Nike Assignment

Procurement & Distribution Logistics

Tutor: Mr. Michael Klein

By

Group

C.5

Members: S.P.R.RUNGASAMY  URMILLA D. PEEHARRY   VISHWESH WARULKAR   ASHWIN SREEVALSAN  YUVARAJ

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Introduction

 Nike was established in the year 1962 as Blue Ribbon Sports by the actual CEO Phil Knight and the late Bill Bower man. Both started the company by selling athletic shoes at track meets out of  the back of their truck. In the year 1972, the company was named Nike (name derived after the Greek goddess of  victory). The company began to be known in the 1972 Olympics, when several winning distance runners wore Nike shoes. In 1974, Bill Bowerman invented the waffle iron; he put rubber onto a waffle iron looking for a shoe with better traction and less weight. Nike¶s success started and today Nike is the premiere seller of athletic footwear and apparel in the world.

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Note:

The report will be based on Nike¶s strategies to compete on the local and Global market, with its tactics to enhance its supply chain, through an efficient implementation of an IT  infrastructure, and strategies that supports the outsourcing of non critical activities to achieve a significant cost leverage in the industry.

The rise of competition in the late 1990¶s, has forced NIKE Company to make crucial decisions to overcome barriers, so as to stay in pace with its competitors. *

Purpose of enhancing the Supply Chain

In the walk towards staying competitive, Nike Company adopted several strategies in its Supply Chain Management. They came with a Project known as the NIKE Supply Chain (NSC) Project, their plans was to create an IT Supply Chain Management solution, which objectives was to: y y y y y y y

Respond efficiently to changes in its Foot wear and Clothing Industry Improve its Supply Chain to stay competitive Lowering costs of Inventory Reduce risks Deliver a richer customers¶ experience Improving process, information and product quality Provides a well-organized global supply chain with local implementation.

The implementation of the project was associated with some risks, due to the size and complexity of the supply chain, and also to the inexperience of software¶s vendors. To counter  these issues, they used several specialised teams of consultants from different software companies.

The NSC Project phase * *

The project was divided into logically geographical segments Canada was used as a µTest Ground¶ for everywhere

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 Sources of software¶s

They used a grouping of different leading software¶s companies, like: y

Rentrax

y

Siebel

y

Global Logistics Village

These were incorporated into foundation software from SAP, and afterwards the solution was integrated into Nike¶s existing ERP and systems. F irst outcomes Despite

negative results in May 2001, due to difficulties in its supply chain, where sales were down to $100 millions, the company realized a profit of $261 million in 2004, due to the efforts of the NSC project.

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Strategy in the supply chain

The company pursued their tactics to achieve their corporate goals and to obtain the best level of  investment in technology that will results in maximizing their ROI (Return o f Investment) by:

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Incorporating IT in its Supply chain Restructuring and implementing a virtual integration model Reorganizing its supply chain, from Supp liers, Manufacturers to the end consumers

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Project Management

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In spite of having a well organized IT department, the company relied on outside software consultants to help in them, more precisely, the consultants from the software¶s company, where   Nike purchased the software. For example, consultants from SAP solution brought significant contribution to implement the solution; they help Nike with training, and customization of their   products to fit the company¶s needs.

The Company worked with consultants¶ teams from different specialized software manufactures, to support their internal team, like:

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r r r r

SAP Siebel Rentrak  i2

The NSC team devised a good methodology of operation, in implementing the solution across the supply chain; they broke the project into the following logical geographical components: Canada, United States, Europe, Global Operations, Japan, Malaysia, Philippines, Singapore, and Thailand.

The solution was first implemented in Canada, which was used as a test case for all their  operations around the world. It was evident that each geographical area had its own specialized software product.

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Nikes IT

infrastructure

  Nike¶s foundation software is SAP¶s Apparel and Footwear Solution, it is obviously the  backbone of the solution, where all software are built upon or incorporated into. It allows users to obtain financial information, view orders, and all logical data in the company¶s supply chain. It will obviously, meet the objectives of the company, as it was designed for the unique needs of  its Apparel and footwear.

