Strategic Supply Management - Organizational Structure Change - Essay Example

Strategic Supply Chain Management Name: Course: Tutor: Institution: Date: Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 Organizational Structure Change 4 2.1 Background Analysis 4 2.2 Evolutionary Process 5 2.3 Supply Chain Merits of the New Structure 6 3.0 Manufacturing Index Strategic Approach in Sourcing 7 3.1 Background Analysis 7 3.2 Manufacturing index Sourcing Strategy 8 3.3 Strategy Critical Analysis 10 4.0 Distribution and Logistics Forward Integration partnerships 11 4.1 Background Analysis 11 4.2 Forward Integration Strategy Implementation 12 4.3 Strategy Critical Analysis 13 5.0 Recommendations 13 5.1 Forward Integration Systems Expansion 14 5.2 Use Local Inputs 15 6.0 Conclusion 15 References 17 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. 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. For each of the categories, the analysis evaluates the strategies evolution process and the extent to which the current strategies promote supply chain management and market competitiveness for the Nike Company in the Australian market. Finally, the analysis offers recommendations on the approaches through which the organization can improve its strategic chain management systems in the future. 2.0 Organizational Structure Change 2.1 Background Analysis An organizational structure has a direct impact on the nature and type of strategies formulated. In this regard, there are three main strategic organizational structures, namely the hierarchical, flat and the matrix management structures. In this case, while as the hierarchical structure emphasizes on centralization of the decision making process, the flat management structure stresses on the need to reduce the management level to empower lower level employees to participate in the organizational decision making process. The Nike Company entered the Australian market through the Flat management structure. In this regard, the Australian subsidiary management was empowered and mandated with the rights to formulate the relevant organizational decisions in the management process. In this case, this decision was based on an organizational realization of the difference between the USA and Australian market structures and consumer buying behaviours respectively. Under this management structure, the supply chain decisions were made by the venture subsidiary system (Nike Australia, 2015). Moreover, each of the management structures in the organisation was based on a line management approach where each of the employees reported to a single supervisor under the management system. Although the approach was significant, the organisation established that the supply chain function and responsibility was perceived as a mandate of the distinct supply chain management function. Therefore, due diligence in the designing process to ensure the use of sustainable inputs as well as in the production process to ensure environmental conservation were neglected. Therefore, although the Nike Australia supply function was poised to develop such a sustainable supply chain system through collaboration with the external stakeholders, it lacked a supporting internal system to complement its sustainability and efficiency programs with the external market. Therefore, in order to mitigate this challenge, the Nike Australian Company adopted a different management approach under the matrix management system to remedy the lack of internal systems commitment in sustainable supply chin systems development. 2.2 Evolutionary Process The Nike Company structure realignment to support its supply chain system was developed based on the strategic supply mission change. In this case, the organisation developed a new supply chain mission of developing a green, equitable and empowered supply chain. In this regard, in the development of a green supply chain, there was a need to change the innovation, research and design function, to align it with the need to not only develop creative market oriented shoes, but also ensure the product raw materials and production process sustainability in the market through promoting safe production and sustainable input materials use. In this regard, the organisation aligned this function with the development of a new unit the Nike sustainable and business innovation (SB&I) unit (Nike Inc. 2015a) In this regard, the unit was integrated into all the other existing functions in the Australian namely the research and design, the marketing and the administration functions respectively. In this regard, the new function, structure ensured that the entire organisation shifted from a flat structure to a matrix management structure. Under this structure, instead of reporting to a single supervisor line manager, employees and middle level managers reported to different supervisors aligned on a staff approach based on their expertise and business responsibility mandates. For instance, the marketing function employees reported to the supply chain officer on the sustainability and the extent to which the adopted marketing strategies supported the organizational supply chain mission 2.3 Supply Chain Merits of the New Structure The development of the new supply chain management structure of the Nike Australian unit, a phenomenon replicated across the entire Nike Company Inc. subsidiaries has played a key role in supporting the organizational supply chain strategic mission accomplishment. In this regard, the organisation has over the years developed an internal system by which the operational functions such as the marketing and sales function adopt strategies that support the organizational goal. For instance, the marketing function has gradually reduced its use of advertisements as the key marketing approach and instead resulted in the use of CSR functions and events, sponsoring and organizational participation in the Australian market as its key marketing system. In this regard, the system as allowed the organisation to develop a sustainable society. In addition, the development and adoption of the matrix organizational structure has allowed for increased resources sharing across the department. Therefore, on its own, it has allowed the organisation to reduce its administrative resources procurement costs considerably by enhancing the resources sharing across the organizational functions in the supply chain management systems (Analoui and Karami, 2003, p.193). Nevertheless, besides the merits of the matrix structure in the Nike Australia Company supply chain management, its application causes the challenge of management complexity, often caused by confusion due to the presence of contradicting directives and expectation on the employees form their different staff managers and supervisors. 