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Rewiring Nike’s approach to supply chain sustainability has involved changes both at the
company level and with its suppliers. Within the company, Nike changed its organizational
structure to better integrate sustainability within traditional corporate functions. The company
uses a matrix organizational structure in which managers’ report to multiple departments. Based
on business unit goals, employees develop strategies and plans detailing their multidisciplinary
responsibilities. Internal scorecards are used to report progress towards the goals. As part of this
shift, Nike’s Sustainable Business and Innovation (SB&I) team is now formally part of the
innovation team, and the SB&I leadership either reports to or works closely with sourcing and
manufacturing, product design, product creation, strategy, finance and marketing organizations.
With each department accountable for sustainability performance, Nike can better integrate
sustainability into business decisions much earlier in the design process, rather than after-the-
fact. Top company management has driven this transformation with initiatives being led, and
accountability shouldered, by top management. According to Andrew Ogilvie, Nike’s Senior
Director for Labor Excellence & Innovation, while the matrix approach can be complex, it has
helped to promote the integration of sustainability within the company. Ogilvie further stated,
"We have integrated sustainable innovation within Nike's growth strategy and, as a result, we
have found leverage points within our matrix to accelerate change." Cross-department scorecards
are used to report Nike’s progress toward achieving goals and targets. At the factory level, when
training contract manufacturers, the company uses an integrated model that addresses a full range
of issues influencing sustainability, including lean manufacturing, Human Resource
Management (HRM), health and safety, environmental compliance, energy management, and
environmental sustainability. The principles of lean are aligned with sustainability best practices
such as reducing resource use and waste, valuing the workforce, and reducing downtime, all
managed under a continuous improvement system. Nike’s practice of encouraging lean
manufacturing by its contract manufacturers embraces the philosophy of continuous
improvement, which aims to lead to increased productivity through a more skilled and engaged
workforce. Nike’s contract manufacturers are trained and encouraged to implement lean
principles by empowering workers to create innovative solutions that improve productivity.
Ultimately, this can lead to both increased worker satisfaction and gains in business
performance. Moreover, it believes respecting and empowering workers are critical to improving
labor conditions in its supply chain, as opposed to simply increasing their wages. At the end of
FY 2011, 80% of footwear, 57% of apparel and 11% of equipment was made at Nike’s contract
factories using processes meeting Nike’s minimum baseline definition of lean.
Implemented in 2011, the Manufacturing Index (MI) is a business model innovation that
“elevates the importance of sustainable manufacturing practices”, according to Hannah Jones,
Vice President of Sustainable Business and Innovation. The MI provides a consistent framework
for measuring performance across Nike’s supply chain, brands, and products. The index is used
to monitor, measure, and reward suppliers on quality, on-time delivery, cost, and sustainability
performance. Each of the four categories receives a 25% weighting. The 25% weighting given to
sustainability is one of the highest the authors have come across in their research to date. The
sustainability dimension of the index covers environmental, social, lean implementation, and
health and safety issues. The MI program has grown from a handful of factories in 2011 to 79
supplier groups (a total of 144 contract factories) by 2013.
Based on scores in each category, factories are awarded a score between 0 and 100,
putting them in a gold, silver, bronze, yellow or red category. While many companies penalize
suppliers for noncompliance with their code of conduct, Nike has put into place incentives aimed
at changing supplier behavior for the better. Suppliers achieving the minimum acceptable level
(bronze) in sustainability, cost, delivery, and quality qualify for receiving priority consideration
for orders. High performing suppliers can also access Nike leadership and training on issues such
as waste and energy management, and the implementation of lean practices.
Only after being compliant can suppliers access Nike’s leadership and resources. The
adoption of this “pull” model incentivizes suppliers to achieve the highest performance possible
in order to benefit from the MI incentives. This ultimately helps to promote supplier ownership
of responsible practices, which benefits Nike and contract factories as well. This pull model is
different than the more commonly adopted “push” model, where firms invest in suppliers that are
frequently under-performing and not complying with minimum standards. Nike is interested in
doing business with more proactive and high performing suppliers. Contract factories may only
become an approved Nike supplier if they achieve the minimum bronze compliance standard
from the outset. The company has set a target that all of its products will come from factories
that have achieved bronze or higher status by the end of FY204.
Implementing the MI has taken substantial effort from both Nike and supplier
management to ensure goals was aligned. Nike selected factories to implement the MI based on
strategic importance rather than willingness to participate. In alignment with the “pull” model,
Nike wants to work with suppliers that are investing in their future and in sustainable practices.
Interestingly, Nike has reduced its supplier base from over 1,000 factories in 2009 to less than
800 in 2013. This allows the company to strategically manage a source base, build capacity, and
grow with the contract factories that are philosophically aligned with similar business and
sustainability objectives.
As of 2013, 79 supplier groups (a total of 144 contract factories) are part of the MI
program. Nike says it is too soon to tell whether supplier performance is improving as a result of
the MI system; most suppliers have only been a part of the program for three or four quarters.
