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IA Examples - {W M NIKE’S GLOBAL SUPPLY CHAIN AND THE...

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Unformatted text preview: {W M NIKE’S GLOBAL SUPPLY CHAIN AND THE NECESSARY CHANGES Nike’s Early View of Contract Manufacturers Nike is one of the industry leaders in the market for shoe, apparel, and sports equipment production. Nike is known to be the largest athletic shoe company in the world and has thus acquired more than 800 suppliers worldwide. With the globalization of Nike's ..supply.chain, media began an upheaval by investigating Nike's factories across the globe. To everyone's dismay investigators discovered the use of underpaid workersi child labors, sweatshops, and poor working conditions. Nike would respond harshly to critic’s outbursts, “Executives would issue denials, lash out at critics, and rush someone to the offending supplier's factory to put out the fire before it spread.” With the criticism about Nike’s scandals and the way Nike responded to these accusations, it was necessary for change on the horizon. Their reputation was being put at stake and their brand image was in the midst of being tarnished.1 image 1: Comedic picture representing a Nike sweatshop and the little concern Mike has for its workers Change on the Horizon Nike originally had a hands off approach with their suppliers and took no reSponsibility for the environmental and occupational health problems found at their global supply chain plants. Change was necessary for the survival of this brand. Nike started to enforce a code of conduct in 1992 that outlined basic labor, environmental and health and safety standards. All suppliers were forced to comply with this code, and to regulate compliance three audits were formulated. The first audit is used as a “basic environmental, safety. and health audit."1 The second audit also known as the M-Audit is “a more in depth management and working condition audit”1 that focuses on worker treatment. The third and final audit is “periodic inspections by the Fair Labor Association."1 All audits work individually to tackle the root causes of poor working conditions. They are an attempt to intervene the system to ensure a healthy working condition, a healthy atmosphere, and address any concerns with both physical and verbal abuse. Faultiness in the Measuring of the Audits At first glance the audit measuring system seems like the perfect measuring system, but in retrospect it has proved itself to be extremely faulty. Nike had tried to motivate and promote good behaviors in their suppliers by enforcing the code of conduct and executing the three audits. Problems were not getting detected'abcurately and efficiently, and can be seen in ' the situation of two of Nike’s Mexican factories. As a first note both plants are subject to the exact same labor regulations. Shockingiy both factories scored similar scores on their compliance exam, although they had completely different problems in their working conditions. Both plants differed in fields such as wages paid, employee satisfaction, worker participation in production planning. and work hours and overtime. With these two factories almost having identical scores, one would assume they have similar problems. It is blatant that there is a problem with their system when “two factories with such different labor practices and conditions could appear to be performing at very similar levels of compliance.”1 An Improved Performance Measurement System -- The global supply chain can become very tedious and often very hard to control and oversee, but with a few necessary changes to Nike’s performance measurement system, working conditions at Nike’s global supply chains can be greatly improved. Nike should continue to perform its three audits, but do more obvious and hands on research from the start. First and foremost Nike should visit its factories more frequently and on a random basis to ensure there are no major violations taking place at their supplier's factories. They should also address major violations by creating an in house monitoring staff that will stay for a period of time at the factory to investigate and attempt to improve any major problems in the current working conditions. They should then be able to see the major violations first hand and be able to detect the root of the problem early on and target it specifically. Nike should also be involved and communicate directly with its suppliers. This will help build a relationship based on trust and close supplier ties, so that way Nike's suppliers are more inclined to cooperate with changes Nike best sees fit. Workers also need to feel respected and satisfied, and should be incorporated into the production process. They should feel a sense of security, and should be selected on a random basis to provide feedback or address any concerns they have about their working conditions. Nike should also make it well known that they want to improve working conditions for employee’s, and are open to any suggestions. It can be seen that simple, yet specific changes can drastically improve Nike’s working conditions making the company better as a whole. 