The German, who left his position as Bayern Munich general manager two years ago, is the frontrunner to be named the club's new football operations officer after holding talks with chief executive Graham Wallace. The plan to overhaul Rangers' behind-the-scenes structure was revealed in Wallace's business review in April, with former 41-year-old Nerlinger likely to land the job and become the link between manager Ally McCoist and the boardroom.
Smith, the former Rangers striker and chief executive of the Scottish Football Association for three years, was named director of football by Craig Whyte in 2011, but only stayed at Ibrox for a few months.
"There are benefits in bringing in someone like Christian Nerlinger at Rangers," he said. "We have an attitude against a director of football role in this country as it is more of a continental thing.
"I think if Christian has the background, a degree of knowledge and brings ideas to the role then why not? Nerlinger has been involved with a massive club before doing the same thing. Rangers are hopefully on the way up and it is maybe the kind of position that should be filled when they get back into the Premiership.
"If the club are thinking that they need a technical director then most clubs do benefit from having one on board provided they get along well with the manager. If Nerlinger does come into Rangers then he would be somebody that has been in this country and played for the club and that would be a good thing for Rangers.
"A technical director should never come in on a manager's say so. That person takes the club forward in another role. The manager has the first team to look after and he shouldn't hire the technical director."
The proposed appointment of Nerlinger, who had three injury-hit years at Ibrox before leaving a decade ago, has been met with a mixed reaction by supporters and McCoist was lukewarm about the prospect of a director of football being appointed when quizzed on the subject earlier this year. Herald Sport understands the manager will hold crunch talks with Wallace over the proposal but Smith has allayed fears over what could be seen as a controversial move.
"A technical director can help the manager, as I did during my time at Rangers," Smith said. "You advised the manager on players and which ones were available to have a look at. The decision always rested with the manager on whether those players were brought in or not. That is the way it should be. In Europe it is slightly different and technical directors bring players in. When I went to play in Switzerland I was brought in by a technical director and the manager didn't fancy me or want me.
"There has to be a relationship with the manager and technical director. If you get the right person in they will have a lot of contacts abroad finding players and stuff and they must know all about youth development and take a long-term view as opposed to a short-term fix. Managers tend to do short term because they need results."
While the process to appoint Nerlinger is ongoing, McCoist has wasted little time in the transfer market as he strengthens his squad for the new Championship campaign. Kenny Miller has joined the club for a third time while Darren McGregor has been recruited from St Mirren. A move to bring back Kris Boyd is also in the pipeline to link up with his former strike partner Miller.
"In terms of the Championship Rangers have strengthened more than any team in the league," Smith said. "Miller and Boyd are completely short-term moves by Rangers and no disrespect to either player as they have had fantastic careers.
"The signing of the strike duo is a means to an end. They expect them to do the job and get them back up to the top flight. They are tried and tested."
Meanwhile, Kyle Lafferty, the former Rangers winger, has left Italian side Palermo.
The Northern Irish forward confirmed his exit yesterday and said he was sad to leave. Lafferty moved to Italy last year following a brief stay at Swiss side FC Sion after his four-year spell at Ibrox ended in 2012.
"I'm sorry. Goodbye Palermo, thanks," he wrote. "It was nice to play here, but Palermo has decided to sell me and I respect their decision."