Nike Vertical Relationship

Decent Essays
A simplified example of Nike’s Supply chain with the upstream portion focusing only on the supplier for sneakers in figure 1 (Laudon and Laudon, 2017)
Vertical relationships refer to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and, parts and material suppliers (Coyle, Langley, Novack, Gibson., 2012). There are 3 types of supply network relationships; Vertical integration, partnerships, and market trading. The first example of a vertical relationship is spot trading. Spot trading is the purchase or sale of a foreign currency, financial instrument, or commodity for immediate delivery (Staff, 2017). It may also be known as cash trade. Spot trades are becoming more important to companies as
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Vertical integration is a response to inefficiencies that arise when there is market power in both the upstream and downstream markets. It then suggests that market prices will be more than the marginal cost of production in both upstream and downstream markets as firms exercise market power (Joskow, 2010). There can be backwards and forwards integration. Forward integration is when a company is based at the beginning of the supply chain, but controls stages further down from it. A business that is at the end of a supply chain but takes on upstream activities is known as backward integration. Netflix is an example. They also manufacture content. (Amadeo, 2017)
Target is an example of a store which uses vertical integration. (Amadeo, 2017) It owns the manufacturing, controls the distribution and is also the retailer. It can then offer a product as its own brand name at a lower price. Business would find this important as they don’t have to rely on suppliers and are less likely to face disruptions. They can avoid labor disputes. Another reason companies would vertically integrate is, so it has economies of scale. This allows the business to produce in bulk for less. (Amadeo,
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