Supply chain risk management is a significant activity for every business to ensure its flawless operation. The importance is even higher for international companies since their supply chains are larger, implying a greater potential for threats. That is why it is reasonable to look at how an international business that is a focal firm manages its risks because such an organization governs over its supply chain. Thus, the paper focuses on Nike and comments on how its risks can be assessed, what management strategies are suitable, how they can be implemented, and how one can mitigate supply chain risks.
Risk Assessment and Evaluation
To begin with, one should present the risk assessment and evaluation approach at Nike. According to Manuj and Mentzer (2008), this step is necessary because not all threats are critical for the supply chain, meaning that some of them require specific attention. For Nike, product defects account for a serious operational risk that can result in significant financial and motivational damages. If the organizations’ employees start producing defective footwear and clothes, the company will start losing its position in the market and revenue. Green (2021) admits that US port congestion refers to a supply risk leading to a 15% increase in inventory costs. Since the organization’s delivery schedule is interrupted, the company should pay more to cover its inventory transit expenses. Finally, rising prices result in a significant risk that the demand for Nike products will reduce. For this focal company, this anticipated threat results in decreased revenues. Consequently, this information demonstrates that the presented problems are serious for Nike, denoting that it is reasonable to comment on how the company can manage the identified threats to minimize adverse consequences.
It is now necessary to suggest appropriate risk management strategies. Firstly, sharing risk seems a suitable approach to deal with the organization’s operational risk. Since product defects are a potential threat, Nike needs to take specific actions to mitigate its probability. According to Manuj and Mentzer (2008), outsourcing, off-shoring, and contracting can become efficient interventions to address the issue. The rationale behind this claim is that the organization should diversify its production facilities to ensure that product defects at one site will not result in unbearable consequences for the business.
Secondly, Nike’s supply risk can also be addressed with the help of an appropriate strategy. Hedging seems suitable because this approach “is undertaken through a globally dispersed portfolio of suppliers, customers, and facilities” to ensure that a single event cannot paralyze the entire supply chain (Manuj & Mentzer, 2008, p. 142). This quote demonstrates that the organization should introduce changes to its supply chain to ensure that it has fallback options if unexpected events make the existing delivery channels and means useless. Consequently, hedging will allow Nike to develop different plans on how to operate under changing conditions.
Thirdly, the identified demand risk implies that volatile economic processes in the world can significantly reduce the customer demand for Nike products. That is why postponement can be a suitable strategy to address the problem. Manuj and Mentzer (2008) clarify that this approach “refers to the movement of goods from the manufacturing plants only after customer orders are received” (p. 142). This scenario ensures that the organization will not have to bear high costs to deliver the products to the markets with reduced demand. However, one should understand that this approach can only be applied to selected models of footwear and clothes.
This section is going to comment on how the strategies above can be implemented. Firstly, Nike should rely on organizational learning to ensure that it adequately implements the sharing risk approach. According to Manuj and Mentzer (2008), organizational learning denotes that business decisions should be made based on dialogue, inquiry, analyzing mistakes, seeking feedback, and others. Consequently, Nike should learn how it can minimize the risk of producing defective footwear and clothes. This implementation approach can be effective because the organization should accumulate the existing knowledge and apply it in practice to avoid mistakes in the future.
Secondly, flexibility is an effective management practice that deserves attention. Manuj and Mentzer (2008) define this concept as “the ability to change or react with little penalty in time, effort, cost or performance” (p. 147). This approach can be used to implement the hedging strategy. As has been mentioned, Nike can suffer because it typically relies on few suppliers and one delivery channel. Consequently, it should move to more flexible operations management to ensure that the required changes can be introduced to minimize the risks. Furthermore, Nike should rely on this implementation model because more flexible businesses tend to be more successful.
Thirdly, information technologies represent another implementation approach that can be used. They are “critical to the implementation of all risk management strategies and for effective management of supply chains and performance measurement” (Manuj & Mentzer, 2008, p. 148). This approach can be applied to implement the postponement strategy. In fact, Nike should rely on information technologies to forecast demand in different markets. The reliance on this approach is necessary because specific technologies increase the probability of obtaining more precise outcomes. Thus, Nike can rely on this approach to ensure that the postponement strategy can be successfully implemented.
One should admit that it is impossible to avoid all possible risks. That is why organizations tend to rely on various risk mitigation strategies because they offer a mature decision-making process to minimize the adverse impact of unexpected events (Manuj & Mentzer, 2008). Nike should invest sufficient resources in this activity to protect its operations and supply chain. This organization can benefit from a few specific approaches, and the first of them is to establish proactive relationships with suppliers. Nike can develop a list of extra suppliers that will be accessed if an unexpected event occurs and the existing partners cannot deliver products. The second potential response is to design various delivery channels. For example, since port congestion created significant problems for Nike, the company can develop plans to rely on air transportation to mitigate such risks.
The paper has demonstrated how the Supply Chain Risk Management and Mitigation Framework can be applied to assess the operational, supply, and demand risks of Nike. This international company was chosen because it has an expanded supply chain that can be subject to versatile threats. It has been identified that port congestion, reduced demand, and product defects are serious risks for the organization. Appropriate management strategies include sharing risk to minimize product defects, hedging to protect from port congestion, and postponement not to lose money against decreased demand. In addition to that, specific risk implementation and mitigation approaches were also offered to show how Nike can protect itself against the adverse consequences of unexpected events.
Manuj, I., & Mentzer, J. T. (2008). Global supply chain risk management. Journal of Business Logistics, 29(1), 133-155. Web.
Green, W. (2021). ‘Supply chain challenges’ hit revenues at Nike. Supply Management.