Strategic Supply Chain Management - Example

Strategic Supply Chain Management Name: Course: Tutor: Institution: Date: Executive Summary The report offers a strategic evaluation of the Nike Shoe Company Australia supply chain management. In this case, a background literature evaluation evidences that the supply chain management function and process has evolved over the years from an operational, organisational function, through the perception as a key organisational resources, to the development of integrated supply chain systems supporting strategic organisational goals. On the other hand, an evaluation of the existing organisational SCM strategies indicates that the manufacturing index sourcing and the forward integration strategies are the key strategies in the Australian market. On one hand, the analysis establishes that the manufacturing index approach allows the organization develop a strategic framework through which its suppliers are evaluated. As such, the process allows for the adoption of a continuous improvement practice among the organisational suppliers. However, failure to use external third parties to execute the evaluation and suppliers ranking process exposes the organisation to the risk of appraising suppliers positively as a means of increasing is market goodwill. On the other hand, although the forward integration approach has been successful, the analysis estabslishes that the organization should increase its focus in improving and expanding the alliances bases. In this case, it establishes that both enable the organization increase its operational efficiency, but lack the desired complete system integration threshold. Thus, the report concludes by offering SCM improvement recommendations including integration portfolio, internal sourcing, and the expansion of the existing forward integration strategies respectively. Finally, the report concludes with a suggestion for further research to develop cost benefit analysis of the recommended SCM strategies. Table of Contents Table of Contents 3 1.0 Introduction 4 2.0 Literature Review 5 3.0 Supply Chain Strategies 7 3.1 Manufacturing Index Strategic Approach in Sourcing 7 3.2 Distribution and Logistics Forward Integration partnerships 9 4.0 Recommendations 12 4.1 Systems Approach to Integration through Stakeholders Involvement 12 4.2 Forward Integration Systems Expansion 13 4.3 Use Local Inputs 15 5.0 Conclusion 16 References 18 Appendices 20 Appendix 1: Literature Review Table Summary 20 1.0 Introduction The Australian has experienced a huge market conditions and dynamics shift in the last decade. In this regard, the industry has experienced a growing trend through which the market competitiveness has shifted from the physical tangible assets to intangible assets. Therefore, organisations have similarly adopted strategic measures through which to mitigate the shift, with the adoption of strategic supply chain management, emerging as a new yet popular concept across the Australian market. In this regard, organisations have responded to technological changes and globalization effects through the development of strategic supply chain management systems, which serve as a sustainable market competitive edge in the Australian market (Gal, 2003, p.130). One such evolving organisation is the Nike Company, which has since the early 1990s expanded from its domestic market in the USA to other markets including the Australian shoe industry. This strategic analysis forms a critical evaluation of the systems and approaches through which the Nike Company supply chain systems have evolved over the years (Nike Inc. 2015a). In this regard, the evaluation report classifies the supply chain system strategies into three broad categories, namely the organisational structure, the sourcing strategies and the distribution strategies respectively evaluation the pros and cons of each of the applied strategies. Finally, the analysis offers recommendations on the approaches through which the organization can improve its strategic chain management systems in the future. 2.0 Literature Review Supply chain management practice is one of the strategic management elements on intangible asset management. In this regard the process of managing organizational supply chain systems as emerged as an intangible asset development base and approach through which organizations in the global market seek and develop a sustainable competitive management edge. One of the earliest reviews and theories to link supply chain management to an organizational performance, productivity and market competitiveness was the resource based view theory. In this regard, Chen and Paulraj (2004, p.122) held that besides the existing internal organizational resources, organizations could develop an additional resource base through the development of a network and interconnection. In this case, it argued that through the establishment and development of interconnected organizational systems, the common market operational challenges could be overcome. Therefore, the theory extension concluded that through increased interconnection between organizations with the supplier and distributors, there would be enhanced efficiency, reduced operational costs and subsequently increased profitability margins in the long run period. In the development of supply chain management practices, there emerged numerous support theories hat influenced the development and evolution of the supply chain system. In this case, among the common theories and literature bases that influenced the supply chain management system evolution were the system theory (Ivanov and Sokolov, 2010, p.127). The theory argued that the supply chain system is a complete organizational system and as such is made up of different supporting sub-systems and components. Therefore, the theory development influenced the development and establishment of an alternative perception of the supply chain process from a combination of activities to a complete