The Operations Management of Nike: A Comprehensive Overview

Introduction

NIKE, Inc. was incorporated in 1967 under the laws of the State of Oregon. Nike’s business activities involve the design, development and worldwide marketing and selling of athletic footwear, equipment, accessories, apparel and services. NIKE is the largest seller of athletic footwear and apparel in the world. The company sells their products to retail accounts, through NIKE-owned retail stores and internet websites (which they refer to as their “Direct to Consumer” or 'DTC' operations), and through a mix of independent distributors and licensees throughout the world. Virtually all of Nike’s products are manufactured by independent contractors. Practically all footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad. Nike world headquarters is located near Beaverton, Oregon, a suburb of Portland. Today the company operates in more than 160 countries around the globe. Through its suppliers, shippers, retailers and other service providers, Nike directly or indirectly employ nearly one million people.

Mission: Bring Inspiration and innovation to every athlete in the world.

Business Objectives

Nike goal is to carry on his legacy of innovative thinking, whether to develop products that help athletes of every level of ability reach their potential, or to create business opportunities that set Nike apart from the competition and provide value for our shareholders.

Manufacturing

Nike is supplied by over 146 footwear factories situated in 14 countries. Virtually all footwear of Nike is manufactured outside of the United States of America through multiple factories run by independent contract manufacturers. Of all the factories, contract factories located in Indonesia, China, and Vietnam manufactured 20%, 32% & 43% of all Nike footwear respectively. Nike also has independent factories in Brazil, India, Mexico, and Argentina to cater to those domestic markets.

Approximately 408 apparel factories from 39 countries supply to Nike of which most apparel production happens at Vietnam, China, Thailand, Sri Lanka, Malaysia, Indonesia, and Cambodia.

Nike’s independent suppliers and contractors procure raw materials for the manufacturing of their apparel, footwear, and equipment products. Raw materials are purchased by independent contractors and suppliers in the countries where manufacturing takes place thus creating little difficulty for the manufacturers in satisfying raw material requirements for the production of products.

Nike’s Operations Management Decision Areas

Nike being a leading international manufacturer and seller of sports footwear, attire, and equipment has gained this market position partly as a result of its effective and efficient operations management. To ensure quality production, Nike has continuously examined and improved their strategies and approaches used in operations management to improve their supply chain. These areas discussed below relate to the main decisions in handling streamlined operations and productivity that precisely address business goals and objectives.

• Design of Goods and Services: Nike focuses on designing products that align with the organisation goals and designs products based on new and advanced technology and current consumer and market preferences.
• Quality Management: Nike ensures quality in its products and processes through high-quality standards and the application of TQM in its production.
• Process and Capacity Design
• Location Strategy: Nike’s objective is to minimize costs through choosing production facilities where manufacturing, labour, and transportation costs are minimum and is near to the most significant market.
• Layout Design and Strategy: Nike optimizes workflow based on the capacity requirement, technology, human resources and inventory requirement. The company uses office layouts where employees can move easily and factories have layouts where the movement of products can happen with no hassle.
• Job Design and Human Resources: Nike focuses on this concern through internal leadership development, along with coaching and mentoring. The company also has regular evaluations of job assignments to ensure person-job fit.
• Supply Chain Management: Nike has a very efficient supply chain management, which aligns the supply chain with the firm’s overall strategic aims. Supply Chain automation and optimization of transport distances among suppliers, production facilities, distributors, and retailers are some of the ways in which Nike empowers its supply chain management.
• Inventory Management: Nike minimizes inventory costs while maximizing its effectiveness and efficiency through continuously monitoring the movement of inventory from the supply chain to the distributors and retailers.
• Scheduling: Nike’s approach towards scheduling is primarily concerned with business operations and the coordination of the supply chain with retail operations and distribution to maximize resource utilization. Nike does this through automation where company offices are standardized and supply chain schedules are attuned according to the market conditions.
• Maintenance: Nike’s maintenance strategy focuses on the adequacy of all resources. For facilities, the company has dedicated teams to regularly evaluate facility and equipment integrity and requirements.

