Analysis of Nike's Global Supply Chain Management (MGT 3550)

This report provides an in-depth analysis of Nike's global supply chain management, focusing on strategies to maximize profits and minimize waste. It examines procurement processes, including the acquisition of raw materials and components, and the selection of international suppliers. The report highlights Nike's supplier selection criteria, emphasizing quality, cost reduction, and intellectual property considerations. It explores the four-step supplier selection process, including problem formulation, criteria development, and final selection, using various models like Kraljic's framework. The study also considers Nike's approach to managing and developing suppliers, particularly in the context of expanding into Africa, and recommends strategies for improving the supply chain's flexibility and responsiveness. The report emphasizes the importance of global decision-making, market access, and supplier performance in determining the overall success of Nike's supply chain.

NIKE GLOBAL SUPPLY CHAIN MANAGEMENT
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Abstract
Nike implements global supply chain management in order to maximize its profits and minimize
wastages. Nike is an American multinational that is engaged in designing, development,
manufacturing and worldwide marketing of footwear, equipment, apparel, accessories, and
services. This report highlighted some of the recommendations that Nike needs to apply in its
global supply chain management strategy. Nike will adopt the necessary procurement changes in
order to achieve the recommendations provided in the supply chain analysis. Procurement for
Nike involves the process of acquiring raw materials, products, its components and other
necessary resources from suppliers in order to achieve the operation. Nike is a large company
having a tie-up with various suppliers. Suppliers of the Company include vendors, preferred
partners, and preferred suppliers. Nike has a demanding supplier selection process that is used to
select the best supplier in the region. In order to select a supplier for the Company, it adopts an
appropriate selection criterion that process supplier capability and aims at enhancing quality with
a focus on reduced costs. Sourcing from global suppliers means the organization can improve its
products and services by hiring prospective suppliers beyond national borders. The process of
buying from global suppliers can be categorized under sourcing and procurement. It can be
concluded by advising that before deep localizing sourcing in Africa, Nike should check whether
the recommendation is feasible enough. Logically, they should carry out a model study in any of
the African nations that have a comparatively better infrastructure, and improvise upon the
results obtained if required.
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Table of Contents
Abstract............................................................................................................................................2
1. Introduction..................................................................................................................................4
2. Changes in Global Procurement..................................................................................................4
3. Selecting International Supplier..................................................................................................5
4. Managing Suppliers and Development........................................................................................8
6. Buying from international Suppliers.........................................................................................11
7. Global Supply Chain Network...................................................................................................13
7.1 Technology and Knowledge Transfer..................................................................................13
7.2 Improving Absorptive Capacity...........................................................................................13
8.0 Conclusion...............................................................................................................................14
9.0 References................................................................................................................................15
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1. Introduction
Global supply chain management incorporates the distribution of goods through trans-national
companies in the global network (Melo, Nickel, and Saldanha-Da-Gama, 2009, pp. 410). Nike
implements global supply chain management in order to maximize its profits and minimize
wastages. Through logistic management, customer orientation, competitor orientation, supply
management, coordination of supply chain and operations management, global supply chain
manages business operations. Nike is an American multinational that is engaged in designing,
development, manufacturing and worldwide marketing of footwear, equipment, apparel,
accessories, and services. In the report Coursework 1, details regarding Nike's international
business strategy had been discussed. The report highlighted some of the recommendations that
Nike needs to apply in its global supply chain management strategy. The recommendations
aimed at adopting Africa within the production and distribution networks. Africa will offer the
opportunity to enter new markets and make use of cheap labor availability. With setting up of the
production facility, Nike will able to source its distribution network located in South Africa and
also expand existing networks (Mangan, Lalwani, and Lalwani, 2016, pp. 16). Varied
distribution centers can be set up for specific sub-brands and styles; it will enable the brand to
expand the market capacity, allowing the supply chain to move faster.
