Management and Entrepreneurship NIKE Shoes

ByNishanth R 1MS10EC069 VII SEM, B SEC Dept. of E&C MSRIT

1. Description of the Enterprise:

Nike, Inc. is an American multinational corporation that is engaged in the design, development and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area, and is one of only two Fortune 500 companies headquartered in Oregon. It is one of the world's largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment, with revenue in excess of US$24.1 billion in its fiscal year 2012 (ending May 31, 2012). As of 2012, it employed more than 44,000 people worldwide. The brand alone is valued at $10.7 billion, making it the most valuable brand among sports businesses. The company was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bowerman and Phil Knight, and officially became Nike, Inc. on May 30, 1971. The company takes its name from Nike, the Greek goddess of victory. Nike markets its products under its own brand, as well as Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Skateboarding, and subsidiaries including Hurley International and Converse. In addition to manufacturing sportswear and equipment, the company operates retail stores under the Niketown name.

2. Product Characteristics:
2.1. Usage: Nike produces a wide range of sports equipment. Their first products were track running shoes. They currently also make shoes for a wide range of sports, including track and field, baseball, ice hockey, football and other athletic and recreational uses. Nike Air Max is a line of shoes first released by Nike, Inc. in 1987. Additional product lines were introduced later, such as Air Huarache, which debuted in 1992. The most recent additions to their line are the Nike 6.0, Nike NYX, and Nike SB shoes, designed for skateboarding. Nike has recently introduced cricket shoes called Air Zoom Yorker, designed to be 30% lighter than their competitors'. In 2008, Nike introduced the Air Jordan XX3, a high-performance basketball shoe designed with the environment in mind. 2.2. Specifications: Specifications mainly tell us the materials used along with the processes involved and the choices made by the company to improve sales and profit. Materials used includes new choices for recycled and recyclable materials. Processes involved employing new ways to process with less energy, water, chemicals or waste.

Choices made creating and applying indexes, Restricted Substance List (RSL), policies and better ways of operating, and sharing them with vendors and suppliers. 2.3. Standards: Nike scores more material vendors on criteria such as whether they are complying with the Restricted Substance List (RSL) testing requirements and the Nike Water Program requirements; if they take part in materials certification processes, such as the Global Recycle Standard; and whether they have ISO 14001 certification or operate out of certified green buildings. Rating higher on these types of criteria will increase a vendors overall Nike MSI score.

2.4.

Quality:

Nike, Inc. has always aimed at providing the highest-quality product while eliminating waste, including lost time and material.

2.5.

Production process:

In Nike, rather than working toward a certain percentage of recycled content in a finished product, work is done to improve the base material and new systems are created that allow them to assess the impacts of the resulting products in a better way. By doing so, they do have some ways to measure success. For example, for the past five years they have achieved a 19 percent reduction in waste related to the production of footwear uppers. The use of Environmentally Preferred Materials (EPMs) ones that have lower environmental impacts throughout their lifecycles in terms of chemistry, water, energy use and waste provides another strong indicator of our progress. 2.6. Market Position and Trend: The Considered Design ethos and the belief that design processes adopted broadly can be a key driver of systems change has been a corner stone of our sustainability strategy. Going forward, we believe our nextgeneration indexes will accelerate progress in product and materials sustainability throughout our value chain particularly the Nike MSI, which will encourage material vendors to become more sustainable themselves and to create more environmentally responsible materials. Nikes vision is that through these efforts, their material vendors will be our sustainable innovation partners in pushing new and better materials to scale. At the same time, Nikes R&D teams are working to accelerate the innovation of new materials and expand palette of available EPMs across all NIKE, Inc. brands. For example, they have developed definitions for good, better and best EPMs for strategic materials. But most of the better and best options remain theoretical at present much more research must be done before they can be brought to market. Through innovations in these types of materials, we aim to create disruptive change in the industry and set new benchmarks for sustainability and performance.