Issues Faced by Nike’s Operations Management in the Past

Global Supply Chain

Nike’s global supply chain is an especially advanced network that impacts a large variety of stakeholders around the world. The supply chain was initially engineered through the outsourcing of producing directly to suppliers. In 1975, the corporate introduced the Future Program that divided Nike’s operations into five geographical regions with the goal of improving operations. Due to the ineffectiveness of this program, by the Nineteen Nineties, the company’s supply chain had several issues like ineffective forecasting and an inability to keep up with ever-changing consumer trends. As a result, Nike launched the Nike Supply Chain (NSC) project in 2000 with goal of implementing enterprise resource planning (ERP) and customer relationship management (CRM) software into an integrated platform. This project proved to be a disaster for Nike.

i2Technologies

In 2001, Nike reported considerably lower earnings than expected, that the corporate blamed on i2 Technology’s demand forecasting and supply chain management software. Nike officials claimed that the software resulted in shortages of some stock and excess of others. The inventory upset reduced Nike’s fiscal third-quarter sales by approx $100 million. Nike and i2 worked to trace down the issues and develop new software packages and operational procedures, however before the changes could be created the inventory issues had already considerably affected Nike’s bottom line. In addition to that, the company’s ordering and planning system was inflicting shortages and overstocks that had an enormous impact on inventory and logistics costs. Nike was forced to quickly fill back orders and dispose of excess inventory through discount distribution channels.

Nike’s New Operations Management Strategy

Introduction

Being an international corporation, Nike has very well incorporated the concepts of operations management and supply chain in its operating process. It has facilitated the concept of LeanSigma, which helps focus on lead-time reduction to increase customer loyalty and market share. As a manufacturing company, Nike has gained competitive advantages from Kaizen breakthrough, with the layout redesign for a lean, just-in-time (JIT) system, total productive maintenance, and six-sigma management. In this paper we will further discuss at stretch as to why and how Nike has been competent in the world market.

Strategy

Companies based on the most suitable alternatives and solutions to their problems vary their strategic business procedures. Hence, each company has their certain measurement criteria for evaluating the company performance, which reflect the most successful alternatives to their most essential problems.

Nike focuses on manufacturing sports shoes, an effortful producing sector. As a producing organization, it's straightforward to watch, evaluate, and improve every purposeful stage of Nike’s operation method. Improving productivity for the outputs of products, divided by the inputs, is required to maximize the outputs. The increasing strict internal control management combined with the demand by customers for cheap merchandise has suddenly placed Nike in an exceedingly precarious scenario. The question of how top-quality products will be made beneath several measurements at a value that customers are willing to pay is addressed. This may be accomplished by applications of transformation procedure that converts from batch to lean producing at the strategic level.

Additionally, the sales turnovers have forced several firms to slim down and think about why and what customers have really purchased. As a transactional company, Nike is concerned and cares for what its targeted customers seek for, and it finds products for customers not customers for products. Operations management is outlined as the integration of management principles into the decision-making procedures for the conversion of resources into usable outputs of products. The success of the lean operations management strategy can end in a product that exceeds client expectations and restrictive necessities by increasing productivity for a stronger method.

Product

Nike has implemented refined systems and well-understood business procedures by keeping cross-functional cooperation, which consequently cause the most effective inventory turnover from performance. Indeed, Nike has endlessly improved its operations management. ‘By mid-1985, inventories had fallen to but ten million pairs of shoes from a peak of twenty-two million in late 1983. Profit margins rose within the second business enterprise quarter to thirty-third from twenty-fifth a year earlier. during the period, expenses as a proportion of revenue fell for the company, which started marketing shoes in 1964 and went public in Dec 1980.’

Nike can dictate the prices. Since customers have set prices by understanding what they ought to have ready to buy, their payments then can depend upon to an outsized degree on how they may see variations between the perceived price and also the actual price. Positioned as a transactional corporation, the successful image of Nike enables to become the ultimate high-volume, low-cost factory. In the past, Nike had been challenged by boycotting of products, thanks to the threats that Nike has outsourced and exploited developing nations. However, presently Nike has taken advantage of their low-cost producing surroundings and enforced operations management ways to its manufacturing systems.

Capacity

When new operations strategy has been enforced and exhibited by totally different physical processes, volume measurements are often a relevant allocator. Volume can show how far equipment and machinery necessities for the operative procedures have been utilized and properly expedited. This allocation typically provides rational consequences once the processes change.

