Reebok 2015 Annual Report Download - page 170

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GROUP MANAGEMENT REPORT – FINANCIAL REVIEW
Risk and Opportunity Report – Illustration of Material Risks
To mitigate business partner risks, the Group has implemented various measures. For example, we
generally include clauses in contractual agreements with athletes, clubs, federations or other promotion
partners that allow us to suspend or even terminate our partnership in case of improper or unethical
conduct. In addition, we work with a broad portfolio of promotion partners, including individual athletes,
club teams, federations or associations in numerous sports to reduce the dependence on the success
and popularity of a few individual partners. To ensure strong relationships with retailers, the Group is
committed to delivering outstanding customer service and providing our retail partners with the support
and tools to establish and maintain a mutually successful business relationship. Customer relationship
management is not only a key activity for our sales force but also of highest importance to our Group’s top
executives and second-line management. We also utilise a broad distribution strategy which includes further
expanding our controlled space activities to reduce the risk of over-reliance on particular key customers.
Specifically, no single customer accounted for more than 10% of Group sales in 2015. To reduce the risk
of business interruption in the supply chain, we work with suppliers who demonstrate reliability, quality
and innovation. Furthermore, in order to minimise any potential negative consequences such as a violation
of our Workplace Standards by our suppliers, we enforce strict control and inspection procedures at our
suppliers and also demand adherence to social and environmental standards throughout our supply chain.
In addition, we have selectively bought insurance coverage for the risk of business interruptions caused
by physical damage to suppliers’ premises. To reduce dependency on any particular supplier, the Group
follows a strategy of diversification. In this context, the Group works with a broad network of suppliers and,
for the vast majority of its products, does not have a single-sourcing model.
IT risks
Theft or leakage of confidential and sensitive information or data (e.g. product data, employee data, consumer
data) could lead to reputational damage, penalties and higher costs. Data leakage could trigger in-depth
forensic investigation resulting in temporary unavailability of key systems and business interruption. Key
business processes, including product marketing, order management, warehouse management, invoice
processing, customer support and financial reporting, are all dependent on IT systems. A significant systems
outage or application failure could therefore result in considerable disruptions to our business. Virus or
malware attacks could also lead to systems disruption and may result in the loss of business-critical and/
or confidential information.
To mitigate these risks, our IT organisation proactively engages in system preventive maintenance, service
continuity planning and adherence to applicable IT policies. Data security is managed by restricting user
access based on job description and adhering to data protection regulations. We conduct security reviews
of key systems and applications on a regular basis and have established monitoring and alert systems to
detect and properly tackle IT security incidents. Additional security measures such as anti-virus software
and firewalls are designed to further protect our systems and critical information. We perform multiple
backups at alternating data centre locations for the Group’s core Enterprise Resource Planning system
(ERP) on a daily basis. In addition, for the ERP system, our contingency solution allows us to quickly switch
to a remote site if necessary – without any loss of data. System security, controls and reliability are regularly
reviewed and tested by the Group’s Internal Audit department.
Inventory risks
As we place initial production orders up to nine months in advance of delivery, the adidas Group is exposed to
inventory risks relating to misjudging consumer demand at the time of production planning. Overestimating
demand could result in inappropriate capacity utilisation at our suppliers’ factories, lead to over-production
and cause excess inventory for the Group as well as in the marketplace. This can have negative implications
for our financial performance, including product returns, inventory obsolescence and higher levels of
clearance activity as well as reduced liquidity due to higher operating working capital requirements.
see Sustainability, p. 94
see Glossary, p. 260