system of interdependent functions and sub-systems. Consequently, the theory assertion led to the emergence of the various supply chain function as components of procurement, production, and distribution. In this case, managers developed a system through which to manage and link the various functions respectively. To further evidence the theory arguments, Li, Ragu-Nathan, Ragu-Nathan and Rao (2006, p.113) conducted a study evaluating the extent to which the organizational supply chain functions of procurement, warehousing and logistics and transportation were interrelated. In this its analysis, the study concluded that a failure in one of the supply chain functions led to the ultimate failure and reduced performance efficiency of the other functions respectively. For instance a delayed procurement process reduces the organizational on time delivery functions. Therefore, the study concluded that in order to increase the overall supply chain management systems, a coordinated approach to the entire process was an imperative management concept. With increasing global competition levels, supply chain management has gained a strategic role and functions in organizational management and form a key pillar in a majority of the organisations strategic management practices. In a bid to integrate the respective organisations supply chain strategies with the organisations strategic management needs, the forward and backward integration strategic practices have emerged. On one hand, as Lussier (2012, p.139) noted, the forward integration strategies support organisations to establishes partnerships and alliances with the distribution agencies in the market as a means of increasing their delivery efficiency and reduced operational costs. On the other hand, the backward integration strategies seek to develop the efficiency in organizational sourcing practices through ensuring that the respective organizational suppliers avail quality products as well as deliver them on time while adopting sustainable practices (Martinez, M., & Wolverton, M., 2009, p.98). Therefore, the current supply chain management literature is pegged on an evaluation of the extent and nature to which an organization strategically manages its functions through creating a continuous and seamless flowing supply chain system form suppliers evaluation, through procurement, warehousing, to distribution of finished products. 3.0 Supply Chain Strategies 3.1 Manufacturing Index Strategic Approach in Sourcing The Nike Australian Company adopted the manufacturing Index strategy approach as it revolutionized sourcing strategy, adding onto the cost based approach strategy. In this regard, the organisation developed a ranking system through which the potential source material factories were evaluated against in the supplier sourcing and selection process. In this regard, it developed indexing categories, namely the gold, silver, bronze, yellow, red and for those not rated. In this case, the organisation developed a policy that for any contract organisation to supply it with footwear products and footwear materials it should attain the bronze category, with additional preference offered to the silver and gold categories respectively. This approach served as a market incentive for the suppliers to improve their organizational and manufacturing systems to earn a preferential treatment with the organizational procurement function. In developing the manufacturing index categories, the organisation system was based on its sourcing and manufacturing sustainability index (SSMI). The indexing system was pegged on 5 management pillar that the organisational contract supplier factories had to abide. The pillars are a lean management system, HR management efficiency, health and safety considerations, energy usage and carbon emissions, and environmental sustainability aspects respectively. In addition, as an additional measure to ensure that the organisational suppliers upheld the strategy application, the organisation established a penalty system (Nike Inc., 2015b). In this regard, the company required any of its suppliers falling below the bronze category threshold to contract and pay up external audit firms for annual review until the time that such organisations met the bronze threshold requirements. Among the key consideration issues under the lean approach by the organisation is the application of a built in quality evaluation system and a just in time delivery system of production to ensure increased operational efficiency and reduced operational costs respectively. On the other hand, the employee HR management criteria evaluate the nature and extent to which the source suppliers recruit, train and motivate their employees and the existing continuous improvement systems in the organisational HR strategies. In addition, the health and safety aspect, the organizational overall systems, leadership approach and the integration of the organizational functions as a means of facilitating long term sustainability and competitiveness. Further, the energy and carbon element evaluates the extent to which an organisation seeks to optimize its energy use as well as reduce the environmental implications. Finally, the environmental sustainability aspect evaluates the extent to which the existing systems are geared towards an environmental coordination approach. The application of the strategy in the Australian market has significantly increased and improved the organisational perception and the market goodwill respectively. In this case, the SSMI indexing and ranking system has enhanced the improvement of the suppliers’ operational activities. For instance, the Bronze category number of suppliers rose from 441 to 535 between 2011 and 2013 financial year period. In this regard, this strategy application allowed for the enrichment and attainment of the organisational supply chain mission on a greener and empowerment oriented supply system (Lan and Unhelkar, 2006, p.126). In addition, the strategy application has played a key role in improving the contract factories conditions and subsequently increasing both quality and brand reputation in the Australian footwear industry. Nevertheless, the strategy application has faced the challenge of auditing. In this regard, although the organisation currently conducts the supplier audits that are relatively expensive, it is open to criticism (Lee, 2012, p.267). In this regard, critics of the system argue that the organisation improves the suppliers ranking system as a means of increasing its overall goodwill and brand image, rather than based on the actual suppliers improvement rates. 