Nike Supply Chain Failure Analysis

 

 

Nike Supply Chain Failure Analysis

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Abstract

This paper is about Nike Inc. a company that leads globally in supply of sportswear and equipment. The company was founded in 1964. It is based in the United States. The company has provided employment globally (Frisch, 2009). As at 2008, the company had employed over 30,000 people globally. In addition, the company generates a lot of revenue. For instance, in the fiscal year of 2008, the company reported revenues of $18.6 billion (Tang, 2008).

The company has overcome various challenges from the time it was founded to the current position it occupies in the sports industry. The company had a supply chain strategy that did not integrate well with technology. This was because the technology was not well researched before the integration. As a result, the system consumed large investments from the company and resulted in losses. However, the company revisited the supply chain and integrated it well with the necessary i2 technology. This results in an effective and interactive supply chain management that has led to the success and growth of the company.

Introduction

Nike Inc is a company that deals with the supply of sportswear and equipment. The company is located in the United States and is the biggest in this industry. In fact, Nike Inc. is the leading supplier of athletic shoes and apparel in the world. In addition, it is the leading manufacturer of all types of sports equipment globally (Ireland & Hoskisson, 2008). The headquarters of Nike Inc. is based in Beaverton, Oregon. The Oregon state forms part of the Portland Metropolitan area. Currently, Nike Inc. and Precision Cast Parts are the only known Fortune 500 companies that have their headquarters in the Oregon state.

The company creates employment opportunities for a large number of people from different parts of the world. According to research, the company had over 30,000 employees in 2008 (Frisch, 2009). The company is one of the leading companies in the world in revenue generation. In the financial year ended on 31 May 2008, Nike Inc. reported revenue of over $18.6 billion (Tang, 2008).

Nike Inc. was founded in the year 1964 on 25th January by Bill Bowerman and Philip Knight (Frisch, 2009). The original name of this company was Blue Ribbon Sports. In the year 1978, the company was rebranded Nike Inc. This name was borrowed from Greek word Nike, which means goddess of victory equipment. The company runs numerous retail stores under the name Nike town. The name has become popular in the sports industry. In fact, the company is currently a major sponsor for many high profile athletes as well as many sports teams around the world. The company has a Swoosh logo and one of the most known trademarks known as “Just do it” (Tang, 2008).

The supply chain management strategy of Nike Inc. until 2001

Nike Inc. had a well structured supply chain management strategy. Under this strategy, the company was not undertaking the process of manufacturing its products. As an alternative, the company directly outsourced the manufacturing process from its suppliers. The suppliers were, thus, the contractors to the company. However, during the year 1975, Future Program was introduced in the company (Ireland & Hoskisson, 2008). In this program, the global operations of the Nike Inc. company were divided into five broad geographical regions. The program targeted to obtain better operations as well as effective systems. Conversely, the supply chain management appeared to be inadequate and ineffective towards the end of 1990s. The indicators of the ineffectiveness were problems like ineffective forecasting, improper management of the changing trends among others. Therefore, there was need for some changes in the supply chain management strategy.

In the year 2000 Nike Inc. launched the NSC project. The NSC project targeted merging the ERP, the Supply Chain and the CRM Software into a single SAP Platform (Tang, 2008). However, the project later proved to be a disaster in the operations of Nike Inc.

The Failure of Nike Inc

There was a notable fall in the sales and earnings for Nike Inc in the spring of 2001 (Frisch, 2009).  The company associated the massive loss its i2 Technologies. In this year, the company reported a profit of $97 million, which was $48 million less below the forecasted value for that quarter of that fiscal year (Ireland & Hoskisson, 2008). This loss was attributed to the i2 technology of the company. The company used i2 technology in its demand forecasting as well as supply chain management system. Initially, the supply chain software was expected to reduce the quantity of rubber and canvases as well as other materials that the company needed to produce shoes. In addition, the supply chain software was expected to enable the company manufacture more of the shoes that customers had great demand for and less of shoes the customers did not prefer. On the contrary, the software led to the company manufacturing more shoes that were less demanded by the consumers.

The reason for the failure of i2 technology

Nike Inc. failed to apply patience when it was implementing the i2 demand and supply planner software. This software was the first step in the company’s supply chain strategy. Instead of the company waiting to install i2 as part of the SAP ERP project, the company went ahead with the process in the year 1999. At this time, the legacy systems were still in use.

The i2 software was capable of mapping out the process of manufacturing certain products. It could predict the demand application as well as the supply chain planner. To achieve this, the software used varied business rules and it stored data using different formats. Consequently, it became hard to integrate the i2 technology and legacy systems applications. The reasons for this was that there was need to heavily customize the i2 technology to enable it operate smoothly with the Nike legacy system. The software consumed much time when recording a single entry, which was almost a minute. For this reason, the software would often crash due to overloading.

The problems would have been brought under control had they not affected the factory orders. However, the system ignored some commands while it duplicated others. In addition, the software deleted the commands six to eight weeks from the date the command was fed into the system. As a result the planners found it difficult to remember what they had instructed each factory to produce. Consequently, there were many orders for Air Garnets while calls for Air Jordans were lost or deleted (James, 2013).

The i2 software had cost the company close to $40 million. The other amount that was close to $360 million was used by the company in effective forecasting of the SAP project (James, 2013). All these were measures by the company to effectively enhance company to customer relationship as well as the planning of the company. As a result of the large financial inputs in the project, it meant huge financial losses for the company. The company noted eventually that the reasons for the failure of the project was due to inadequate experience in i2, lack of training as well as forecasting too far out by the company.

The Results

The huge financial investment into the unsuccessful i2 technology resulted into huge financial losses for Nike Inc. the company took close to none months to get over the manufacturing problems and more than 2 years to recover from the financial losses (Ireland  & Hoskisson, 2008). This tainted the image and reputation of the company to a great deal. There was general decrease in the sales and the revenues for the company. The company was left with shoes that were less demanded in huge stocks. The hottest selling shoes were very few in the stores of the company.

The company realized the importance of forecasting. Forecasting for Nike was important in the determination of quantities. Through forecasting, the company enabled the supply chain management of the company to implement the policy “make to order” rather than “make to stock” (James, 2013). In addition, the company reduced the time needed for supply through effective forecasting. The company thus moved to analyze in depth the i2 technology. It realized that there was need to adequately train the users, to comprehensively test the software as well as to carefully integrate the application with other information systems. The project was hence reviewed and it was discovered that there was too much reliance on the forecasts that were generated by the algorithms without questioning the forecasts.

In the year 2004, Nike Inc. had put in place an effectively well integrated supply chain system that used i2 technology (James, 2013). The system aided the company in forecasting, SAP’s ERP system as well as Siebel’s CRM systems. The company spent 6 years and close to $800 million on the project (Ireland  & Hoskisson, 2008). Further, the company improved the supply chain by installing a system that was well equipped and competent. There was constant interaction with consumers on the web portal and this proved to be an effective feature of the system. In addition, the company improved the process of data analysis and implementation. The system allows continuous feedback to the company from suppliers and consumers and this plays an important role currently in the development of the company.

 

 

 

References

Frisch, A. (2009). The story of Nike. Mankato, Minn.: Creative Education.

Ireland, R., & Hoskisson, R. (2008). Understanding business strategy: Concepts and cases (2nd ed.). Mason, OH.: South-Western Cengage Learning.

Tang, C. (2008). Supply chain analysis a handbook on the interaction of information, system and optimization. New York: Springer.

James, S. (2013). Shoe companies of the united states: Converse, nike, inc., zappos.com, crocs, reebok, toms… S.l.: University-Press Org.

 

 

 

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