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and suppliers buy raw materials in bulk. Most raw materials are available in the
countries where manufacturing takes place.
legacy systems rather than implementing as part of its SAP ERP Project" (SCM
and ERP Implementation at Nike: From Failure to Success 2005 )
In 2000, after the implementation of i2 software, NIKE stated that it resulted in
stock pile up for slower-selling shoes and shortages for high demand shoes. Nike
blamed i2 software for poor planning forecast which was actually developed to
reduce production days. Investors believed Nike's blame game and the shares of
i2 dropped severely. But i2 managers claimed that Nike's issues were not linked
to software but the way the software was implemented. They did not use the
standard template offered by i2 for its footwear division. But i2 accepted the
blame of not being forceful in compelling Nike to stick onto their implementation
methodology and the bitter truth was i2 desired to solve Nike's complex issue of
tracking every shoe model it manufactures. Nike experienced some major issue
and hence i2 thought resolving those legitimate issues would really serve as
value addition to i2 Technologies. Joshua Greenbaum, a consultant stated that i2
software is not known for technical failures but it is well known for its complexity
and the issue here is that Nike went "go-alive" with the new software even before
they were ready to go live which resulted in major chaos.
Lessons learnt by Nike : Implementation issues in supply chain can have
disastrous effect in Supply chain process of an organization and hence great care
should be taken while implementing software solutions for managing supply
chain. If a standard template is customized as per the clients requirement then
the service provider should monitor that the client adheres to implementation
procedures as instructed. If a solution is being offered to address complex issues,
then the system should not go-live before appropriate testing to check if all the
needs of clients are better served. Premature switching has devastating effect on
the organization which Nike has learned at its cost.
Fig:1.9: Nike's latest SAP IT Solution to manage supply chain functionalities
Nike owns a system "Futures" wherein the retailers place orders 3-6 months in
advance which does assist in demand and forecast planning. But the scenario is
different for it Football Team Sports (FTS) category which constitutes 10% of its
overall market. Its FTS line comprises about 100 varied styles and it uses a
unique fabric Dri-Fit that absorbs sweat. Usually sports team places the order,
expects delivery in a week's time, demands more customized options and hence
prestocked items doesn't hold good for all customers. The challenge for FTS
apparel lies in its supply chain. Nike has to seek ways to reduce current lead time
like modifying demand planning/ forecast system, shifting production base from
Asia to Europe and preordering undyed fabric called greige and contracts with
strategic suppliers/manufacturers can result in faster delivery even amidst last
minute orders. (Nike:Just Do it - But How? 2009)
Sourcing Strategy :
Global Commodity Chain (GCC) perspective provides greater insights on design,
distribution and marketing activities. Nike has captured a greater place in US
athletic footwear market albeit its manufacturing activities are held overseas,
formulating Nike to be archetype of global sourcing strategy. Its successful
execution of sourcing strategy can be best known in Nike's effort to retain its
power and authority over its highly profitable nodes of the footwear commodity
chain which offers them the strategic and geographical mobility. Nike's distribution
network was broadened by forming strategic alliance with retail outlets. It shifted
its manufacturing base from high cost production countries to low cost countries
like Taiwan, South Korea, Asia etc. The merits of producing goods in developing
nations have to be weighed against the demerits of other costs like sourcing,
production flexibility, transportation and storage. Nike took advantage of global
sourcing as a way to reduce cost and in 1980s relocated its plants to Taiwan,
South Korea and in 1990s to China, Indonesia and Vietnam. In 2006,over a half a
million workers were engaged in 700 factories in 51 countries, although the firm
had around 23000 employees in its payroll.(Lechner and Boli 2004). The efficient
management of sourcing strategy obtained Nike to manufacture goods as low
cost and thereby its market share and profitability increased.
Nike's Futures system is order and planning system which serves to resolve
inventory and financial bottlenecks. Nike had more flexibility options like
modifying design specifications by dealers which offered competitive advantage
over its competitors like Adidas. Donaghu and Barff categorised and identified 3
sets of Nike's factories - developed partners, volume producers and developing
sources. Developed partners are Nike's first/upper tire suppliers who are
accountable for innovative and stylish/premier models. Volume Producers
produce products in large quantities but selected products. Developing sources
are recent factories that have enticed Nike due to low labor cost.
Various steps are involved in making a atheletic shoe - designing, model and
pattern making, molding of soles, material cutting, stitching, lasting, finishing, final
inspection and packaging which requires little skill. Hence unskilled workforce
and lower wage rate are quintessential in manufacturing shoes competitively.
Nike did not own a factory in Asia but had contracts with partners who
manufacture apparels and footwear. Nike took the ownership of the products only
after they are finished and delivered from factories.
