NIKE SUPPLY CHAIN MANAGEMENT

SUPPLY CHAIN MANAGEMENT OF

NIKE SUPPLY CHAIN MANAGEMENT

CONTENTS

Page No.

1. Introduction..3 2. DiagrammaticRepresentation of Supply Chain Model of Nike.4

3. Supply Value Chain Of Nike.5 i. Characteristics.7 ii. Advantage..8 iii. Disadvantages.9

4. Virtual Supply Chain ofNike... i. Technology13 ii. Advantage.14 iii. Disadvantages15 5. Conclusion..16

INTRODUCTION
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NIKE SUPPLY CHAIN MANAGEMENT

The supply chain plays a critical role in the transformation and global growth of a company especially in the current economic situation. The global supply chain is the transformation flow linking the raw materials, parts suppliers, manufacturers, and service support operations into products and services and distributing these products locally for consumers. Nikes concept for its supply chain management are process innovation (do it different), continuous improvement (do it better), and execution discipline (do it right) Nike, created in 1971 began outsourcing in mid 1970s. Currently, Nike is largest athletic shoe company in the world, controlling more than 36% of the US athletic shoe market and has more than 33% of the global athletic footwear market. Nikes products include apparel and sports equipment (Nike, Inc, 2009). Out of Nikes 830 suppl iers, 70 of it produce shoes. Nike employs more than 600,000 workers in 51 countries in 2004, manufacturing Nike products. Nike has direct employees of 24,291 with vast majority in the US and had about $12.2 billion in revenues of which $6.5 billion came from footwear sales and $3.5 billion from apparel in 2004.

NIKE SUPPLY CHAIN MANAGEMENT

This figure illustrates the major entities in Nikes supply chain and the flow of information upstream and downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles.

NIKE SUPPLY CHAIN MANAGEMENT

NIKE SUPPLY VALUE CHAIN

Manufacturers / Suppliers Consistent with its original strategy, NIKE outsourced virtually all of its footwear manufacturing to low-cost Asian or South American manufacturers. By 1999, the primary locations for NIKE production were Indonesia, Vietnam, Korea and China. Managing its global supply chain was a core strategic advantage for NIKE and all its operations were geared towards ensuring smooth integration with contract manufacturing. The company worked with hundreds of manufacturing partners in order to develop long-term, trusting relationships. Manufacturing partners did not necessarily provide the cheapest production, but for the most part, they delivered consistent, timely shipments of goods that met NIKEs high quality standards. The partners were willing to invest heavily in capabilities to manufacture new designs or features, knowing that production levels would be high enough to offset the investment. NIKE generated all its own new product ideas and managed the design process in-house. Once a design was perfected, a manufacturer would begin the eight-month product cycle process of developing volume production capabilities in all the relevant sizes. Once production was fully on-line, NIKE could expect orders to be fulfilled within 90 days, plus an additional 30 days for shipping by sea freight. Product Lifecycle Getting a new athletic shoe model on a store shelf could take 15 to 18 months, from initial planning to final product distribution. Volumes were determined far before shoes arrived at consumer outlets, requiring careful forecasting from NIKE and its merchants. A typical new NIKE shoe had a market life of 3 to 6 months from introduction to depletion of inventories. Because the product life was so much shorter than the production cycle, it was not possible to adjust production runs to meet unexpected levels of consumer demand. As a result, NIKE did not try to match supply of any given shoe model with demand, preferring instead to set conservative production targets and then begin designing the next generation model.