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 Product Flow analysisRentrax

NIKE foundation Software from SAP

CRM Siebel

software from i2

golbal Logistics Village  ERP legacy systems

The NSC solution comprises the following software: Foundation Software from SAP, CRM Software from Siebel, Software from i2, Online Order Tracking from Global Logistics Village, and Product Flow Analysis from Rentrak.

The Nike Supply Chain implemented solution to assist the overall business, for example, they used Siebel customer relationship management software, to support managers in delivering an effective customer service to their 38,000 retailers across the world, where the Nikes products are distributed. The solution enables accounts managers in forecasting better sales volumes, reducing out of  stocks, and improving forecast accuracy, and also facilitates them to track performance with customers and in the marketing programs.

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The strategy of Nike using i2 software was to perform an effective business planning, it enable them to detect and resolve any problems effectively, and helping them in activities like long range and short range demand and supply planning. The i2 software provides visibility across the whole supply chain, which include the following activities: r r r r

Procurement Manufacturing D istribution Warehousing

The Global Logistics Village software for online tracking of order shipments enables Nike to know whenever their orders fall behind schedule. They will be able to track down any problems that may arise, resolve them or communicate it to Nike¶s customers, thus improving customer  service. The Rentrax solution allows Nike Company to analyze its product flow from start to the end, and helps to manage data used in business operations like invoicing products, securing materials, and tracking orders. It was easy to customized and meet the business needs. The solutions have helped the company to establish a global purchase ordering for all its manufacturers, which resulted in remarkable changes at the speed in which the company operates.

The strategies bear the expected fruits, as stated by Nike¶s Chief Financial Officer Donald Blair, that in spite of some minor problem in the implementation of the project, the Company had a remarkable improvement in the inventory level and they realized a profit of $ 261 million, in September 2003. (  Nike annual Report 2004)

 Virtual supply chain The ability of Phil Knight, CEO of Nike Company in building a virtual supply chain, making  productive use of its resources, has helped them to achieve the desired results. The characteristics of the solution applied by the NSC Project team are: r r

r r

Its Web-based architecture, IT SCM solution The Product Development Stage, joining up collaborative input from partners¶ at pre  production stage, enabling its suppliers to provide input into design for manufacturability, thus reducing costs at an early phase in the Supply Chain. Sourcing stage: Efforts to minimize costs from suppliers, and ensuring that materials meet quality and specifications The Production Stage: The ability to help reducing stock of raw material and work in  process inventory.

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The Company¶s Supply C hain

The Company is located in Beaverton, Oregon, but almost all of their production is carried out abroad. The sales growths outside the Unites Stat es exceed its domestic sales, (according to its Annual report in 2003). Outsourcing

  Nike Company is also involved on design, development and marketing worldwide, they strategically make use of contract manufacturers, externally, to make their products. Its Apparel and equipment manufacturing are produced locally and abroad, but virtually all shoes are manufactured outside the country. 

Materials used in its production

The Company takes most of its materials from local suppliers, based in the manufacturing locations, but other specialized materials which are not available locally, are imported.  N ike

Shoes:

Leather,

Rubber, Plastic compounds, Foam, Cushion materials, Nylon, Polyurethane films and

Canvas

Threads, Metal Hardware, specialized performance fabrics and, nat ural and synthetic fabrics materials

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Distributions

process

 NIKE¶s finishing products are sent to all Distributions centers worldwide. The locations of Distribution centers in the US are:

r r r r r r r r

Memphis Wilsonville Oregon Tennessee  New Hampshire Greenland Costa Mesa California

Ov erseas Distribution centers:

The company controls 24 Distribution Centers across the Globe, in Europe, Australia, Africa, Asia, Canada and the Latin America. Apart from these Distribution Centers, the Company deals through independent Distributors and licensees, they also have branches outside the country.