3.2 Distribution and Logistics Forward Integration partnerships Nike Australia Company subsidiary developed an elaborate distribution system. In this regard, the organisation developed four distribution facilities in the Australian market. Through these facilities, the organisation supplied its footwear products across the consumer base. However, the changing Australian market systems and structures led to a need for the existing system and strategy changes. In this context, the Australian market free market trade policy allowed for the increased entry of new foot wear manufacturer both domestically and internationally such a Puma among others. Therefore, the new market entrants and the ensuing price competition market challenge led to the need for the market stakeholders to develop effective operational structures through which to reduce the operational costs while increasing the overall market operation and products delivery quality. One such approach is through forward market integrations. Under a forward market integration, organisations develop partnerships in the distribution system, where the distribution function and responsibility is shared with a third party expert organisation with the merits of efficiency systems, well developed infrastructure and a market brand image positive reputation. In this regard, the Nike Australia Company subsidiary applied this forward integration approach by developing a market distribution alliance with the Toll Company, a reputable distribution and logistics company (Toll. 2015). The key aims of the alliance development was to reduce the organisational distribution costs while increasing its operational and products delivery process efficiency, as a new sustainable competitive edge against rising Australian shoe industry competition. The strategic supply chain distribution alliance development was based on the need to solidify the organisational distribution system. Upon the alliance development the Toll Company assumed three strategic roles in the Nike Company distribution process in Australia, namely the warehousing, logistics and consultancy functions respectively. On one hand, the warehousing function was executed through the development of an 18000 square metre warehouse in Altona North, custom built for handling and storing the Nike shoe products due to supply in the Australian market. In this regard, the developed custom designed warehouse had a capacity of 24,000 SKUs. In this regard, the development enhanced the organisational distribution capacity in the Australian market by allowing for an increased warehousing capacity with the warehouse offering services ranging from the good receiving, storage, dispatch and allowing for order picking for the established bulk customers (Toll. 2015). The warehouse design and environmental conditions were an additional goal attainment of the Nike Company Supply chain mission of ensuring a green system. In this case, the adoption and use of translucent sheets enhancing reduced energy utilization by providing an alternative natural lighting system as well as playing a role in regulating the room temperature respectively. With respect to the logistics function, the Tool Company used its well established physical distribution system and infrastructure to ensure that the Nike Shoe products were vastly supplied in the Australian market (Toll. 2015). Finally, as a means of promoting the organisational consultancy services, the company conducts regular market surveys on the consumers and distribution agents to establish their preference and changing market dynamics that consequently inform the Nike Australia production and distribution decision making process. The adoption of the forward integration strategy for the Nike Australian Company subsidiary, especially its partnership with the Toll Company has increased its overall distribution efficiency. In This regard, the existing wide distribution infrastructure as well as the delivery efficiency by the Toll Company over the decades has empowered and enabled the Nike Company supply its shoe products across the Australian market, unlike in the past when it was concentrated in Melbourne and Sydney and a few other main cities in the economy (Besanko, 2010, p.115). In addition, the strategy application has allowed the venture reduce its distribution costs. This is through the opportunity to divert the required resources such as the transportation and HR resources to other organisational core functions, optimising its overall resources utilisation in the market. Nevertheless, the organisational strategy is yet to allow for a full integration of the supply chain system which is the Nike Australia ultimate and strategic goal in the long run period (Nike Australia, 2015). 4.0 Recommendations Based on the above strategic analysis on the Nike shoes supply chain management strategies in the Australian market. it is apparent that the organization, strategic supply chain management system, although functional requires additional improvements. In this case, the improvements are aimed at increasing the venture operational efficiency in the future as it seeks to ultimately attain its strategic supply chain mission. Among other potential system improvements in the future, this report recommends the adoption of a stakeholders’ inclusion approach, expansion of the current forward integration partnership, and the use of domestic inputs in the manufacturing process. 