Executive Summary
This report is supposed to explore how organizations manage their multiple relationships with key suppliers and business customers which is a critical strategic issue that faces all organizations. This is to be achieved by identifying one organization that is involved in such business-to business transactions and use it as an example on how it is involved in the various organization buying situations as well as what strategic relationships it can use on its suppliers and customers.
The report identified Nike Inc. an American company which was founded in 1962 by Philip H. as an importer of Japanese shoes, then known as Blue Ribbon Sports (BRS). It has over the years grown to have over 20, 000 outlets in 110 countries worldwide.
The company deals in designing and marketing of sports footwear and apparels as well as selling its branded items. Most of its raw materials are imported from other firms outside the US which the company has contracted to provide the goods and services. As a result the company is involved in various buying situations with its suppliers. These include: Straight rebuy situation, which involves purchasing with the same specifications as the previous ones.
Modified rebuy situation, which refers to purchases made but with adjustments compared to the previous one. Lastly there is new buy situation, which involves, purchasing which has new specifications meaning that no such purchase has been made by the organization. Nike Inc. is involved in all these buying situations either with its upstream business suppliers or with down stream business customers.
Nike Inc. has a business model that describes how information flows between the company and its customers, suppliers and competitors. The model also shows how physical goods and services move between the parties involved. The business model makes the suppliers and customers visible and as a result, it enables Nike Inc. to come up with measures that it can use to secure more value from customers and suppliers compared to its competitors.
In order for Nike to be competitive it needs to identify attract and retain strategic suppliers and customers that will ensure that it realizes continuous growth in profits. Therefore this brings out the need for the company to formulate and implement supplier relationship management strategies and customer relation ship management strategies.
Introduction
Business-to-business relationships refer to transaction, collaboration other interactions trade between business ventures, whereby goods are exchanged not for consumption but for production of other goods and services or for the buyer to pass them to the end consumer.
Such businesses include transactions between a raw material supplier and a manufacturer, manufacturer and a whole-seller and lastly a whole-seller and a retailer. Nike Inc. features as one of those entities that are involved in business-to business transactions (Hutt & Speh, 2010).
The founder of the company was Philip K. Knights back in 1962. From then, the company has experienced tremendous growth to the level of becoming a market leader in athletic footwear. This is evidenced by its more than 20,000 stores in approximately 110 countries. These outlets are either wholly owned by the company, with a mix of independent distributors and some are licensees (Wikinvest, n.d).
The manufacturing system of Nike products is done by independent contractors who are distributed globally. Nike is therefore involved in design, development and marketing. The company acquires raw materials such as Pet fiber used for making shoe material, shoe insole, shoe heel and shoe outer sole from Hsu Jenn Enterprise Co.,Ltd. Sojitz corporation has provided import-export financing services to Nike since 1972 (Sojitz Corporation, n.d). Huang Jiang Nan Pao Resins supplies Nike with glue.
Nike Inc. also supplies its products to other businesses downstream which include footwear designed for athletics, aquatic activities, football, golf and other sports. Nike gets logos from colleges and sports teams and markets its products using the customized logos. Using Nike brand name, the company also sells a line of performance equipments such electronic equipment bags, socks and many others.
Some of the school teams provided for uniforms include base ball teams of University of Alabama, West Virginia, Oregon State, Florida and Virginia Tech. Also among the schools that have used Nikes products is the Jesuti High school (Zimber, 2010)
Buying Situation
The components of organizational buying behavior include making a decision to buy goods from one of the many available supplier and then proceeding with the purchase. This buying process is characterized by various buying situations which include: Straight rebuy situation, whereby the purchasing department is mostly involved and it reorders the material based on information from the inventory control department.
Here they look at the quotations from vendors in the approved list and the buyers seek the same specifications as for previous purchase. In Nike’s case the schools that have contracted to purchase team uniforms fall in this category, particularly because many a times they only need to renew their contracts with the company to continue with the product as previously specified (Hutt & Speh, 2010).
There is Modified rebuy situation whereby the organization seeks to buy the same products but with adjustments compared to the previous specifications. The modifications can be on the actual products and services or the delivery system. In this buying situation the executive as well as the purchasing department are involved.
Nike also has the ability to enhance its inclusion by seeking for more suppliers as well as enhancing the available vendors in terms of their delivery systems among other technical issues. This buying situation applies to Nike Company when it wants to reorder materials it has been using, however it wants that adjustments be made on the supplies.
For instance if Nike orders for Pet fiber from Hsu Jenn Enterprise Co. Ltd, however with a different delivery system for example through air as opposed to previous means of water transport. The supplying company may consider if it can meet the new requirements if not, then Nike Inc. will be forced to seek services of other suppliers (Hutt & Speh, 2010).