2. Changes in Global Procurement
Nike will adopt the necessary procurement changes in order to achieve the recommendations
provided in the supply chain analysis. Procurement for Nike involves the process of acquiring
raw materials, products, its components and other necessary resources from suppliers in order to
achieve the operation (Jain, Girotra, and Netessine, 2013, pp. 1210). Procurement can be
undertaken by in-hours operators or by outsourced parties. As in the above recommendations, it
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is provided that Nike needs to set by product plant in Africa, where it will get various raw
materials cheaply, sourcing will be undertaken locally, to be able to strategically position
products in the African market. Prior to understanding the segment required for production, it
becomes necessary to understand the classification of parts that are involved in the production of
Nike’s product category. The parts are classified as;
i. Local Parts – Local parts include those materials that are supplied by suppliers form
the same region. These parts include South African supplier providing cotton, color,
and fabric for the OEM in South Africa.
ii. Long Lead time parts – The parts that are supplied by suppliers from another
geographical region to the OEM located at another country. An ideal example
includes supplier of shoe soles from North America to South Africa.
iii. In-house parts – There are some parts that are manufactured by OEM units, such as
rubber parts, elastic, laces and so on.
iv. Sequenced parts – It includes parts that are manufactured by suppliers located near to
the OEM such that parts sent in sequence as the products are manufactured in the
assembly line, such as shoe framework.
3. Selecting International Supplier
Nike is a large company having a tie-up with various suppliers. Suppliers of the Company
include vendors, preferred partners, and preferred suppliers. Nike has a demanding supplier
selection process that is used to select the best supplier in the region (Waters, and Rinsler, 2014,
pp. 18). In order to select a supplier for the Company, it adopts an appropriate selection criterion
that process supplier capability and aims at enhancing quality with a focus on reduced costs.
Suppliers of Nike have extensive knowledge and skill in the shoe, apparel, and equipment,
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possessing high levels of expertise. The suppliers are selected are those who have existing
expertise in the domain. Nike takes extensive interests in backward integration, especially in its
suppliers. It aims at developing its existing supplier network in sourcing of raw materials and in
designing sustainable relationships. Nike can reconsider re-strategizing its procurement changes.
While selecting suppliers in accordance with the new procurement strategy, some consideration
that Nike needs to undertake is quality, market access, cost, intellectual property, tax, lead time,
people and so on.
Selecting suppliers for Nike encompasses a four stepped process of problem formulation,
formulating criteria for qualification and the final selection procedure. In the problem
formulation and formulating criteria is further sub-divided into qualitative tools imposing
questions of whether to purchase, replace present supplier, or consider audit criteria for suppliers
(Walker, and Phillips, 2009, pp. 41). In the final selection criteria of supplier’s supplier analysis
from a list of suppliers and their quotations would be considered as a qualitative tool allowing for
selection. In order to select a supplier for Nike a prescriptive model requiring analysis of new
task situation, straight rebuy, and modified rebuy will be considered.
In the current task scenario, selecting suppliers from Africa, who provide high-quality local
components, some in-house parts, and long lead time parts, will be selected. Nike will select
suppliers based on the close proximity to its distributing warehouse and other qualification
criteria's based on its Company's protocols.
In modified rebuy, where buying of new products from existing suppliers and buying existing
products from new suppliers in undertaken Guang Shi, V., Lenny (Koh, Baldwin, and
Cucchiella, 2012, pp. 55). For Nike modified rebuy from existing OEM in American supplier
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network. The existing supplier network has considerable costs from exporting their products and
hence in order to cost-effective Nike will need to shift some of its suppliers to African suppliers.
Africa is a well-known nation producing rubber, cotton and various other raw materials needed
for manufacturing shoes and apparels. African suppliers can also supply cost-effective raw
materials for equipment that Nike produces. The low cost and appropriate quality parts from new
suppliers will allow Nike to enhance profitability by establishing a partnership.
Straight rebuy focuses on utilization of existing supplier agreements and contracts, only when
there is present extensive information related to supplier and product specification is there
(Stonehouse et al, 2009, pp. 101). Nike cannot consider straight rebuy, as then the process of
selection of supplier would be avoided. Straight rebuy from new suppliers can be adopted in the
presence of historical data of past performance.