Some sustainability investments suppliers have made have a longer time horizon before they
yield results. For example, several suppliers are investing in management development training
and capital infrastructure projects to reduce water, waste, and energy use.
While the impact of the MI rollout may take time to realize, some supplier factory
managers have reported that they have a far greater understanding of their business performance
expectations because of the scorecard and incentives structure. Presenting the MI in a clear
dashboard format has helped both Nike and its suppliers evaluate their performance against
targets.
Innovation in Product and Process Design
“...only innovation will make the difference because these issues are simply too big and complex
for Nike or any one business to address on its own. We need coalitions to drive systemic change
at scale.” Hannah Jones, 2013.
Several recent product design innovations have been successful. In 2010, World Cup
football shirts were made from recycled plastic bottles and developed using the Nike Materials
Sustainability Index, which enables product creation teams to select environmentally better
materials. More recently, Nike’s Flyknit technology was used to deliver a lighter shoe for
runners that uses fewer materials. The shoe uses “essentially a single thread”. Since the one-
piece upper does not use the multiple materials and material cuts used in traditional sports
footwear, the shoe reduces both waste and cost.
Finally, in an effort to harness collective innovation that can raise the bar for
sustainability across industries, in 2009, Nike formed LAUNCH with NASA, USAID and the US
Department of State. LAUNCH is a collaborative effort to generate “open source” innovations
related to sustainability and accelerate potentially successful innovations. The initiative has
brought together stakeholders across the system such as multinational firms, suppliers, material
providers, academics, and chemists in adjacent industries. In 2013 the LAUNCH focused on
catalyzing action around one of the world’s biggest challenges – the sustainability of product,
which makes it, what it’s made of and how it is made.
e-SUPPLY CHAIN MANAGEMENT
1. Order taking
2. Order fulfillment
3. Electronic payments
4. Managing risk
5. Inventories can be minimized
6. Collaborative commerce
Component of Collaborative Fulfillment and APS
How Information Systems Are Integrated
• Classical Definition
Purchasing is to obtain materials and/or services of the right quality
in the right quantity from the right source, deliver them to the right
place at the right price
• Composite definition
Purchasing is the process undertaken by the organisational unit
which, either as a function or as a part of an integrated supply chain,
is responsible for procuring supplies of materials and services of the
right quality, quantity, time and price, and the management of the
suppliers, thereby contributing to the competitive advantages of the
achievement of the corporate strategy.
Stategic Role of Purchasing
Operational Process of
Purchasing Function
Purchasing Portfolio
Leverage Products
• Are those you buy from your supplier that will have significant impact on
the finance of your own final product, but it is relative y easy to buy from
the supply market, hence low market risk.
• Example: Wood (for a furniture manufacture).A large portion of the cost
come from wood price and the furniture prices are dependent on the
wood cost in the market place.
• For leverage products, Kraljic proposes a purchasing strategy of
competitive bidding. Competitive bidding wil only work if there is more
than one supplier. Alternatif suppliers in this case availabe and subtitution
if supplier is possible.
Purchasing Portfolio
Routine Products
• Are those materials that have very little financial impacts on the buyers
own products and also there are plenty to choose from the market place.
• For this kind of product, Kraljic proposed a purchasing strategy of system
contracting plus e-commerce solutions, because these product have
large varieties and high logistics complexity and often labour intensive in
handling.
Purchasing Portfolio
Strategic products
• Are those components have high level of financial impact to your final
product. They are expensive to develop and manufacture, and often
involve high technology contents. Not usually available in the market
place, thus high supply risk.
• Example: Engines for automobile
• For thi product , Kraljic proposed a purchasing strategy of performance
based partnership. That is to create a partnership relation with the
supplier and work together to develop and manufacture the
components.
Purchasing Portfolio
Bottleneck Products
• Are those components that may or may not cost too much in comparison
with the total material cost, but the must have them and they are very
difficult to get a hold of.
• The supply risk for those components is high, and the availability of the
components is not guaranteed.
• Example: the small amount of precious metal required for the exhaust
purification system. Without it, the automobile will not pass the
environmental standard and will not be allowed on the road.
• Kraljic recommended a purchasing strategy of securing supply plus
searching for alternatives .
Supplier Selection
• Group Discussion
1) Identify the process of selecting suppliers!
2) Identify tools for supplier selection!
Supplier Selection
• Reverse Logistics
Strategies for Green Supply Chain
• Waste Management
Benefits of implementing Green Supply Chains
The close partnership relation with suppliers was first practice in the
Toyota led Japanese automotive industry. It had profound influence on
Western assemblers and is now a dominant school of thought in supply
relationships. The basic practices of the Japanese close partnership
with suppliers involve many aspects of supply chain management.
• First, they reduced their supplier basis and form tiered supply
network structure. As a result, the buyer can then focus much smaller
number of first tier suppliers; more time and other resources can be
focused on them to develop much closer relationships.
Closed Partnership
• They use long term contract with their suppliers. Not only the long
term contract stabilises the contractual relationship, but also
psychologically it is a statement of trust and good-will intention which
seldom fail to entice a higher level of commitment.