3.0 Manufacturing Index Strategic Approach in Sourcing 3.1 Background Analysis A second category of the Nike Australia supply chain management system is the organizational sourcing process. As a footwear manufacture company, the organization key supply chain responsibility is the acquisition of the required raw materials to facilitate the shore manufacturing production process. In the process of acquiring and procuring raw materials, supply chain management function is involved in three specific functions namely the suppliers selection and evaluation process, the procurement process and the relationships establishment process. Therefore, in order to establish a successful raw materials acquisition function, the respective organisation should decide on the nature and type of strategies to adopt in each of the functional responsibilities. In the case of Nike Australia Company, the organization supplies selection process was initially on a cost benefit analysis. As such, the selection as based on the suppliers offering the organisation a value for its money based on the best quality at the most affordable price. In this regard, the quality of the offered material was based on the material ability and efficiency of use in the production process, thus enhancing a low cost of material acquisition for a high quality product that would earn the venture increased profits (Ordonez, 2013, p.223). A cost based materials acquisition process has a wide range of merits, including increased organisational efficiency in terms of procurement costs. Moreover, the approach has minimal regard for supplier relationships and thus the organisation incurred no extra relationship management costs, as suppliers were sourced and materials acquired as and when required. Much of the materials used for the footwear manufacturing in Australia were sourced for the Asian market, especially from China and Indonesian based supplier organisations. However, the turning point for the Nike Australia sourcing cost benefit based strategy application was in 1995, when the organisation was named alongside 19 others in the Australian parliament as among the organisations using seat shops in Asia to develop their raw materials of the shoe and other products latter manufactured or sold in the Australian market. Consequently, the Australian government established the Ethical Clothing Australia (ECA) agency that was charged with regulating the wear industry to ensure that all products manufactured or sold in the Australian market were free of sweatshop labour (ECA, 2015). Thus, all the products supplied in the market would carry a mandatory ECA approval seal. Faced with this challenge, the organisation evolved its sourcing strategy to align it with the legal and market requirements through the use of the manufacturing index approach strategy. 3.2 Manufacturing index Sourcing Strategy 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. 3.3 Strategy Critical Analysis 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. 4.0 Distribution and Logistics Forward Integration partnerships 4.1 Background Analysis The third supply chain management element of the Nike Australia Company is the distribution aspect. Under this supply chain function, an organisation develops a system through which finished and manufactured products are stored and subsequently transported to the designate market centres. Therefore, the approach is based on the functions of warehousing and logistics management. In this context, the 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. 4.2 Forward Integration Strategy Implementation 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. 4.3 Strategy Critical Analysis 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. 5.0 Recommendations Based on the above strategic analysis on the Nike shoes supply chain management strategies in the Australian market. It is apparent that the organisation, 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 systems improvements in the future, this report recommends the expansion of the current forward integration partnership and the use of domestic inputs in the manufacturing process. 5.1 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. 5.2 Use Local Inputs 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 organisational strategic market competitiveness as compared to other Australian based shore manufacturers. However, this analysis establishes that the organisation 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 organisation 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. 6.0 Conclusion In summary, this report conducts a strategic analysis on the Nike Company supply chain management in the Australian market. In this regard, the analysis groups he analysis system into three strategic categories namely the supply chain management structure, the sourcing strategies, and the distribution strategies respectively. On one hand, a structure analysis establishes that the development of the matrix organisation structure has allowed for the establishment of an internal support system that complements the organisational supply chain external stakeholder relationships to a sustainable greener supply chain system. On the other hand, an evaluation of the sourcing strategies, the report reveals that the organisation applies the manufacturing index strategy to select and retain suppliers as a means of conforming to the ECA regulatory requirements on the distribution of sweat shops free products. Finally, an analysis of the organisation, distribution system demonstrates the adoption of a forward integration system through its distribution partnership with the Toll logistics Company. Based on the analysis the report recommends that the organisation should develop and internal sourcing strategy as well as expand the forward integration strategy to the level of a joint venture in the future for market sustainability needs in the wake of changing foreign investment regulations in Australia. References Analoui, F., & Karami, A., 2003, Strategic management in small and medium enterprises, Thomson, London. 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. Ethical Clothing Australia, 2015, Accreditted Brands. [Online] Available at < http://www.ethicalclothingaustralia.org.au/ > [Accessed 12th April 2015]. Gal, M. S., 2003, Competition policy for small market economies, Harvard University Press, Cambridge Mass. 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. 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]. Ordonez, P. P., 2013, E-procurement management for successful electronic government systems, Information Science Reference, Hershey, PA. 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]. Read More