NIKE SUPPLY CHAIN MANAGEMENT

A typical NIKE factory produced between 2,000 and 3,000 pairs of shoes in a day, implying production run of about three months for a line that would sell 200,000 shoes. It was difficult for NIKE to make money on smaller production runs, although the company did produce some specialty shoes at considerably lower volumes. Retail Sales Channel NIKE utilized a large in-house sales force to sell its products through a number of different types of stores multi-sport general athletic department stores, specialty athletic department store retailers and general-purpose shoe stores. Despite the company's origins selling shoes straight to track runners from the back of Phil Knight's car, NIKE had not been very interested in direct-to consumer sales. The company did not have a meaningful catalog or mail-order business and had opened only a handful of its own stores, called NIKE Towns. Even these NIKE-owned stores were seen more as a marketing and brandbuilding effort than a meaningful source of sales. The retail market for athletic footwear and apparel was extremely fragmented. )The top ten sporting goods retailers represented a mere 14% of total U.S. sales. Because these retailers were so small, they had been slow to implement sophisticated technology to track purchases and inventory, leading to frequent stock outs and misallocations of inventories. NIKE had suffered in the past from imperfect information concerning retailers' inventory levels and was hopeful that better methods of inventory monitoring would be found. NIKEs 40% market share in U.S. athletic footwear gave it additional influence with the merchants who carried their products. The company encouraged advance planning from its retail partners nearly 90% of the orders it received from retailers were for future deliveries nine months out. As a result, NIKE was able to plan manufacturing and distribution far in advance to meet its guaranteed future sales. NIKE was also able to negotiate favorable contract terms with its retailers, including display characteristics, inventory levels, and other details that affected the consumer experience. The company distributed most of its own products from its factories to retail stores or retailer distribution centers. The distribution process was extremely complex; a retailers monthly order of 300,000 pairs of shoes could involve over 50 different models being shipped to 100 different locations. In the late 90s, NIKE invested over $1 billion in several large regional distribution centers to replace its numerous smaller centers. NIKE also started providing discounts to retailers who managed their own distribution right from the NIKE Factory, thus avoiding the need to go through a NIKE distribution center

NIKE SUPPLY CHAIN MANAGEMENT

at all. NIKE tried to keep inventories to a bare minimum and managed over 5 inventory turns a year.

Direct Sales Channels In 1999, NIKE owned and operated 13 NIKE Town superstores, typically located in extremely high-traffic, upscale shopping neighborhoods. The first NIKE Town store was opened in Portland in 1990 and was described by its designer as a cross between the Smithsonian, Disney World, and Ralph Lauren. While a broad range of NIKE footwear and apparel was sold (at full retail price).

CHARACTERSTICS MANAGEMENT:

OF

NIKES

SUPPLY

CHAIN

1. Nikes supply chain technology consists of Electronic Data Interchange (EDI) which transmits the data between different companies using networks, such as VAN or the Internet; 2. Value Added Network (VAN) is a private network provider that leases communication lines to its subscribers and the internet as the backbone for supply chain links companies to their suppliers and vice versa (Web portals) and is also used to connect with customers (Nikes home page); 3. The Enterprise Resource Planning (ERP) which is a business management system that incorporates all component of the business as well as planning, manufacturing, sales, and marketing. 4. To run their supply chain, Nikes uses HP servers, software, and consulting services as HPs single platform is capable of running both UNIX and Microsoft Windows NT systems.
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NIKE SUPPLY CHAIN MANAGEMENT HP is able to provide Nike with the right technology needed to operate successfully its global supply chain. This technology helps Nike review its supply

Advantages of Nikes Supply chain:

1. Costs from outsourcing allowed Nike to focus on its core competencies such as product design, marketing, and Air Sole technology. 2. Nikes relationship with its suppliers made it possible for them to have quality product with low costs due to reduced administrative and payroll costs. 3. The flow of their products reduced time in initial design, production and distribution from sending new designs to suppliers who produces the shoe parts, to forwarding the shoe parts from suppliers to companies assembly and finally in shipping the finished products for worldwide distribution. 4. Nikes diversity of 860 suppliers allowed them flexibility, faster service in cases of emergencies and quality assurance. 5. Nikes technologies in transferring of data, orders, communication through internet and databases allowed them to perform and meet the needs of its customers in a timely manner and have a good inventory and monitoring control.