Supplier selection procedure proposed by Kraljic can be applied for Nike's supplier selection
procedure. According to the proposed framework, the selection of a supplier is depended upon
strategic, leveraged, routine/ normal/ non-critical and bottleneck items. In order to source
strategic items, long-term partnership with suppliers is deemed necessary with detailed market
information and competitive intelligence. Strategic items can be considered for straight rebuy
and it could be used for sourcing of some in-house parts that can render Nike’s competencies and
capabilities. The items could include rubber sole and fabric.
Non-critical and normal items are the standardized products that are provided by suppliers, it is
similar to straight rebuy (Anantatmula, and Thomas, 2010, pp. 62). These parts are generally
sequenced parts with standardized product specifications. Some of the leveraged items can have
an impact on the financial infrastructure of firms; hence possess the feature of targeted pricing
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strategies. For modified rebuy strategies, leveraged items can be compared as the parts along
with the price accompanies Nike’s local parts such as cotton, shoe framework, apparel coloring
agent, which are manufactured in North America by being sent to its OEM. Items that are
bottlenecks have high control on the suppliers, ensuring continuous supply with the long-trusted
partnership. It can be compared to straight rebuy where the relationship with the supplier has
considerable amounts of importance. Parts that required long lead time period are the bottleneck
items and in case of disruption taking place along the supply chain then considerable penalties
could take place.
It can be stated that while selecting suppliers for Nike, both the above-stated framework need to
be considered. Post initial supplier selection procedure, Nike could eliminate modified rebuys
and then select straight rebuy for getting better control over its supply chain procedure. The
importance of supplier selection is to provide flexibility, responsiveness and quality to the supply
chain process. The strategic factors such as global decision making, proximity to customers,
market access, supplier performance and other factors determine the importance of supplier
selection. Few suppliers will be selected in order to keep the brand name intact of Nike.
Selection of suppliers will be determined on the performance of individual suppliers. Suppliers
will be provided short term contract with the Company and the contract will be renewed from
time to time, dependent on the performance of suppliers. A global manufacturing network will
need to be developed to minimize costs and enhance performance across the supply chain
framework.
4. Managing Suppliers and Development
This section of the report has discussed in details about the proposed development and
management of both the new as well as the existing local suppliers in Africa, based on the
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supplier relationship map concept introduced by C.S Tang in 1999. In terms of procurement of a
large volume of goods, the manufacturing companies' budget involving purchasing materials
always exceeds the volume of sales (Ponomarov, and Holcomb, 2009, pp. 126). As a result, it is
very important for the manufacturers to select the right suppliers and maintain a proper
relationship with them as it would not only help them in terms of saving a lot of their expenses
but they can also maintain an efficient product development cycle. Selection of supplier depends
largely on two main factors -
A. the strategic importance of the part to the manufacturer.
B. the negotiating power of the buyers.
The importance of the part means that how it would help the manufacturers in fulfilling the
condition required for surviving in the market or the qualifying criterion and the condition that
would help them in achieving a higher market share or the award-winning criterion.
Some of the key factors on which the negotiating power of the buyers depends are the
availability of multiple suppliers in the market, their complete knowledge in terms of part
production process, their reputation in the market, their in-house production capabilities and low
switching cost between different suppliers. Therefore, as far as Nike is concerned, it can be said
that the company possesses a great negotiating power over their suppliers which is quite
prominent from the facts such as their high operating income, their large volume of production
and their supplier selection approach based on long term partnership.
In Africa, owing to Nike's negotiating power, their focus should be on realizing the strategic
importance of the parts to the buyer. Initially, they should consider quality as their qualifying
criterion and price as their award-winning criterion (Stevens, and Johnson, 2016, pp. 21). While
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selecting new suppliers, quality regarding different parts should be given utmost importance as it
would affect the performance of the final product.