This situation can also apply to licensees’ retail stores in different countries who can bargain for adjustments in delivery methods or packaging methods. If the purchase of a product is a first time situation, then it is referred to as new task buying scenario.
This situation is characterized by stages which include; awareness, interest for offerings of each potential supplier, and subsequently they are evaluated, tried and finally adopted. Suppliers are then approved in to the list based on price competitiveness. A product’s cost as well as its value of consumption may influence the number of executives thereof to be higher.
This buying situation can apply to a new professional team that wants to buy sports wear whereby it will consider suppliers of such products that include Nike and its competitors. It will then evaluate them and eventually sign a contract with the company that meets its requirements who will start supplying them with the sports wear (Hutt & Speh, 2010).
Nike can also be in a new task buy situation, whereby it might need a new type of glue products therefore it will identify suppliers of such products including Huang Jiang Nan Pao Resins. On evaluation and trial of their products it will settle on one supplier and hence enter into a contract with that supplier to deliver that product (Hutt & Speh, 2010).
Source: Tompkin (2001)
Business model showing the relationship between Nike Inc. and its suppliers, customers and competitors.
Note:
The broken lines indicate the supply of physical products and services
The continuous lines indicate the flow of information between parties (Tompkin, 2001 )
Business models
There are two main information systems in the business model. The first one labeled A represents an information system shared between Nike Inc. its competitors and their suppliers. Therefore if Nike wants to get information about its suppliers, then it contacts that system and the same case applies to its competitors.
On the other hand the suppliers can also get information about the organizations they are to supply through the same information system. Likewise Nike can order products and make payment communications to its suppliers through the same system. There is another information system labeled B, which represents the flow of information between the focal firm (Nike Inc.), its competitors and their customers both current and potential. Through the system Nike can obtain information about its customers.
Likewise its competitors such as Adidas can also obtain information amount customers it is serving or those it intends to serve as well as those served by its competitors. It is also important to note that information flow can to any direction, showing that all that al the organizations in the model can share information between each other (Geunes, Pardalos & Romeijn, 2002).
Customers in this market can also obtain information about Nike and other organizations that supply them. At the same time Nike and its competitors can exchange information with their customers such as order reports from customers and payment reports to the customers.
In addition, Nike and its competitors can share information between them on how to form strategic partnerships. The model also shows how organizations can supply each other with goods and services. The suppliers can either supply their raw materials and other products to the focal firm (Nike Inc.) or to its competitors.
This means that Nike and its competitors have access to these suppliers. For example Sojitz Corporation of America can either provide import-export financing services to Nike Inc. through channel labeled 2 or to Adidas (Nike’s competitor) through channel labeled 1. The same case applies to the second supplier whereby it can supply to Nike through channel labeled 3 and to Reebok through channel labeled 4 (Geunes, Pardalos & Romeijn, 2002).
On the other hand, Nike and its competitors can also supply products and services to their customers, Nike can supply sports wear to Jesuit high school through channel labeled 7 and to the Oregon State University through channel labeled 6. On the same note Nike’s competitors can also supply to their customers whereby if Adidas had Jesuit high school as its customer then it can supply it through channel 8 while Reebok can supply Oregon State University through channel labeled 5.
Therefore Nike Inc. can form strategic partnerships with its competitors that will maximize the value they obtain from their suppliers. On the other hand the same firms can still make strategic partnerships that will enable them to serve their customers effectively.
On the contrary they information systems also present potential threats to Nike from its competitors. Particularly because through the shared system both Nike Inc. and its competitors can have access to the same suppliers and customers. Therefore this calls on Nike to put up strategic measures that ensures that it maintains valuable relations with its suppliers and customers.
The information system also presents Nike with a vast of information about the market. For instance when it intends to make purchases the company can get information about the various suppliers from the system. For example if Nike is in a new task buy situation, it can obtain information about the qualities available from each supplier, the prices they each charge for the product or service even before it contacts them.
All these information can be obtained from information system labeled A. The suppliers also can evaluate the qualities of Nike and this will help them to consider whether they will accept an order from Nike. In addition when Nike Identifies one of the suppliers as the most preferred suppliers, then they will communicate between each other and share information on technical capacity, quality standards price offers and period of contract before signing supply contracts and agreeing on payment.
Therefore the above business model is effective because it makes use of the whole supply chain and the web. This model provides a platform for a company to share or use procurement data directly as well as simultaneously all along the supply chain. In addition each company can react to information independently hence enabling free flow of material.
On the other hand the model offers visibility to each company in the supply chain and therefore each of them can opt for independent action or they can as a group collectively takes action. As a result suppliers are not squeezed to offer the lowest prices as there can be independent transactions between two companies (Tompkin, 2001).
Customer Relationship Management strategies
In a business-to-business relationship, customers who are organizations go through a process to get a supplier who will provide them with products and services. Therefore companies that want to serve such organizational customers should invest in relationship management strategies in order to identify, attract as well as retain the most valuable customers that enable the business to maintain a profitable growth.
