an open and constructive discussion with manufacturers.

What I present above is the best solution I came up with so far, and you're most welcome to disagree with everything, including the general approach, parameters, weighting factors, and datasets. In fact, this is exactly the kind of discussion I would like to have during my next club ride. To me, that's much more interesting than somebody telling me how they saved 15 gram by going tubeless. Yawn.

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