Supply Chain at Nike

Hi readers, I'm Arun R of second year MBA, from Amrita School of Business and this is my 8th blog. In this blog I'm going to talk about the supply chain of Nike. 

Nike is an American multinational corporations engaged in the design and development of sales of footwear, apparel , equipment, accessories and services. The company was founded in 1964 as Blue Ribbon Sports and officially became bike Inc. In 1971.  The company is headquartered in Oregon. Nike is the largest supplier of athletic shoes and apparel. The market share of Nike is 27% . Nike is also ranked 89 in the fortune 500 list of the largest United States corporations by revenue in 2018.

They are the most influential player in the modern textile industry. They have a complex supply chain which is the reason for them selling more than 100 of millions of shoes and other products. Delivery precision is an important one in Nike Inc. which improves the margin , lower inventory, minimize price and deliver right product to the customer on time. This success of Nike is credited to this complex supply chain management. They have 525 factories in 40+ countries and move products to several thousands of retailers.

The key principles of Nike’s supply chain are outsourcing, diversification and corporate social responsibility. Almost 100% of its manufacturing for footwear and apparel is done by independent suppliers. The management team of Nike’s supply chain managed the additional logistics complexity involved in this and significantly reduced cost. Outsourcing is a risky one but the success of Nike is that they do not give more than 10% of orders to one particular factory. The highest they give is 9%. This helps them to not rely heavily on one supplier and less vulnerable to unpredictable occurrences. Nike selects high quality raw materials and suppliers for their global procurement.

Sourcing from so many components have its own disadvantages and they are really tough and are a challenge to them. They focus more on quality and long-term agreement.  Nike makes continuous contact with the supplier to make sure that their products meet the required quality standards in each echelons of production. They also provide support to suppliers through tools and training in lean management framework and TQM approach.

Nike also has an efficient distribution system to cater to the need of the individual customers really faster. They have a faster distribution and logistics network that helps in faster shipment and quick response to the customer demand. This distribution and logistics centers also serve as critical touch points for thousands of Nike retail stores, online sales and individual customers. An example of Nike’s to respond quickly to customer is their opening of new distribution center in North America. This has improved Nike’s ability to deliver premium products to customers quickly and efficiently.

They also give more importance to the employee health and safety. Suppliers are judged based on their fair labor standards. Nike started to bring more corporate social responsibility to their operations. Nike has revamped its sourcing strategy and prioritize suppliers to show CSR and sustainability. Nike became the first company to publish the complete list of factories in its supply chain. Nike is also planning to outsource their products by 100% in the near future.

#Lessonsfromthebest : The Double A’s for a responsive Supply Chain

Author’s Note: Over the last few weeks, I have been using this space to write about the lessons I learn from organizations with respect to their supply chain management, but not limited to it. I have also been attempting to convey my learnings as a narrative, and a story of sorts. So, if you want to learn something informative whilst having some entertainment, go ahead and read away! If you want to read my previous blog posts, click here! 😊

Shanmugeshwari, MBA '21

Amrita School of Business, Coimbatore

 

Once Microsoft was forced to make a difficult decision as to whether it should manufacture a gaming console along with managing a global supply chain or outsource the manufacturing to a third party. They quickly decided that, because they lacked the manufacturing and logistics skills required, it would be in their best interest to outsource the development of this product. After reviewing several possible vendors, Flextronics, a Singapore-based contract manufacturer, agreed to outsource assembly and major logistics functions. Flextronics was a multinational company with many staff and has also partnered with other big corporations such as Xerox and Dell.

Microsoft and Flextronics also had prior business partnerships, and Flextronics was the maker of its mouse (mice?). The rapport and partnership that Microsoft had with Flextronics was a significant factor why Microsoft chose to go with Flextronics. In addition, Microsoft was searching for a partner who could deliver gaming consoles at a reduced price while ensuring high quality and was ready to work with Microsoft on a real-time basis. One of the advantages of Flextronics was its industrial park strategy, which helped to control the supply chain closely, minimize supply delays, and lower costs that were passed on to Microsoft. Second, Flextronics had an international presence and was able to move production from location to location as required to keep costs down.

Flextronics used web-based information systems that allowed Microsoft to provide Flextronics with information on demand conditions. This sharing of information between the two would ensure that the production plans of all the players in the supply chain are well organized, such that inventory is minimum, shortages are avoided and the demand and the supply are regulated.

At the beginning of 2001, Flextronics had set a goal of taking the product to retail before the Christmas sale reached the shoppers. Since Speed-To-Market and technical support were the most critical ones for this new launch, Flex decided to select Hungary and Mexico as production bases, closer to the key Xbox target markets of the EU and the USA.

Microsoft was able to launch the product in record time on 15 November 2001 and posed a tough challenge to market leader Sony's PlayStation 2. X-Box sold a total of 1.5 million units by the end of 2001. Sony fought back by providing deep discounts on the product.

Flextronics moved the supply chain of the Xbox to China, realizing that speed would not be as important for long-term survival as costs would be. The resulting cost savings made it possible for Microsoft to match Sony's discounts and give it a chance to fight. This is a perfect example of agility and adaptability taking turns to make a robust and responsive supply chain.

For more on this,

The Making of the Xbox - How did the world's largest software publisher become a hardware manufacturer overnight? One word: Flextronics

Boeing 787 Dreamliner - Impact of Outsourcing!

     787 Dreamliner , the revolutionary in the history of passenger flights said Boeing, the aircraft manufacturer. Planned in 2007 and expected first delivery in May 2008, but, it almost took 2 years extra to roll out the first plane for testing. The design was really revolutionary, where they planned to use carbon fibre as a replacement for aluminium in the plane bosy design. It was also conveyed that, 787 dreamliner will use 20% less fuel, resulting in saving millions of dollars an year for the airliners.

      

     But, Boeing outsourced almost 60% of the total manufacture process, which included the core business area of Boeing to its 50 strategic partners located all over the world. Everything was fine, until the Alcoa, a supplier, told that it could not meet the deadline of fasteners to Boeing. This resulted in a huge confusion, and Boeing planned to use temporary fasteners for testing and there was a complaint that the Boeing 787 Dreamliner's battery is over-heating, Thus after many issues the first model was rolled out three years late.

Thus a valuable lesson from this failure is "Too much outsourcing is always a risk" and "One fastener can stop your entire produciton"