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Nike Case Study: Supply Chain

Marketing Student

Liz McNeil

on 24 May 2013

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Transcript of Nike Case Study: Supply Chain

$9 BILLION BY 1995 1964 $ P P L Y C H A I N NIKE'S BUSINESS STRATEGY First supply outsourcing contracts started in JAPAN Supply base was shifted to SOUTH KOREA & TAIWAN to reduce costs in the 1980s By 1990, INDONESIA and CHINA replaced previous supplying countries. Indonesia had 6 factories. Questions? Liz McNeil, Dan Morris, Lars Nordgaard, & Justin Steyer OUTSOURCING COST CONTROL
Low labor costs
Outsourcing all manufacturing
Independent contractors
Money saved by outsourcing would be spent on marketing
Celebrity endorsements
Brand identity These countries are ideal because of:
Low wages
Docile workforce
Authoritarian government These countries are ideal because of:
Low wages
Docile workforce
Authoritarian government Jeff Ballinger is assigned to investigate labor and wage issues in Indonesia. He found that of 17,000 violations reported in 1988 in Nike factories, only 12 were prosecuted. Ballinger wrote stories about the issues, but they remained mostly ignored until the early 1990s. 1988 THE COVERAGE Harper's Magazine runs an article comparing Michael Jordan's paycheck to that of an Indonesian worker 1992
CBS debuts an interview with Indonesian workers in 1993
In 1996 Life magazine runs an article about child labor in Pakistan that features a Nike soccer ball factory
Comic strip Doonesbury devotes a whole week to Nike's labor issues in 1997 1992 - 1997 Labor: $3.37
Manufacturer's Overhead: $3.41
Materials: $14.60
Profit to Factory: $1.12
Factory Price to Nike: $22.50
Wholesale Price: $45
Retail Price: $90 BY THE NUMBERS VER C O N T R O S Y KEY ISSUE LACK OF RESPONSIVENESS Not responsible for labor conditions in contractors’ facilities
Questionable audits
Potentially biased
Left the wage issue untouched
Access to Nike facilities denied
The independent evaluation of the Code of Conduct was full of shortcomings
Did not address the wage issue
Used biased translators
Had an unusual report format
Denial of leaked report findings
Consequence/Result: Nike experienced its first loss in 13 years when its earnings fell by 69% in 1998. In this case Nike did everything wrong when handling the issue of unfair labor practices.
Rather than following the principle of admit you were wrong, fix it, and move on, they instead followed the path of ignore it, shift blame, pay off auditors, and just do it. ALTERNATIVES Eventually, after nearly a decade of bad press, Nike came around to doing most of the right things:
1. Confessed wrong doing
2. Fixed slave wages, forced overtime, and underage workers
3. Got involved in political reforms
4. Hired independent monitors
5. Created a code of conduct for all contractors
6. Started mandatory cultural and acceptable management training for
all supervisors ALTERNATIVES, CONT. What they could have done better from the start?

Lead the industry in higher wages: Given their success, they could have reallocated move of their marketing dollars to operations so that their contractor’s didn’t need to pay workers so poorly.
Created a PR /corporate citizenship campaign: Much like that of Tom’s, they could have featured giving shoes to the poor in Indonesia. ALTERNATIVES, CONT. Be more selective with the companies they contract with: They could have had a corporate office of contractor management that drafted standard practices and worked to only contract with companies that met U.S. standards.
Develop a workers rights panel with employee feedback program: Develop a method for workers to anonymously voice concerns or safety issues to Nike corporate leadership.
Open door policy: They could have worked with external auditors to randomly stop by factories (like Osha and Wisha at US construction sites) and check for improper practices. ALTERNATIVES, CONT. RECOMMENDATIONS Need to improve supplier management

Fix the disconnection between: The Company, Brand Awareness, and the Manufacturing Plants.
Develop and coordinate strong linkages with suppliers.
Protect Nike's image through a code of conduct agreement with manufacturers, and hold them accountable.
Negotiate higher minimum wages for workers.
Reward supplier performance.
Benchmark successful sourcing practices. Take a proactive approach towards becoming socially responsible

Nike needs to keep working towards a corporate culture of full disclosure/transparency.
Expand independent monitoring and have Nike reps regularly on-site to ensure compliance to workplace standards.
Show that Nike is making social responsibility a priority.
Become a leader of sustainable development (economic development, social development, and environmental protection).
Develop and track Key Performance Indicators (KPI) with suppliers to cut costs in to maintain profit margins while improving conditions. 1972 "The most significant shift for Nike was when we began to sit down with the very people who had been critical of us and started to engage not in a denial conversation but in a conversation on how to solve the problems."

- Hannah Jones, VP of Sustainable
Business & Innovation WHERE IS NIKE NOW? Progress has been slow for Nike's global supply chain, but Nike has made strides since it embraced corporate responsibility. What started as a massive PR shield has evolved into a broader mandate for the way it makes and sells products. Nike's code of conduct is called SHAPE: Safety, Health, Attitude, People, and Environment. Nike spends $10 million dollars a year to follow the code, adhering to regulations for fire safety, air quality, minimum wage, and overtime limits. 1999 2005 Nike conducts 600 factory audits between 2002 and
2004 with repeat visits to problematic factories Nike became the first in its industry to release the names and locations of its factories as a show of transparency and to encourage competitors to join the effort at improving conditions. 2003

Nike publishes report revealing conditions and pay in its factories and acknowledging widespread issues, particularly in its south Asian factories. 2006 Nike ranked #18 on Fortune's list of World's Most Admired Companies. Ranks #1 in apparel industry for social responsibility 2013 2011

Reports of workers being "kicked, slapped, and verbally abused" in Indonesian Nike factories. PROGRESSING SLOWLY "Selecting the right supply partners and successfully managing these relationships over time is thus strategically important, and it is often stated that 'a firm is only as good as its worst suppliers.'" It's possible Nike did not fully consider "quality-of-life" issues in its supplier countries that are factors relating to education, economy, social environment, politics and public safety. "Today we're in the starting blocks of a transformation in how we manage sustainability issues for our company and within our supply chain. We are working with contract factories to apply lean manufacturing processes, an approach that delivers the highest-quality product while eliminating all types of waste, including lost time and material"

Current approach centers around: Human Resources Management, Audits and Lean Manufacturing
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