Fig 1.11: Members within Nike's Supply Chain Process
Fig 1.12: Nike Brand Factories across globe
Source: Nike website
FishBone Diagram:
Fig 1.13: FishBone Diagram for Nike
Time Compression:
Time is a critical factor in today's supply chain. Time compression can be defined
as reducing the amount of time taken for a process in a business operation ie
inputs is being transformed to expected/desired outputs in a process but in a
compressed period of time. To achieve time compression for the holistic supply
chain, activities that does not add value to the process should be identified which
is achieved by removing waste and refocusing on the process steps. The
horizontal and vertical structure which forms the basis of supply chain must be
properly integrated. The structural and infrastructural linkages in a supply chain
depicts how efficiently resources, inventory are utilized. (Beesley 1996)
Few generic principles to identify and understand supply chain process:
The end users in a supply chain are customers who demand speed and adhere
to delivery. Nike customers demand variety in products ranges and hence Nike
strives to manufactures wide range of products but maintains a minimal stock so
as to accommodate many varieties. Customers are not willing to pay extra cash
for speedy delivery because similar services are offered by its competitors also.
Many firms are just order qualifiers and not order winners.
The call for JIT inventory can be satisfied by maintaining correct proportion of
stocks in stores. Positioning of resources and inventory also plays a vital role in
maintaining a optimal supply chain.
Burbidge and Forrester states that the effect of demand variation in a supply
chain oscillates out of control and impacts the lower level of supply chain.
Fig 1.14: Internet Driven Supply Chain Model
market and in few cases Nike has to build its distribution centres. Periodically
detailed research has to be done to understand infrastructure issues.
Consumer expectation varies in different countries. "One size fits all" rule doesn't
apply anymore. Customization plays a vital role in acquiring customer
satisfaction. Product proliferation challenges can be tackled by being more
responsive and quick in addressing the needs of the end users. Nike needs to
adapt lean and agile manufacturing programs based on their volume-variety
formulae.
Retailing customers demand for shorter lead times and faster inventory turns and
they make attempts to push the products upstream. As a reciprocative action,
Nike offers out-of-stock and replenishment programs but should strive to
improvise/speed-up 'time to market' and reduce lead times.
Conflict exists between cost and flexibility. Manufacturing lead time is longer due
to technical complexity associated with fabrics and products require complex
innovation which ultimately results in cost of time and delays.
Manufacturing focus
Maintain high average utilization rate
Deploy excess buffer capacity
Inventory strategy
Generate high turns and minimize inventory throughout the supply chain
Deploy significant buffer stocks of parts or finished goods.
Match
Arcs of Integration:
Ragatz et al (1997) claims that the "effective integration of suppliers into product
value/supply chains will be a key factor for some manufacturers in achieving the
improvements necessary to remain competitive".The two types of integration are :
delivery integration or forward integration which involves the flow of material
between suppliers, manufacturers and customers (Saunders 1997, Trent and
Monczka 1998) and Information integration or backward integration that include
the effective functioning of IT and flow of data between customers and suppliers
(Martin 1992, Trent and Monczka 1998).
Tan et al (1998) state that when firms integrate and act as single unit, overall
performance is improved across the supply chain. Manufacturers should decide
C2C Cycle:
Fig 1.16: Nike's 5 year trend of Operation Cycle
Source: Thomson One Banker
Agility is defined as a capability to meet demands of end users and to warrant
that supply matches the demand. The key factor is flexibility and time to market in
response to demand is crucial. Transforming the supply chain from make-to-sell
to make-to-order is the desire of any organization that wants to gain competitive
advantage via supply chain management. Nike's objective is centralization and it
is achieved by information sharing through the effective implementation of IT.
Nike's claims its lead time is 6 months due to technical complexity associated
with producing fabrics and products. In this competitive world, 6 months is a wide
gap for any rival to gain access competitive advantage. Nike should adopt
following ways to reduce lead time gap.
Postponement Strategy: Postponement or delayed configuration is a way of
manufacturing products in common platforms, components or modules but the
final assembly or customization does not happen until the final market destination
and or customer requirement is known (Christopher 2000). Inventory levels can
be maintained at a generic level which results in lower stock keeping variants and
flexibility it offers in greater. Forecasting is easier at basic level than for a final
product. Customizing a product locally means more variety at less cost which
paves way for "mass customization". Through Localization, postponement
strategy is fully achieved which implies that the final product is finished in the
local region.
The hurdle for efficient SCM is to build 'lean strategies' till the decoupling point
and 'agile strategies' further than that point (Christopher 2000). Decoupling point
is the point at which demand diffuse through the supply chain. "The flow of
product upto the decoupling point should be forecast driven and the flow of
product after the decoupling point should be demand driven" (Christopher 2000).
