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:

 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 ‘Test Ground’ for everywhere

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Sources of software’s

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

 Rentrax

 Siebel

 Global Logistics Village

These were incorporated into foundation software from SAP, and afterwards the solution was
integrated into Nike’s existing ERP and systems.

First 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.

 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 of Investment) by:

 Incorporating IT in its Supply chain

 Restructuring and implementing a virtual integration model
 Reorganizing its supply chain, from Suppliers, Manufacturers to the end consumers

 Project Management

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.

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

 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.

 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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 NIKE -Siebel
foundation CRM
Software
from SAP

from i2 golbal
software Logistics
Product Flow analysis- Village
ERP legacy systems
Rentrax

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:

 Procurement
 Manufacturing
 Distribution
 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:

 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 Chain

The Company is located in Beaverton, Oregon, but almost all of their production is carried out
abroad. The sales growths outside the Unites States 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.

Nike Shoes:

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

Threads, Metal Hardware, specialized performance fabrics and, natural 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:

 Memphis
 Wilsonville
 Oregon
 Tennessee
 New Hampshire
 Greenland
 Costa Mesa
 California

Overseas 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 Supplier of Raw Material

(Nike owned air (Foreign shoe (Foreign apparel (US apparel

Bag Manufacturer) manufacturer) manufacturer) manufacturer)

Foreign Distribution Centre US Distribution Centre

Foreign Nike Nike Owned Domestic Nike Domestic Nike

Retail Accounts Retail Stores Retail Accounts Retail Stores

Note: 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

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 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.

 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
To Distribution
Nike's Centers
Manufacturers
Global
US

Suppliers
Lorries/Trucks
Ships/Flight

From Distribution
Centers by
lorries/Trucks
Ship anf Flight to

Retailers

End Consumers

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

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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.

Risk/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.

Complexity of the project

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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 required 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:

* 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.

 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 ‘Considered 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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 Bibliography
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, Nike, Inc, accessed on 11/04/10

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