4.1 Systems Approach to Integration through Stakeholders Involvement A strategic analysis of the Nike Australia Company illustrates that the organization lacks complete system integration. In this regard, although the organization has developed and established relevant supply and distribution function relationships, it is yet to link these functions. In this regard, based on an evaluation developed by the systems theory application in the supply chain, organisations should seek to develop a cohesive, integrated supply chain system as a means of increasing operational and management efficiency. In this context, this report recommends that the organization should develop and create links and relationships between the industry distributors and the supplier (Campbell and Netzer, 2009, p.35)s. In this regard, rather than serving as the main link between the two, it should establish a forum ad serve as a facilitator for the two functions integration. This Strategic approach would incorporate aspects such as the development of a supplier and distributors management portfolio seminars and workshops. In this case, it should group its portfolios based on the specific shoe products where each product has its raw material source and distribution approach. Through such an integration avenue, the organization would facilitate increased efficiency as the distributors, who have a direct constant with the consumer base would serve as key information sour on the consumers preference and demand structure change to empower the suppliers into availing raw materials of the right quality as and when required. In addition, the organization should develop a supplier, organization and distributors forum. In this case, through the forum, in which members can meet on an annual basis the venture management could encourage a brainstorming approach across the stakeholders to evaluate and discuss on the best practices in the sourcing, production and distribution aspect of the supply chain (Besanko, 2010, p.119). Through such a forum the stakeholders’ information sharing process would ensure that information sharing allows for the development of individual organizational strategies that are compatible and support the successful and efficient management of the supply chain process. Consequently, through the application of such an integration process, the organization would ensure that its existing stakeholders develop strategies and organizational strategic objectives supporting the supply chain management process efficiency and long term sustainability, this reducing time and cost emanating from the adoption of varying strategic goals by the different stakeholders. 4.2 Forward Integration Systems Expansion As analysed in the strategic supply chain review, the application of the forward integration system has served as distribution efficiency and cost reduction breakthrough. In this case, the Nike Company has effectively penetrated the Australian footwear industry at minimal operational costs. Therefore, due its viability, this analysis recommends its expansion (Campbell and Netzer, 2009, p.26). A review of the Australian market changing situation establishes a potential change in the political goodwill for the international ventures in the market. In this regard, as the Australian market seeks to develop systems for supporting and facilitating the development of local industries, the taxation and tariffs for the international organisations is bound to rise in the future. Therefore, the organisation should strategically position itself for this imminent change in the next decade. One of the approaches through which the organisation can mitigate the challenge is through the development of supply chain management joint ventures in the market with domestic Australian organisations. In this regard, the organisation should expand the current scope of distribution management to allow for the distributed product ownership by the Tool Company. As such, instead of serving as a third party distribution agent; the Tool Company could be absorbed as a joint venture through which the organisation transfers ownership to it and it in turn it supplies the products to the market. Through such a strategic development and improvement of the current forward integration strategy, the organisation will allow for increased political and market goodwill through an improved supply chain management strategy. Among the strategic approaches through which the organization can support the expansion of the program is the establishment of a project management team to execute a cost benefit analysis of the strategy. In this case, the team, comprised of the respective internal stakeholders and the shareholders as well should evaluate the potential merits and challenges of developing a joint venture in distributing Nike shoe products in the Australian market. As such, this would ensure that the short term challenges of rolling out such a strategy would be showcased and thus allow for the development of a relevant proactive risk management system for the project rollout. Moreover. This would serve as a feasibility test approach to guarantee on the potential market gain and the relationship and contribution of a joint venture distribution system in achieving the ultimate goal of increasing its market rate of returns. 