Particularly because in the current competitive world, such customers are hard to secure and competitive advantage through improved performance in service delivery as well as responsiveness to customer needs. These relationship strategies can either be positive in that they reward loyalty or they can be positive whereby, they penalize customers who want to shift (Buttle, 2008).
First, there is customer value proposition, whereby Nike determines the products and services that Jesuit high school athletes needs today and in the future. As a result Nike should offer some value that will be beyond what the school expects, hence this will act as an incentive as the school will compare what it gets from the relationship.
Secondly, differentiation can also be a key strategy that Nike Inc. can use to attract and retain customers, whereby the company asses the products and services offered by competitors and what the company needs to be providing hence develops products that have clear different and beneficial attributes from competitors.
The two above strategies while determining the products and needs of customers should put in to consideration the markets that these customers serve as this is their main objective. Thirdly Nike should strive to have to increase the profitability of its customers, like for Jesuit high school whereby Nike can strive to increase the amount of supplies it provides to the school. This will make it hard for the school to change to another supplier as it will involve a lot of costs (Hutt & Speh, 2010).
Fourthly, Nike can personalize the relationship whereby it provides customized services and products. This includes providing a whole set of performance equipments to Jesuit high school that fit specifically to their needs. They can also seek information from the school on its requirements and seek to meet them. For instance, if it provides sports equipments that can only be used with products from Nike Inc. only and have the school’s name and colors displayed company.
The company can also give special offers to the customers during the low seasons so that in the high season when competitors are seeking for customers, Nike’s loyal customers will be under its control as a result of contracts signed during the low season. For example Nike Inc. can give a discount to Jesuit high school to order for sports wear way before the season starts. As a result when the season starts and all other competitors are seeking customers, the high school will have been tied to the company (Buttle, 2008).
Supplier Relationship Management strategies
Supply relationship management refers to a comprehensive way of managing entities interactions with those companies that provide it with goods and services it uses. Its main objective is to streamline and make attain effectiveness in the processes between an entity and its suppliers. Any company that wants to be competitive in the current business world should therefore put in place strategies that ensure the company identify, attracts and retains suppliers that provide maximum value.
Just like the customer relationship management strategies, the suppliers relationship management strategies can also have positive and negative measures. Positive strategies refers to those strategies that reward the suppliers for being loyal while negative ones refer to those that penalize suppliers if they choose to stop supplying(Sandra & Ala, 2009).
First, Nike Company can seek to have increased share of business with its supplier, hence in the event that the company wants to stop supplying then it will risk losing a significantly large amount of business. For instance if Huang Jiang Nan Pao Resins Ltd that supplies glue to Nike Inc. has half of its revenue sales from Nike then it will be hard for the company to change loyalty as it will end up losing a lot of business.
Secondly, there is promotion of long-term relationships with the supplier, which involves dropping the less valuable suppliers and concentrating on the most valuable. It involves signing a long-term contract that ensures that the supplier is tied to the company hence guaranteed loyalty. For example Nike can sign a five year contract to be supplied with glue products from Huang Jiang Nan Pao Resins Ltd, therefore for those five years the suppliers loyalty will be guaranteed (Sandra & Ala, 2009).
Thirdly, provisions of supporting services to the supplier, whereby Nike can provide services to the glue supplier to help them easen their supply work.
For example the supplier can be supported with research services whereby Nike does research on its products use and effectiveness and hence provides its supplier with information that will promote its effective production and help in risk mitigation for mutual gain of both parties. Another strategy is for the company to enhance the process of getting goods and services.
This result in reduction of costs and a subsequent increase in profits for the supplier, hence the supplier will be attracted to stick to customers that he is receiving extra value.
The efficiency can be achieved by implementing Supplier Relationship Management technology. Lastly, Nike Inc. can form a partnership with its glue supplier, whereby they can create a community for the SRMs consisting of employees from both parties who include supplier performance managers, account Managers and Supply Chain Consultants who can contribute knowledge and come up with ways of generating revenue for both organizations by venturing in to out of contract business opportunities (Sandra & Ala, 2009).
Conclusion
It is apparent that Nike Inc has implemented effective relationship management strategies with its customers who have supplied its products around the world hence enabling it to secure and maintain the position of a global leader in sports footwear. In addition its strategies with the suppliers seem to be effective as some of them have dealt with the company for over ten years. The buying behavior of an organization is a process that has different stages.
Each buying situation will involve different numbers of the executive members depending on the cost involved, furthermore there are various buying situations based on whether there are variations from the previous purchase. It also comes out that there are different models for businesses to use, however each organization has an appropriate model that befits it. But also the introduction of business-to-business e-commerce has greatly revolutionized the traditional paradigms.
Bibliography
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