3. Description of Machinery and Equipment:

Shoe manufacturing is most likely labor intensive process and it cannot be fully automated. It requires craftsmanship in each phase of the production. More than 100 operations are required for making a pair of shoes. However, with the development of modern machines, a pair of shoes can be made in very less time as each step in its manufacturing is generally performed by a separate footwear making machine. Any footwear company has mainly four departments in which a progressive route is followed for producing finished shoes. They are - Clicking or Cutting Department, Closing or Machining Department, Lasting & Making Department, Finishing Department and the Shoe Room.

Clicking or Cutting Department - In this department, the top part of the shoe or the "upper" is made. Using metal strip knives, the worker cuts out pieces of various shapes that will take the form of "uppers". Closing or Machining Department - Here the component pieces are sewn together by highly skilled machinists so as to produce the completed upper. The work is divided in stages. In early stages, the pieces are sewn together on the flat machine. In the later stages, when the upper is no longer flat and has become three-dimensional, the machine called post machine is used. The sewing surface of the machine is elevated on a post to enable the operative to sew the three dimensional upper. Lasting & Making Department - The completed uppers are molded into a shape of foot with the help of a "Last". Last is a plastic shape that simulates the foot shape. It is later removed from the finished shoe to be used further in making other shoes. Firstly, an insole to the bottom of the last is attached. It is only a temporary attachment. Sometimes, mostly when welted shoes are manufactured, the insole has a rib attached to its under edge. The upper is stretched and molded over the last and attached to the insole rib. After the procedure completes, a "lasted shoe" is obtained. That was the process for heeled shoes. When a flat shoe is in the making, there are considerably fewer operations. The insoles in this case are flat and when the uppers are 'lasted', they are glued down to the surface of the inner side of the insole. The part of the upper, which is glued down, is then roughed with a wire brush to take off the smooth finish of the leather. Finishing Department and the Shoe Room - The finishing of a shoe depends on the material used for making it. For shoe room operation, an internal sock is fitted into shoe which can be of any length- full, half or quarter. They usually have the manufacturers details or a brand name wherever applicable. Depending on the materials used for the uppers, they are then cleaned, polished and sprayed. Laces and any tags that might have to be attached to the shoes, such as shoe care instructions, are also attached. The shoes, at last, get packaged in boxes.

4. Available Alternate Technologies:

Rapid manufacturing is a family of technologies that employ additive layer deposition techniques to construct parts from computer based design models. These parts can then be used as prototypes or finished goods. One type of rapid manufacturing technology, Selective Laser Sintering, only allows for a point-by-point sintering process to construct the 3D representations of CAD models. This makes for long processing periods and is

ineffective for high volume manufacturing. However, a new process called highspeed sintering uses infrared energy to 'flash' the polymer powder at multiple points making the layer deposition process much more time efficient. In effect each infusion of energy results in an entire layer being constructed rather than a single point. One of the first industrial applications for this technique is in performance footwear manufacturing. New Balance, a Boston based shoe and Apparel Company, in collaboration with Loughborough University has an interest in exploring the technology for low volume parts manufacturing as well as personalized footwear. High speed sintering has the potential to replace injection molding for specific footwear applications. This technology has several key advantages over injection molding including the ability to build complex geometries that would be impossible with injection molding. Also as the technology continues to evolve new materials could improve the mechanical performance of finished parts. Nevertheless, as with commercializing any new technology identifying a cost effective implementation route is a pivotal step. 5. Materials Used for Production: Nike uses a vast array of materials in its products more than 16,000 in an average year. (As an example, a single pair of shoes, alone, uses an average of 30-plus materials.) These materials include everything from natural fibers such as cotton and wool to technical synthetic materials such as polyester, nylon, rubber, synthetic leather and ethylene vinyl acetate (EVA). But the preferred EMPs are Organic Cotton, Recycled Polyester, Environmentally Preferred Rubber, Leather and Synthetic Leather. Given the huge range of materials available, its easy to see the difficulty involved in making informed decisions about what materials to use to design a product.