4.3 Use Local Inputs As already discussed, an organizational sourcing and suppliers management function is a key pillar in the development and management of a successful supply chain management system. currently, the Nike Company has its main manufacturing bases in the Asian markets where the labour and raw material costs are relatively low. In this regard, a majority of the supplied foot wear products in the Australian market lack an Australian originality as the subsidiary is mainly involved in the distribution function alone. Therefore, this has reduced the organizational strategic market competitiveness as compared to other Australian based shore manufacturers. However, this analysis establishes that the organization can apply a strategic supply chain strategy for sourcing globally as a means of improving its overall strategy (Campbell and Netzer, 2009, p.26). In this case, it should establish a threshold of the minim number of its suppliers who should be Australian based. Due to the existing manufacturing indexing system, the organization should develop a supply chain improvement program in the Australian market. As such, the program should support the development of existing potential suppliers through systems and infrastructure development support to attain the minimum bronze threshold status required for the Nike company suppliers. Although the market would be deficient of the core production raw materials other support products such as stationary among others should be sourced locally. In this case, the venture should develop a supply chain sourcing and materials acquisition policy that the organization would develop an alternative local sourcing approach besides its international sourcing policy to ensure the inclusion of the market in its supply base. The policy should outline the products and inputs that would be exclusively sourced locally, with the international alternative adopted in the event of failure to secure the right quality and quality of the product at a fair international market product price. Such a policy development would ensure that the organization has established a supply chain based CSR program to support its overall strategic CR programs in the Australian market for long term market competitiveness and expansion. 5.0 Conclusion In summary, this report conducts a strategic analysis of the Nike Company supply chain management in the Australian market. In this regard, the analysis develops a literature review demonstrating the supply chain management process evolution from the resource based approach in its management to the recent systems approach theory incorporation. In addition, a strategic evaluation of the organizational supply chain management strategies, illustrate that among the key strategies include forward integration partnerships and he use of the manufacturing index approach in selecting and appraising suppliers. Finally, based on the strategic analysis, the report offers three strategic recommendations, namely an integration strategy development, internal sourcing in the Australian market and the expansion of the current forward integration policy. However, despite its critical analysis of the organization and the offering of the recommendations, the report did not statistically establish the viability of the offered alternatives based on the organizational resources and market competition. As such, this analysis recommends that future studies should be developed analyzing the cost benefit analysis of each of the proposed strategies on the Nike Shoe Company Australia. Such a study would incorporate the process and timelines for the various strategies’ adoption, outlining the required resources and responsible stakeholders. References Besanko, D., 2010, Economics of strategy, John Wiley & Sons, Hoboken, NJ. Campbell, D.,& Netzer, A., 2009, International joint ventures, Kluwer Law International, Alphen, The Netherlands. Chen, I. J., & Paulraj, A., 2004, “Towards a theory of supply chain management: the constructs and measurements”. Journal of operations management, vol. 22, no. 2, pp. 119-150. Gal, M. S., 2003, Competition policy for small market economies, Harvard University Press, Cambridge Mass. Ivanov, D., & Sokolov, B. V., 2010, Adaptive supply chain management, Springer, London. Lan, Y., & Unhelkar, B., 2006, Global integrated supply chain systems, Idea Group Publishers, Hershey, PA Lee, I., 2012, Electronic commerce management for business activities and global enterprises: Competitive advantages, Business Science Reference, Hershey, PA. Li, S., Ragu-Nathan, B., Ragu-Nathan, T. S., & Rao, S. S., 2006, “The impact of supply chain management practices on competitive advantage and organizational performance”. Omega, vol 34, no. 2, pp. 107-124. Lussier, R. N., 2012, Management fundamentals: Concepts, applications, skill development, South-Western Mason, Ohio Martinez, M., & Wolverton, M., 2009, Innovative strategy making in higher education, Information Age Publishers, Charlotte, NC Nike Australia. 2015, Ulra Light, Ultra Cool. [Online] Available at < http://www.nike.com/au/en_gb/> [Accessed 12th April 2015]. Nike Inc, 2015b, Manufacturing. [Online] Available at [Accessed 12th April 2015]. Nike Inc. 2015a, CSR: A New Model and Shift to Sustainable Business and Innovation. [Online] Available at < http://www.nikebiz.com/crreport/content/strategy/2-1-4-a-new-model-and-shift-to-sustainable-business-and-innovation.php> [Accessed 12th April 2015]. Toll, 2015, Toll and Nike – a supply chain partnership. [Online] Available at < http://www.tollgroup.com/case-study/toll-and-nike-a-supply-chain-partnership> [Accessed 12th April 2015]. Appendices Appendix 1: Literature Review Table Summary Authors Theory Key Arguments Chen & Paulraj (2004) Resource Based Theory Supply chain management is part of the organizational intangible resources and could be increased through organizational networking Li, Ragu-Nathan, Ragu-Nathan & Rao (2006) Systems Approach Supply chain functions are sub-systems that are interdependent and interconnected and an action on any one creates reactions across the others. Lussier (2012) Forward Integration Developing market distribution alliances increased the organizational overall strategic gains and advantages through reduced operational costs Martinez, M., & Wolverton, (2009) Backward Integration By developing supplier management relationships and supporting the suppliers, organisations increase input quality as well as reduced procurement costs Read More