NIKE SUPPLY CHAIN MANAGEMENT

Disadvantages of Nikes Supply chain

1. Expensive implementation of technical components; 2. Having too many suppliers can lead to losing control of inventory and operations management; 3. A breakdown of some shoe parts suppliers can cause delay in its supply chain process; 4. Suppliers non implementation of Nikes Code of Conduct can once again destroy the public perception of Nike

5. Nikes

Future Vision restructured the supply chain by consolidating contractors

into five Manufacturing Leadership Partnerships (MLPs). In contrast to competitive market-oriented contracting, MLP is similar to a collaborative partnership distinguished by a high level of interdependence underpinned by goodwill and trust. The MLP facilitated the information sharing between suppliers within the GVC.

NIKE SUPPLY CHAIN MANAGEMENT

VIRTUAL SUPPLY CHAIN

Any chain (or network) connected through electronic links can be considered virtual.
However, a virtual supply chain often encompasses much more than electronic links. It represents an organizational structure that facilitates efficient and effective flows of both physical goods and information in a seamless fashion. (Chandrashekar&Schary)

Traditional model

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NIKE SUPPLY CHAIN MANAGEMENT

Virtual Supply Chain

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NIKE SUPPLY CHAIN MANAGEMENT

Now question arisies why Virtual Supply Chain Management.??????

Technology used for this management is:

TECHNOLOGY
Electronic Data Interchange (EDI) The transfer of data between different companies using networks, such as Vans' or the Internet

Value Added Network (VAN) Private network provider that leases communication lines to its subscribers

Enterprise Resource Planning (ERP) A business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing Radio Frequency Identification (RFID) Earlier Presentation Internet Plays the role of backbone for VSC Links companies to their suppliers and vice versa Web portals Lucent's supplier web portal Also used to connect with customers Nikes home page

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NIKE SUPPLY CHAIN MANAGEMENT

Lets discuss some of the advantages of the virtual supply chain management:

ADVANTAGES
Costs
Outsource non-core activities Allows Nike to focus on their core competencies of: Product Design Marketing AIR SOLE Technology Having a virtual relationship with suppliers and the companies who assemble Nike products allows them to: Reduce administrative costs Payroll costs

Switch to companies that provide low labor costs and a quality product.

Diversity of suppliers
A VSC allows a company to search for and use a wider range of suppliers Although geography may separate them they can still communicate electronically Having multiple suppliers that you can trust allows you to avoid emergencies in your supply chain With more suppliers available a company is more flexible

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NIKE SUPPLY CHAIN MANAGEMENT

Now if this VCM(Virtual Supply Management) has advantages its also have disadvantages and which are as follows:

DISADVANTAGES
Very costly to implement technical components of a VSC Integration with suppliers is complex and timely Building relationships with certain suppliers can be difficult because of geography Control can be lost Small glitches could equal huge losses Effects of miscalculations can take years to reverse Trust issues can cause delay in processes Trend predictions

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NIKE SUPPLY CHAIN MANAGEMENT

CONCLUSION
Nikes efficient global supply chain enhanced its ability to successfully respond to labor issues and other changing conditions and reduced risk in its inventory and capital investment. Nikes efforts on corporate social responsibility allowed them to improve its operations, information and product quality thereby allowing them to meet consumers needs. Nike can now provide customized shoes for customers, allowing them to order online through Nike website Nike was able to create an instant ordering system by combining technology with customized service thereby adding more services for their consumers. Nikes chan ges in the governance of its supply chain afforded insight into Global Value Change (GVC) evolution towards heightened Corporate Social Responsibility (CSR) by conducting compliance audits to all their suppliers worldwide to ensure accurate assessment of factory condition and honest reporting of their findings especially concerning labor laws and Nikes Code of Conduct. Nike expanded its supplier concerns to working conditions, environmental protection, and community welfare. Nike moved from arms -length contracting to collaborative partnership with its suppliers holding Manufacturing Leadership Partnership (MLP) status thus attracting quality workers through implementation of Codes of Conduct policies. Consequently, Nikes supply chain management focused on its process innovation, continuous improvement, and execution discipline. THANKING YOU.
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