1. Improving Work Conditions in a Global Supply Chain, introduction to integrated Supply Chain Management, Pg. 255-263 2. Image 1: httpzlftrevorharveyfiles.wordpress.comI2009103lnike-sweat-shop.jpg 3. Nike's New Game Plan for Sweatshops, Business Weekly, Nike and Sweatshops SCM 300 - NIKE CASE (Fall 2009) Points Points Possible Earned Appearance, Formatting, and . 7 Organization Writing Style, Grammar, and Spemng Question ’I: Nike's operational. 10 ' goals for MFRs Question 2: Problems 1 ' Measuring Behavior 5 . Question 3: Recommendations 15 Comments: Grader: $IV\ J Measuring Up For Success: Implications for Nike’s Global Supply Chain Crises precipitate change. In Nike‘s case, a recent crisis tarnished its brand image for many consumers and has forced them to change current practices in order to prevent future issues. As with any global firm, supplier issues arose when they expanded their supply chain to include suppliers throughout the world. Working condition issues surfaced; including below standard minimum wage, excessive overtime, safety problems and back office issues such as keeping papenrvork up to standards. While they had more suppliers further and further away, their monitoring system did keep pace with their expansion.1 While some of these suppliers were complying with national and international standards, others were not. The problem was that there was lack of consistency across measurements as suppliers varied greatly in certain workplace aspects. Creating theWke While Nike has often been considered an industry leader in innovation, some aspects of their ever-expanding global supply chain are still rather rudimentary. Once primarily an athletic shoe company, Nike is now gaining market share in the sports equipment and apparel industries.1 A greater product mix has made their supply chain that much more complicated. Currently, they have contract manufactures that make their products in places all over the world, from Mexico to China and Southeast Asia. These contract manufacturers are required to produce at a less than 1.4% monthly defect rate.1 However, they are not required to pay their employees certain wages under Nike's Code of Conduct, but rather according to the wage laws in their respective country. Compliance Measure issues While Nike has a code of conduct in place for their manufacturers that must be posted in all factories, monitoring the compliance of such practices has become harder and harder as their supply chain has grown. The Nike—Supplier relationship differs greatly from supplier to supplier. Some are “close friends” while others are merely "acquaintances". According to an article on Ethisphere.com, ""One of the reasons for the disconnect between a company's code of ethics and what happens among its suppliers is that suppliers—and even boards of directors— often are seen as external to the company."2 Therefore, these compliance problems can be alleviated with a tighter knit relationship and greater collaboration between Nike and its manufacturers, as well as between manufacturers themselves. As for Nike, their problems arose due to the fact that while suppliers looked similar under their current workplace measures, they were actually very different. The 1 Locke, Richard, and Monica Romis. "Improving Work Conditions in a Global Supply Chain-" MlT Sloan Management Review. 48.2 (2007): 54-62. Print. measurements took into account many different variables. So, while one supplier may look as compliant as another from the outside, they could be complety different in practice, having significantly lower wages, a more hazardous work environment and worse management. Another problem is that one of the measurements, the M- Audit, is rather subjective, as it requires a representative from Nike to inspect the plant and provide their opinions.1 For Nike, the only way to decipher who is actually doing better is to develop measures in line with their strategy and monitor factories in a more stringent manner, all while creating personal relationships with their manufacturers. A More Complete and Effective Monitoring System Creating a better work environment not only helps both the manufacturers and Nike from not getting in trouble with regulatory agencies, but can also boost long run profits as workers become more productive and reduce defects. Currently, progress has been delayed by the variance in the three measures, or audits, used. Therefore, a possible alternative for Nike to find consistent results, according to their operational and ethical goals, is a weighted ranking system. Nike would rank all measures in terms of importance, with the most important receiving the largest number. Then score each factory according to a list of requirements. Scores would be based on a 0-10 scale (10 having all the requirements met or exceed and 0 having none of the requirements met). Then, multiply that number by the rank of the category in question. So if work floor safety is important, and a certain factory scores high on that and low 'on a less important factor, such as bathroom sanitation, then that factory will score higher than one that scores high on bathroom sanitation and low on work floor safety. This way, Nike finds which suppliers are solidifying their operations while appeasing the public on workplace issues. Companies that are not doing things that Nike deems important will receive low scores and could potentially lose business with Nike. This will motivate them to comply with standards. As long as Nike makes their standards equal to or greater than the minimum in every country, then they should find that there will be fewer issues and even increased product quality and production levels in general. If they would like to expand more in the future, then the requirements will not have to be altered that much as long as they take into account every country’s requirements now. With new measures in place, Nike may again gain a competitive edge while earning back lost customers. 