Question

Case Study

CARELESS COST-BASED OUTSOURCING MAY CAUSE PROBLEMS

One of the most recognised brands in the world is Nike. Nike produces and sells sports shoes and apparel. During the 1990's Nike experienced rapid growth when they stared to contract their production processes out to manufactures in low-cost (low wage) countries such as Vietnam, Indonesia and china. Record-breaking profits were reported and the number of factories increased to fulfil the growing consumer demand for the company's products. The original company outsourced all of the production processes and only took care of the management t of the distribution and marketing of the final products and the brand name.

Unortunately Nike was only intrested in low-cost production and high quality, and was not really interested in the conditions at its off-shore suppliers (production of its products). These factories were characterized by supervisor abuse, poor working conditions, low wages, poor vulnerable workers and long working hours-dubbed Nike "sweatshops"

When these facts become known, there was a worldwide uproar, particularly among sports people and human rights groups, which continued for many years and caused Nike serious reputational damage. Since then Nike has constructed an elaborate plan to deal with labour issues in the 900-odd supplier factories. They have appointed a task team to inspect several hundred factories annually, grade them on labour standards and work with the managers to eradicate problems and improve wages.

Questions 1

1.1 Identify and discuss the criteria that Nike obviously overlooked when they chose their outsourcing partners. (25 Marks)

1.2 Business have realized that it might be cheaper to buy parts, ptoducts, sub-assemblies or services than to maintain an infrastructure for such items. Outsourcing has become a popular business strategy. Discuss the extent to which your organization uses the outsourcing mechanism and what is the rationale behind it ( 25 Marks)