The two decoupling points are - material decoupling point where inventory is
stocked as its basic form and it should continue as far downstream as likely ;
information decoupling point which should be available as far upstream as likely
to which data about demand diffuses. Nike should seek ways to handle the two
decoupling points thereby becoming more agile than competitors and reducing
Bullwhip or Forrester effect.
In most of the processes it is the lead time of the suppliers that restricts the firm
to be more agile to customers' demand.
Order to Delivery Cycle: Order cycle time is defined as the time consumed from
placement of order by customers to delivery of the product to them. The
components of order to delvery cycle are order communication, order entry and
processing, order picking or production, transportation, customer receiving. Each
of these steps consumes time and any bottlenecks associated with any of the
processes would result in increased cycle time. Optimum Production Technology
categorizes any activity as 'bottleneck' and 'non-bottleneck'. Nike should focus on
bottlenecks to which capacity can be reduced and set-up times can be reduced.
The firm should also focus on 'non-bottlenecks' in a similar fashion.
Sustainability:
Nike has taken steps towards sustainable business and the need of the hour is to
take proactive steps by focusing on sustainable manufacturing, sustainable
product development and developing a sustainable marketplace. Nike should
take efforts to identify closed loop models and processes which would enhance
sustainability across supply chain. Nike must follow an integrated approach in
tackling supply chain by fusing lean, energy, water, waste and compliance teams
into one model: sustainable manufacturing and sourcing. Sustainability is the
path to forthcoming profitability. (Nike Corporate Responsibility Report 2009 )
Nike deals with many contractors and hence Nike should seek long term sourcing
consolidation strategy and rationalize its supply chain functionalities. "Nike has to
take steps to build a sustainable base , align with strategic manufacturers who
are able to deliver high end products and are highly innovative, building
relationships with contractors willing to adhere to Nike's corporate responsibility.
Fig 1.17: Nike's Supply Chain towards Sustainability
Source: Nike Corporate Responsibility Report
Environmental Impacts:
Waste is produced at every step of supply chain. In FY2006, Nike conducted
waste mapping study and discovered that 75% of waste is generated from supply
chain activities outside factories and when measured by weight, about 40% of the
purchased materials end up as waste.
One-third of waste footprint is generated from retail packaging and from shipping
& packaging. Nike operates 5 waste management centres in 4 countries and
about 50 products are transported to material vendors so as to recycle them to
materials from which Nike repurchases. Nike should focus to utilize more waste
effectively to sustainable uses. The firm should seek ways to reduce waste in
design stage rather than seeking ways to reduce waste in downstream supply
which would decrease costs and waste materials being generated.
Fig 1.18: Percentage of Waste generated across Nike's supply Chain Process
Source: Nike Corporate Responsibility Report
Fig 1.19: Nike's Reuse-a-Shoe Program
Source: Nike Corporate Responsibility Report
Fig 1.20: Greenhouse gas emissions across various supply chain process of Nike
Source: Nike Corporate Responsibility Report
Conclusion:
The mapping of SCM process results in understanding the existing issues and
paves way for defining solutions. Identifying the critical members of the supply
chain, kind of functionalities to be connected and what nature/degree of
integration is necessary for each link are key factors that require deep insight.
The goal of SCM is to create the highest possible value not only for the specific
firm but across the supply chain including end-consumers. Aligning the product
supply with their appropriate supply chain is also vital for increasing sales.
Amplification caused by uncertainty can be reduced by adopting rapid response
programs that involves supply chain re-engineering and agility. Lead time can be
reduced by all possible means and time compression should be adhered
throughout supply chain to gain competitive advantage. Nike should strive to
adopt the recommendations after thorough analyses and understanding of
existing structure. Nike needs to excel in lean management, become more agile,
develop methods to compress lead times, operationalize linkages functions and
processes across supply chain and re-engineer the business processes to gain
overall success in supply chain management.
APPENDIX:
Various Performance Measures that can be utilized by Nike:
Table A1.1: Performance Measures
Source: Fiksel, 1996, Guide, et. al., 1997b, Krupp, 1992, and Schmidheiny, 1992
Table A1.2: Decision Factors
Source: Fiksel, 1996, Guide, et. al., 1997b, Krupp, 1992, and Schmidheiny, 1992
Table A1.3: Macro market and Supply Chain key factors
Source: Fiksel, 1996, Guide, et. al., 1997b, Krupp, 1992, and Schmidheiny, 1992
Table A1.4: Tactical and Demand Management factors
Source: Fiksel, 1996, Guide, et. al., 1997b, Krupp, 1992, and Schmidheiny, 1992