2 “How Nike is Changing The World, One Factory At a Time”, Nike Supply Chain Problems Ethisphere SCM 300 - NIKE CASE (Fall 2009) Points Points Possible Earned -- Appearance,- Formatting, and - - v . . 10 i Organization _ ‘ Writing Style, Grammar, and . - _ 1O Spelling - Question 1: Nike’s operational 10 goals for MFRs Comments: Grader: aw Nike is the leading supplier of athietic shoes and apparel with more than 30,000 employees woridwide (3). A «362% magnitude must have good manufacturers Nike and the Manufacturer and reiiable resources to thriv so much ike has various ways in dealing with its manufacturers and offers incentives or “good” behavior. Through pe evaluations and audits Nike is able to control their manufacturers n doing what it wants. Nike’s primary operational goals for their contract manufacturers m to use quality sources. With many companies having defective or hazardous materials in their product, Nike would like to insure that their products come from a reliable source and thus only contracts with manufacturers that abide by Nike’s regulations. Nike achieves this through its “new source approval process", (1) in which all suppliers must undergo inspection and tests until they are approved to supply for Nike. As welt as quality at the source being a primary goal, Nike also wants their contract manufacturers to care for the environment and safety of its empioyees. Nike also ensures that management is doing their job correctly and that the employees have acceptable working conditions through in depth au' _' ' the Fair Labor Association” whi ’ mrove i u .u. conditions Nike attempts to motivate ehavior by rewarding those who perform tasks that are consistent with Nike’s goals. The problem with this is that the success of the manufacturer is negatively correlated with the way management treats its workers and operates its plant. it seems to be that some of Nike’s incentive such as “productivity bonuses” (,1) tend to have a negative impact on workers and the way management treat in their workers. Some factories aliow for voluntary overtime conversely other factories we force their workers to work overtime. In trying to motivate “good” behavior from their at“ {W suppliers Nike has inversely encountered problems with working conditions, child labor, M” Y excessive working hours, and poor wages (1). These problems Nike faces are y” associated with manufacturers treating their employees as variable cost that need to be “3 reduced instead of assets that are important to the functionalityofthefactory (1). If companies view their workers as variable costs that need to be reduced and Nike gives incentives for cutting costs and increasing output, than the mistreatment of workers will undoubtedly be inevitabie. A better way to measure performance of Nikes manufacturers can be borrowed from the Balanced Scorecard (BSC). This strategic tool emphasizes the “Big Picture“ and goes beyond the financial aspects. Under the BSC system Nikes’ manufacturers would become part of the Nike image and thus would have to run its operations in a “good” manor for it will be associated with the Nike brand and thus needs to be seen in a positive light. Nike could then market itseif as a “good guy company” and repair its tarnished reputation. By concentrating on the different aspects of a business and not placing so much emphasis on the financial aspect of a business, the BSC will provide a more comprehensive view of Nike and thus help in Nike’s best tong-term interests (2). They’re four perspectives of the BSC: Financial, Customer, internal Process, and Innovation and Learning. Each would measure performance through their specific guidelines. The BSC will prove to be more effective in measuring perforrnanoe because of its many dimensions; it seems to cover all topics and wouid be ideal for a company such as Nike. Good behavior would be directly correlated with performance and would take in account the well being of all its employees and aim to improve labor standards. 