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Global

operations

US operations

Suppliers of Raw Material

(Nike owned air (Foreign shoe Bag Manufacturer) manufacturer)

Supplier of Raw Material

(Foreign apparel manufacturer)

(US apparel manufacturer)

Foreign Distribution Centre

Foreign Nike Retail Accounts

Nike Owned Retail Stores

US Distribution Centre

Domestic

Nike Retail Accounts

Domestic

Nike Retail Stores

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The diagram shows the supply chain processes from the Suppliers, Manufacturers, and Distribution Centers, to the Retailers, in its Global Operations and US Operations. Nike¶s Supply Chain activities is linked with an effective IT infrastructure, and the connection from the Suppliers to the Retailers is mostly done by means of  Lorries and Trucks, due to the availability of Raw Materials near manufacturers locations, except importations of some non-available materials by: Ships and Air Cargo.

Note:

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The important part of the supply chain is the tactics of Nike¶s Company, to locate its manufacturing plant in strategic points, where they have most of resources needed for  operations, thus lowering production costs.

lorries/Truck ships/Flight Nike's Manufacturers

 To Distribution Centers

Global US Suppliers

Lorries/Trucks Ships/Flight

From Distribution Centers by lorries/Trucks Ship anf Flight to

Retailers

End Consumers

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The company¶s supply chain takes more or less 6 months process, from the starting point to the end. The product shelf-life is on average around three months, and there a risk of shortage of    product supply, replenishment usually takes long time, before the product comes out of style. (  Ref: Nike spokeswoman Joani Komlos) The Company reaches about 18,000 retailers in the domestic market, and about 30,000 retailers worldwide, whilst focusing on the different retailers needs, due to various cultures.

R isk/Business

strategy

Like

many other businesses, Nike Company faces strong competition from other competitors¶   brands, driven by continuous changes in technology, new design and styles of clothing and footwear.   Nike Company has the capability to counter these issues, with the NSC, which is specifically designed to bring changes and implement new design and styles of products, and also speed the time of products to market. There¶s also risks associated with improper inventory control, in 2003, the inventory costs at this level was more than $ 1.5 billion, shrinkage from theft and fierce competitions are linked with the costs. This lead to the decision for Nike to review its strategy, to have a more effective visibility all along its supply chain. The NSC provides the corporate level with reliable information, about the functioning of the Supply Chain, which enables them to take appropriate decisions for any improvements in the chain.

The implementation of the NSC solution was also intended to trim down the quantity of  materials required to produce Nike shoes, and its objective was to increase the company¶s  profitability.

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Comp lexity of the project

The implementation of the project to meet the corporate goal, was confronted with lots of  obstacles, the team faced difficulties due to the complexity of the supply chain and the size of the company. The size and complexity of Nike Company required more attention, to implement the solutions across the supply chain. The nature of the industry renders their job more difficult, as it was a matter of colors, styles and its extensive sizes, which requ ired specialized software. It was vital to locate expert software manufacturers, and link them into the supply chain, as Nike Company deals with several products, such as: * * * * * * *

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The Bauer Skates Cole Haan dress shoes Hurley skateboarding clothing Sunglasses Bags Electronic equipment Sports equipment etc

Subcontract

As mentioned earlier, the Company turned towards the subcontracting of most Nike¶s manufacturing business.

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Costs/Packaging Strategy

 Nike contributed in reducing the CO2 emissions, whilst directing its objectives towards reducing its costs; they strategically installed new roofing systems on three distribution centers, thus reducing 15% in energy consumption and costs.   Nike launched a new product design philosophy, known as the µConsidered Design¶, that incorporate principles of environmental sustainability, the product innovation team has educated designers on the new guidelines. From manufacturing to transportation, the company emphasised on environmental issues, it was like a tool that contributed to reduce costs, with particular focus related with Packaging, and these were associated across a range of materials used. (  Ref: ceres.org)

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 Bibliograph y  1.  Nike¶s Annual Report 2004 2. http://www.rentrak.com, Essential Business Intelligence, December 2003. 3. http://www.sap.com/solutions/industry/consumer/apparel 4. http://www.siebel.com, (June 2002) 5. http://www.i2.com Value Chain Management for Business, 2 December 2003, 6. Hilleren Deborah, (2003) Nike Global Brand Director for Kids, Personal Interview 7. http://www.nike.com/nikebiz, Inside Story, December 2003 8.

www.ceres.org/Document.Doc?id=396

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 N ike

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Inc accessed on 11/04/10  ,

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