Procurement Challenges in Nike….Just Do It
About Procurement:
Procurement definition: the acquisition of products and services. Procurement management includes:
- Developing standards of financing purchases
- Negotiating prices with suppliers
- Buying goods from suppliers
- Inventory control
- Disposal of waste products like packaging
- Account budgeting
Decisions to be made in procurement management include:
- Shipping and delivery
- The marginal benefit of the good compared to the cost of procuring it
- The fluctuating prices of many goods and services.
With good information a consumer can analyse the costs and benefits of their acquisition and make the best decision that minimizes cost and time of delivery, yet maximizes quality (depending on company targets).
One thing to be taken into account is that for a wholesaler, procuring products for retail specifically entails the risk that the market value will drop before they can be sold due to the perishability of some goods and changing demand patterns for others.
E-Procurement:
E-procurement is the use of the internet in the purchasing process. It helps find technological solutions that facilitate corporate buying using the internet, emphasizing the capability of electronic commerce to enhance the procurement process. With e-procurement the entire procurement process is handled online, so the company decided to make the purchases of various types, from raw materials to services, using B2B systems: these tools allow enterprises to reduce the cost and time of the procurement process, improve inventory and stocks management and, consequently, this is reflected in a decisive improvement in the management of all business processes. This is a necessary process for large companies because it makes easier and more effective the management of the entire process of purchasing and supply network, and for smaller companies that in adopting e-procurement solutions, can become part of a global business with many opportunities for growth.
Nike:
Nike Inc. today is one of the world’s leading suppliers of athletic footwear. Founded in 1964, in America, it soon grew to becoming a multinational corporation employing over 44,000 people worldwide. Today it is a leading supplier not only in shoes, but in apparel, sports equipment, accessories and even services. Its current revenue is over 30.6 billion USD. However, the rise to such extreme financial power had many ups and downs, mostly involved with the Nike procurement and supply chain management system.
Nike Procurement Management:
Due to Nike’s multinational nature, procurement management of the company is a complex process. The following link breaks down their systems accurately:
The video describes one process that is utilized by the company called PIMBOK. This process helps in identifying a need of tools or services outside the resources of the company. The benefits of this system includes that it helps identify the need of outside support altogether, as well as what to acquire, when to acquire and from whom. Other tools and techniques discussed are: market research that is strongly supported by modern IT systems, as well as cross-departmental meetings and buyer research. All these systems help Nike in ensuring that what is needed by the consumer can be supplied when it is needed and at the quality it is needed. However, there are some issues with the system
The Ethical Problem:
The first flaw is that it does not consider is the ethical impact for the outsourced supplier workers. Originally, Nike was one of the first well known companies that took advantage of overseas cheap labour rates through outsourcing production. In a sense it was the first famous non-border-bound company which allowed them to “jump” unfavorable rules and regulations. This meant that they could move production from place to place as they wanted to minimize costs. This is what they ended up doing: moving their production from S. Korea to Thailand, to Mexico etc. according to Labour cost fluctuations. Today, Nike outsources production to over 600 factories all around the world that hold around 8000 workers.
Nike’s Sustainable Solution:
Seeing a change in demand, not only due to the rise in a more conscious consumer base over the past years, Nike has done a lot in an attempt to become more socially responsible. Not only has it put in place supplier monitoring systems, such as the one in 2009 called “Rewire” that provided supplier incentives to improve their social and environmental performance since they are now evaluated on sustainability as well as cost, on time delivery and quality, but Nike also began the production of more sustainable goods. Nike have partnered with a global procurement agency that has acted as a sort of “middle man” facilitating discussion between suppliers and the company. It communicates to suppliers the need of sustainable practices and products. This relationship has allowed the production of several sustainable products such as: “Better bag project” that ensured the production of a socially responsible retail bag.
Challenges in the Demand Within the Fashion Industry:
Another challenge found was that demand is very hard to predict, especially in the fashion retail industry. In fact, the rise of the internet and mobile phone applications have made demand increasingly volatile as information spreads quicker and trends change quicker. This makes the traditional form of procurement: purchasing large sums originally then selling later, a very ineffective process. Therefore fashion industries need to have extremely accurate and efficient demand predicting systems that can help ensure accurate demand predictions, providing room for cost effective procurement strategies.
Nike’s Tech Solution:
After several failures with ERP (enterprise resources planning) systems and supply and demand issues, Nike was quickly able to learn from their mistakes and create a successful systems application project (SAP) that helped effectively manage their supply.
Sources
Kolenko, S. (2017). The difference between procurement and supply chain management. [online] Spend Culture. Available at: https://blog.procurify.com/2014/10/28/difference-procurement-supply-chain-management/
Investopedia (2017). Procurement. [online] Investopedia. Available at: http://www.investopedia.com/terms/p/procurement.asp [Accessed 3 Nov. 2017].
En.wikipedia.org. (2017). Nike, Inc.. [online] Available at: https://en.wikipedia.org/wiki/Nike,_Inc.
Nisen, M. (2017). How Nike Solved Its Sweatshop Problem. [online] Business Insider. Available at: http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5
Gilbert, H. (2013). Fashion industry must rethink supply chains - Supply Management. [online] Supply Management. Available at: https://www.cips.org/supply-management/news/2013/september/fashion-industry-must-rethink-supply-chains/
Chaturvedi, R. and Gupta, V. (2005). SCM AND ERP SOFTWARE IMPLEMENTATION AT NIKE: FROM FAILURE TO SUCCESS. [online] thecasecentre.org. Available at: https://www.thecasecentre.org/educators/products/view?id=54716.
Presutti, W. (2003). Supply management and e-procurement: creating value added in the supply chain. Industrial Marketing Management, 32(3), pp.219-226.
Saskia Blackburn and Tamara Noiman
Comentarios
Publicar un comentario