1. Introduction to integrated Supply Chain Management, pg. 256-259 2. Balanced Scorecard, http2Ilen.wikipedia.orglwikilBalanced_Scorecard 3. Nike, http:/Ien.wikipedia.orgfwikilNike,__lno. SCM 300 - NIKE CASE (Fall 2009) ' -- Appearance, Formatting, and - ' Organization Writing Style, Grammar, and SpeMng Question 1: Nike's operational goals for MFRs Comments: Grader: *in Codes of Conduct and Organization at Nike’s Suppliers Nike is known for being the top-seller shoe brand in the United States and worldwide, it’s a multinational company that has over 800 suppliers around 51 countries. Because of Nike's bad reputation for sourcing factories to developing countries, Nikes' team has developed a “code of conduct” for suppliers to follow. Nike’s goal is to minimize child labor, dangerous working condition. excessive overtime and poor wages by monitoring basic labor, environmental and health d—sai rds. Also in order to achieve these goals, Nike suppliers need @1290 throufl ree different audits including the M-Audit which consists of a deep n‘TaTria‘gi-‘fi’eh’tfland working conditions inspection. Another goal set by Nike is to transition from modular production to lean production by pushing suppliers to reduce cycle times, produce more items on shorter periods and rapidly change from one style to another by providing all the training neceSsary. Even with the implementation of the new code of conduct and the audits required by suppliers, Nike encounters problems measuring the manufacturer's behaviors and success. Every single suppi' was their own working conditions because their , ownership is of differem that’s why some plants pay higher wages than others, overtime may an y or mandatory, plants could be collaborative or hierarchical and so on. Also, audits and inspections are completed in several days which is not enough time to know what really happens between employers and employees. For all these reasons it is difficult to measure supplier’s performance and work conditions for such a big company like Nike. Since the a code of conduct is not enough to improve work conditions, Nike recently begun to use a third generation strategy that aims to monitor suppliers with collaborative initiatives and better human resource management. Also, Nike has updated the audit tools and grading systems to provide a more transparent report. An alternative suggestion for performance measurement is to have closer relationship between Nike staff and suppliers. By having a more collaborative communication, a transparent and trustful relationship will be built. This means that if suppliers have issues, they will contact Nike specialists to help resolve the problems and this way Nike could have somehow a little more control of what is going on in the factories. According to a research done by students of the Sloan School of Management in Massachusetts Institute of Technology, a cooperative and open relationship between the two improves the factory performance, working conditions and code compliance.1 Also, by sending inspectors frequently to factories will increase code compliance and decrease defect rates in sewing. Nike should try to provide more hands-on cooperative relationship with as many factories possible in order to increase productivity and motivation by collaborating with suppliers as partners with Nike instead of a cold company that only buys products from them. 1 Does Monitoring improve Labor Standards? Lessons from Nike. Goggle. SCM 300 - NIKE CASE (Fall 2009) Appearance, Formatting, and Organization Writing Style, Grammar, and Spemng Question 1”: Nike‘s operational goals for MFRS Question 2: Problems Measuring Behavior Question 3: Recommendations TOTAL Comments: Grader: Points Possible 15' 15 Points Earned _ Nike: Inadequate Working Conditions overview . rename m A warren» Nike, the largest footwear supplier in the world, ' "‘F ‘ ‘“"‘"”“""' tarnished its reputation through issues within its global supply chain, specifically in regard to working conditions. in effort to improve overall compliance with acceptable standards concerning working conditions, Nike implemented a code of conduct, to assess labor, environmental, health and safety guidelines, for their foreign suppliers worldwide. Further, in effort to enforce these codes, Nike subjected each supplier to three audits, an environmental, health'and safety audit, a M-audit and a periodic inspection by the Fair Labor Association. Goals Nike's adoption and application of a code of conduct heavily influenced the operational goals concerning the expectations of their contract manufacturers. Overall, Nike hoped to enforce more acceptable regulations in compliance with their supplier's working conditions. An important aspect of this included fair and legally acceptable wages for the factories’ production workers. Another important measure in Nike's operational goals was an elevated levei of overall employee satisfaction. Further, Nike sought high participation in product planning among contract manufacturer employees and reasonable working and overtime hours. Through the application of each of these aspects, working conditions in Nike’s contract manufacturer’s factories would likely improve significantly. Issues in effort to evaluate suppiier‘s compliance with Nike’s operational goals, Nike administered various audits and scored suppliers based on a point scale. Yet issues arose in understanding the compliance scores when two similar M audit scores were analyzed. Through this analysis, it was discovered that the working conditions varied greatly in each of the factories audited, and the compliance scores had no reflection of these differences. This downfall displays the M audits incapability to accurately express where each contract manufacturer stands. Yet, in a further