• Single sourching is preferred to dual sourcing or multiple sourcing,
taking advantage of volume consolidation, coupled with greater
subcontracting to suppliers. This shift has seen the vertical
disintegration of the industry.
• They get the suppliers involved earlier in the new product
introduction process. Supplier can then contributing their expertise to
design and engineering of the new products, adding substantial value
to the supply chain.
Closed Partnership
4. Management of Capacity
- Synchronised capacity
- Flexibility to operate with fluctuations
5. Delivery practice
- Just-in-time delivery
- Local, distance, and international JIT
6. Dealing with price change
- Price reduction based on cost reductions
- Joint efforts form a key part of information exchange in lean supply
- There is a combination of working pressure and co-operation, coupled with
transparency in costing
Closed Partnership
7. Attitude to quality
- Supplier vetting system become redundant
- Mutual agreement on quality targets
- Continual interactionand Kaizen
- Perfect quality as a goal
8. Role of R&D
- Integrated assembler and supplier
- Long-term development of components system
9. Level of pressure
- Very high for both customer and supplier
- Self-imposed
- Not culturally specific
Strategic Alliance
• Dilemma No.1
Relationship could often run into a dilemma between cooperation of and
non-cooperation.
• Dilemma No.2
Relationship-based supply chain collaboration and integration often run
into the dilemma between positive gains and negative constraint from the
same loyalty and closeness of the relationship.
• Dilemma No.3
Relationship development will always have the dilemma between the
level of commitment or cost on relationship and the level of benefit
gained from the close partnership.
Relationship Dilemma on Cost and Benefit
Supply Chain Integration
HALAL & COLD SUPPLY CHAIN
• Halal food products are the main and most recognized components of the
Halal industry. It is no longer a niche market and no longer viewed as solely
religious requirements for the Muslim communities but the non-Muslims
have also started to demand for this particular product group due to the
perception that Halal foods are much more clean, hygiene and tasty.
• As the Halal food products are now being produced and originated from all
parts of the world, the question of whether the products are actually Halal
keep on playing on the mind of the Halal food consumers, especially
amongst the Muslim communities.
• With the complexity of the current world food trade scenario, the Halal
food consumers are skeptical on whether the food products are truly
produced according to the Halal and Sharia law principles; or, can the food
products remained as Halal when it has to go through various interfaces
during the travel period?
Halal Supply Chain
• To cope with the growing demand of Halal food from all over the
world, a comprehensive and well managed supply chain management
approach need to be adopted to ensure the availability of the Halal
food product.
• Halal food supply chain involved the process of managing Halal food
products from different points of suppliers to different points of
buyers/consumers, which involved various different parties, who are
located at different places, who may at the same time, involved with
managing non-Halal food products, with the purpose of satisfying the
needs and requirements of both (Halal and non-Halal) customers.
Halal Supply Chain
• In Halal food supply chain, the main goal is not only to ensure that
satisfaction of the customer is achieved, but also to ensure that the
Halal status of the food product remains intact throughout the whole
process of the supply chain.
• The integrity of the Halal food product must be protected by all
means and all necessary steps must betaken by all parties involved in
the supply chain to avoid any cross contamination that will lead to
product becoming non-Halal, or Haram. The food products must not
only be Halal at the supply chain starting point but throughout the
supply chain until it reaches its final destination.
Halal Supply Chain
• The possibility of becoming non-Halal is greater when the food product needs to travel a
greater distance whereby a lot of handling points will be involved. These handling points
can be the critical control points of which the Halal status of the food products can be
breached if the concept of Halal integrity is not fully understood by all parties involved in
the supply chain especially those who are involved directly in the operational handling
aspect.
• For example, a batch of Halal slaughtered meat produced in a stringent Halal certified
slaughterhouse in Australia can be cross contaminated at any stage of the supply chain
during its travel to the its customer location in the Middle East. Without proper
understanding of Halal integrity, the workers receiving that particular batch of Halal meat
at the port warehouse might accidentally or mistakenly store it inside a transit cold room
together with a batch of non Halal slaughtered meat or pork. For some people
understanding, it offers no harm or physical contamination if these meats are stored
together side by side, but from the point of view of Halal consumer and the general
principles of Sharia law, that batch of Halal meat is no longer fit for the consumption of
Halal consumers as the integrity of Halal meat has been breached.
Halal Integrity
• The cold supply chain logistics system aims to store & transport the
temperature sensitive goods from the manufacturer to the consumer
in a potent and a safe state.
• The cold chain system comprises three major elements:
1. Personnel, who use and maintain the equipment
2. Equipment for safe storage and transportation of goods.
3. Procedures to manage the program and control distribution and
use of the goods.
Cold Chain Logistics System
• Cold supply chain has major benefits on the industries that use it
like:
- Valuable extension to the product shelf life
- Gives the ability to access overseas markets
- Gives the ability to meet the huge local demand
• Cold supply chain implementation has some costs and concerns like:
- The use of non-environmental gas compounds
- Frosting
- Safety concerns
- Continuous Control and monitoring of temperatures