6. Names of Suppliers:
Nike outsources majority of its manufacturing function to overseas factories. The strategy to outsource was implemented once Nikes management team established that they could get Nike shoes produced in Japan for lower costs than they were paying for in the United States. However, in the 1970s, production costs in Japan increased which left Nike with no option but to look for other cheaper alternatives. As a result, Nike shifted its manufacturing to firms in Korea and Taiwan. However, Korea and Taiwan later on experienced strong economic growth which resulted to high production costs thus leaving Nike with no options but to look for other cheaper manufacturers of the organizations merchandise. As a result, Nike ended up relocating to low costs countries like Thailand, China, Cambodia, Indonesia and Vietnam.

Some activities entailed in Nikes supply chain strategy can be argued to entail acquisition of the raw materials, manufacturer of the products, suppliers of parts, warehousing and distributors from where customers can be able to buy Nike merchandise from. Nikes strong existing relationship with the suppliers can be argued to be behind the companys success since high quality products can be produced at low costs within the stipulated time frame.

7. Requirement of Fuel & Labor:

Since, machinery is not extensively used in the manufacturing process, the fuel requirement is less and labor required is very high as shoe making process is labor intensive.

8. Costs:
Price Breakdown using a typical Nike Shoe production to retail: -Production Labor -Materials -Rent, equipment -Suppliers operating profit -Duties and Shipping - $ 2.75 - $ 9.00 - $ 3.00 - $ 1.75 - $ 3.50 - $20.00 - $ 0.25 - $ 4.00 - $ 6.25 - $35.50 - $ 9.00 - $ 9.50 - $ 7.00 - $ 9.00 - $70.00

-Cost to Nike
-R&D -Promoting and Advertising -Nikes operating profit

-Sales, Distribution Administration - $ 5.00

-Cost to Retailer
-Retailers Rent -Personnel -Other -Retailers operating profit

-Cost to Consumer

Based on these calculations, the consumer pays an additional 70% between what it costs Nike to make the shoe and the price sold on the market.

9. Sales Revenues to be generated from Units Produced and Profit Ability Analysis:

10. Funds, Cash Flow and Finance:

Nike is a multinational company which concentrates on design, development and worldwide marketing and selling of shoes and other sports accessories. It is one of the largest suppliers of footwear and apparel. Most of the funding is obtained by the sales of athletic shoes for all kinds of sports and recreational activities. And sometimes funds are obtained from many athletes who use the shoes for various sports. Nike also promotes its products by sponsorship agreements with celebrity athletes, professional teams and college athletic teams. This also helps in cash inflow. Nike Inc. will buy back $8 billion of Nike's class B stock in 4 years after the current $5 billion buyback program is completed in second quarter of fiscal 2013. Up to September 2012, Nike Inc. has bought back $10 billion of stock.

11. Analysis of Indexes for Next Generation of Nike Shoes:

Bibliography and Web Resources

Analysis of Shoe Manufacturing Factory by Simulation of Production Processes M S ERYILMAZ, A O KUSAKCI, H GAVRANOVIC and F FINDIK. http://www.nikeresponsibility.com/report/content/chapter/materials#topiclooking-to-the-future http://www.nikeresponsibility.com/report/content/chapter/manufacturing#to pic-profile-of-contract-factories http://dspace.mit.edu/handle/1721.1/53238 http://books.google.co.in/books?id=PT5L3Fi7ewwC&pg=PA39&lpg=PA39&dq=a lternative+technology+for+shoe+making+process&source=bl&ots=EnTykhp9ui& sig=431X0kbPbzY3xhWTvxZ5QrqJNCg&hl=en&sa=X&ei=lmuNUsa0JMejrQfUjY CIDQ#v=onepage&q=alternative%20technology%20for%20shoe%20making%20 process&f=false http://www.soc.duke.edu/~s142tm17/makingshoe.htm#Summary: Price Breakdown *As noted in the article "Sweating For Nike" http://nikeinc.com/news/nike-inc-reports-fiscal-2012-fourth-quarter-and-fullyear-results http://investors.nikeinc.com/files/doc_financials/AnnualReports/2012/index. html#select_financials