effort to assess compliance with conduct code, Nike used an additional tool, the Compliance Rating grade. The Compliance Rating grade’s differed greatly from M audit for the two surveyed companies because it measured different things. This test showed a greater variability between the two, but overall the inadequacy between the two tests made measuring behaviors very difficult to interpret. Recommendations With the limited success of Nike’s performance measurement through audits, Nike needed to implement a system that would effectively show the link between any metric and the element of strategy it impacts, to / better understand the framework of each factory as a whole. Through the use of an efficient current /. system, Nike could improve their overall supply chain visibility, and effectively monitor each contract ‘ manufacturer on a more timely basis. This system would include three aspects, an analytics framework, a process orientation, and linkages.2 Through the analytics framework, Nike wouid be able to define the framework regarding overall objectives, metrics, acceptable ranges for each metric, and a listing of where / each metric could be found. Secondly, through process orientation in this ideal system, Nike would be able to better understand the connection between each business process department. Further, linkages could be identified, which would help do a more efficient job at analyzing root causes, and identify the metrics affecting objectives.2 Consequently, Nike's ability to perform operational analysis would significantly improve. With all these new capabilities, it is likely that Nike would be able to measure the behaviors of their supply chain and make better decisions that wouid align with the organizations overall objectives.2 1. Introduction to Supply Chain Management. Pearson Custom. Print. P (255-263) 2. Supply Chain Performance Measurement: The next frontier of supply chain analytics, Google: Supply Chain Performance Measurement: The next frontier of supply chain analytics SCM 300 - NIKE CASE (Fall 2009) Points Points Possibie Earned - Appearance, Formatting, and Organization Writing Style, Grammar, and Spemng ' Question 1: Nike's operational ' goals for MFRS Comments: Grader: fl \0’2 Mfr/{64: Global Brands and Working Conditions In Their Supplier’s Factories Nike’s Primary Goals for Their Contract Manufacturers For years, Nike lnc. was criticized for sourcing its products in factories and countries where low wages, poor working conditions and human rights problems were rampant. These scandals combined to tarnish Nike’s image, and even compelled founder and then-CEO Phil Knight to state in a May 1998 speech to the National Press Club in Washington, 0.0., “The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse.” Previously, Nike had felt no responsibility toward the workers in these factories because they weren’t technically Nike employees, but that would all change. it was because of these problems that Nike decided to devise a code of conduct for its suppliers that required them to observe some basic labor, environmental and health and safety standards. Problems Encountered with Measuring Success throughout Nike’s Auditing Procedures Along with the code of conduct that Nike required its suppliers to sign, all factories that supply the company are subject to three different types of audits: a basic environmental, safety and health audit, a more in—depth management and working conditions audit (NI—Audit), and periodic inspections by the Fair Labor Association. The problem with these audits is the way in which they are utilized. When using the M-Audit to rate individual factories, it is very possible to receive high scores overall even though some plants may not measure up very well in terms of working conditions. As a result of this scoring system, factories with different types of compliance issues can receive similar overall scores which can cause great discrepancies in the actual compliance of companies when it comes to important human rights issues. How Can We Fix the Performance Measurements? it is evident that the company must take action to provide more accurate and effective performance measurements. A simple, cost effective way of doing this would be to split the M-Audit into two separate sections. Rather than having the audit identified by a single score, each factory should receive two scores based on different areas of compliance. One score could focus on record keeping, documentation and written communications, while a second score could be used to measure independent working conditions within factories. ' SCM 300 - NIKE CASE (Fall 2009) Points Possible Appearance, Formatting, and Organization 'Writing Style, Grammar, and Speliing Question 1: Nike's operational goais for MFRs n Question 2: Problems Measuring Behavior Question 3: Recommendations _ 15 _ TOTAL ‘ - Comments: Grader: Points Earned ...
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This note was uploaded on 01/07/2012 for the course SCM 300 taught by Professor D during the Fall '07 term at ASU.

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IA Examples - {W M NIKE’S GLOBAL SUPPLY CHAIN AND THE...

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