The location of the production facility is impacted on treatment facilities, which regularly happens in areas wherever pollution may not be a problem. However, the environmental limitation additionally determines the amount at which a facility can manufacture, and become independent of capacity or demand. These issues impact on production, which will happen long after producing facilities are established and placed into operation.

Nevertheless, Nike aims to use operations management to realize top quality, low cost and effective delivery for better output, not simply to expand its production facility. the overall result, through the Kaizen breakthrough methodologies, has been with success.

Supply Chain Management

Recently, Nike has opened wider its domestic market to the outside world. More investment to renovate the current market has enhanced, facilitated, and maximized the distribution channels. Nike has embarked on the Nike Supply Chain Project, a massive global centralization project which integrates its ERP [Enterprise Resource Planning], supply chain, and CRM [Customer Relationship Management] software onto a single SAP platform.

Layout Design

A layout plan is vital to the transformation process. Usually, raw materials are brought into the workplace during a time not in conflict with workers’ operational hours. Counterclockwise flow is additionally taken into thought since the most staff is right-handed.

Two lean ideas introduced with LeanSigma transformation are the functions of the supermarket and the water spider. Similarly, these early lean makers established a single-day storage area very close to the assembly cell to provide, the required materials to the cell as needed. The second idea these early lean adopters incorporated was the water spider. In fact, water spider's idea is to supply the essential materials at frequent replenishment of tiny quantities, opposite to sporadic replenishment of large quantities of materials. As a result, the area needed for storage is minimized. this idea has increased the just-in-time approach at Nike. Parts and raw materials are provided to the assembly site just as they're required, not stockpiled to hedge against later delivery.

Allocation of costs and deductions

Ever since Nike has adopted the new operations management, Nike has started focusing a lot on the cost factor. In lean performance measurement, with quality, the cost is a significant aspect. The three most effective indicators of value-added activities and cost are productivity, scrap, and WIR productivity [Warehouse, Inventory & Reporting Subsystem]. Scrap is a quality criterion that drives overall costs up/down depending on the industry trends. Whereas, Work-In-Process [WIP] is a lagging measure of cycle time and flow and a leading measure of consumer satisfaction.

The choice of cost allocation technique will impact whether or not the company will report a loss or profit from the unrelated business. The over-cost allocation will become the potential for increasing the company’s economies of scale. The prices associated with the in-operation activities can be joined among several material and operation activities. Analyzing the functional and design benefit will facilitate the allocation of the cost element appropriately.

The new paradigm for cost allocation provides Nike with the advantages of investment transmission to pay the costs. The decentralization of the cost allocation is taken into consideration by the company.

Demand Forecasting

Nike uses linear regression for forecasting demand. By relating demand to time and studying the linear trend line and also taking into consideration seasonal adjustments the company projects the slope into the future and makes predictions based on past behavior. Forecast errors are calculated using techniques such as mean absolute deviation (MAD). By monitoring forecast error over time, Nike implements forecast control and calculates a tracking signal to determine if predictions are consistently high or low. This allows the progressive refinement of their predictions from one period to the next.

Inventory Management and Scheduling

Nike utilizes their recently implemented ERP software and coordinates this with their suppliers. Considering Nike’s supply chain, Nike uses Vendor Managed Inventory (VMI) and a Continuous Replenishment Program (CRP). The combination of these two strategies has improved the entire supply chain starting farthest upstream at the procurement of raw materials since it makes the supplier responsible for inventory management and product replenishment. Nike has done this by integrating VMI and CRP with the ERP software and integrating with their suppliers to share point-of-sales data and demand forecasts.

Conclusion

As a transnational corporation, Nike is subject to domestic and international competition. It has put in efforts to increase its productivity and efficiency to encounter these challenges and has made significant strides in improving their supply chain management.

Applying the operations management process, Nike has tried to build an effective control system for their commodity circulation, which helps emphasize on the improvement of the marketing and purchasing system of the significant commodities. Additionally, the rational distribution of commodity resources and the local community reserves have improved the domestic market from the international market.

References

1. Nike, Inc., Manufacturing. (n.d.). NIKE, Inc.. Retrieved June 24, 2014, from http://nikeinc.com/pages/manufacturing
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