The suppliers are generally categorized into - partners, exclusive suppliers, preferred suppliers
and vendors (Parmigiani, Klassen, and Russo, 2011, pp. 220). Partners are those who share risk
with the buyers and committed revenue. Both exclusive and preferred suppliers deal with unique
products and high buyer switching costs where preferred buyers were rewarded in the event of
better performances. Vendors are the suppliers of common parts and are characterized by low
buyer switching cost.
It is an established fact that Nike attempts to engage in a partnership relationship with their
suppliers. However, sourcing from Africa would mean a change in sourcing strategy. Hence, it
would be beneficial for Nike, if they source local parts from vendors, certain in-house parts from
partners and certain key parts from their preferred suppliers.
Supplier development is important for every buyer who intends to develop a long-term
relationship with the suppliers for regular sourcing of strategically important parts. Supplier
development refers to the actions taken by the buyers to meet both their long-term as well as
short term supply needs that would lead to improvement in the performance and capabilities of
suppliers (Pettit, Fiksel, and Croxton, 2010, pp. 19). Since it is an established fact that Nike has
developed a partnership-oriented supplier relationship strategy, and their focus in Africa involves
procuring strategic components, therefore, it is advisable that Nike develops a process-oriented
supplier development program as it would establish a long-term relationship between buyers and
suppliers and also involve a high amount of human capital and time investment. It is also
advisable that Nike should also implement a result based supplier development while selecting
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suppliers in Africa, to achieve improvement in terms of quality, cost, and delivery of the product.
Therefore the ideal situation for Nike in Africa would be to develop a result-oriented supplier-
development system and gradually move towards a process-based one.
5. International Sourcing
As Nike recommended procuring parts from the African markets, it is important to identify the
right product or parts the firm needs as their absence can lead to excess inventory. The procured
products can be categorized based on their cost, availability, and quality, all of which can be
harmful to Nike's proposed strategy of deep localization in Africa (Nagurney, and Nagurney,
2010, pp. 192). Different methods can be implemented to identify the right product and the right
suppliers.
a. Domestic market Research - While the primary research involves hiring a consultancy firm to
identify local suppliers offering best products, the secondary market research involves studies,
expert opinions and market shared data. This type of research help in understanding the
purchasing power, product preference, quality expectations, and cultural preferences of the
population. All these information are important for any MNC that decides to localize. Since Nike
already has many local suppliers in Africa, from whom they procured products, it would be quite
cheaper to find new suppliers and it would involve minimal data collection.
b. Trade Publications - Nike can use various advertisement displayed in various trade or business
publications to identify new suppliers.
c. Trade Fairs and shows - Trade fairs and shows are an important platform where buyers can
meet potential suppliers who offer various range of products and can select the ideal supplier
required for their firms.
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d. Foreign countries trade offices - Trade offices are a reliable source from where buyers can
collect various useful information in terms of selecting potential buyers and range of products
and services they offer.
6. Buying from international Suppliers
Sourcing from global suppliers means the organization can improve its products and services by
hiring prospective suppliers beyond national borders. The process of buying from global
suppliers can be categorized under sourcing and procurement. Since the supplier management
activities and sourcing for Nike in Africa have already been discussed in details, this section
discussed the aspect of acquisition in terms of global sourcing. In order to attain global sourcing
or develop buying capability, MNC can use various means such as contract manufacturing,
overseas joint ventures, in-bond plant contracting, and wholly owned subsidiary. Other forms of
buyer-supplier collaboration can be developing partnerships and strategic alliances (Pietrobelli,
and Rabellotti, 2011, pp. 1265). At Nike, the supplier organization is a tiered system where Tier
2 supplier relationship is managed by Tier 1s suppliers and Tier 1 suppliers always stay in
constant touch with OEMs. Nike focuses on supplier development in Tier 1 with the help of the
following points-
a. promotes solving problems as a team
b. shares intellectual property without the fear of abuse
c. carries out visual control over all activities without being undermined by analysis
d. uses standardized collaborative tools that are compatible with each other
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