Nike: cost leadership and the threat of suppliers

Nike has positioned itself as a leader in athletic footwear, apparel and equipment.  In doing so, Nike has continued to grow its product line and the technologies used in these products.  Because of the large volume of units that Nike produces each year, it has been able to successfully reduce production costs and sustain healthy profit margins.

Because Nike produces so many units each year, it is effectively able to reduce the threat of suppliers.  Meaning that the suppliers of raw materials used in the production of Nike's goods are not likely to increase prices for its products because Nike can likely acquire the same goods elsewhere at a competitive price.  Suppliers that sell a large volume to a particular firm value that relationship and will typically try to accommodate that firm, knowing that losing that business could be detrimental.

A relationship between a successful firm and its supplier(s) can be viewed as symbiotic.  If Nike continues to grow then it will order more materials from its suppliers, creating increased revenues for the supplier.  So, the success of the supplier depends on the success of Nike.  And, Nike depends on its supplier(s) to provide it with quality goods at a reasonable price, allowing Nike to consistently manufacture quality products, supporting its reputation as an industry leader, and assisting in sustained growth.  This delicate balance is what fosters the success of each business.

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