Operations Management - The Case Of Nike

OPERATIONS MANAGEMENT THE CASE OF NIKE Abstract This project involves the analysis of a case study which is based on literature review. In the first section (literature review) an analysis on the importance and appliance of lean operations will be presented. Moreover, the Just-in-Time concept is included in this research. JIT as we will refer to later helps improve the quality of the product while controlling the timetable for the manufacturing process. In the next section of the project the case of Nike which relies on the literature review will be analyzed. In detail, there is an examination on how the company uses the lean manufacturing and which are the advantages and disadvantages of this method. Last but not least, some of the company’s weaknesses on its inventory are mentioned and solutions regarding the lean operations and JIT have been suggested for future actions. Introduction More than one hundred years have passed since lean operation concept was initially introduced. Today its philosophy is still continuing to evolve over the years. Lean operations can be traced back to the Japan’s loss in World War II when the Toyota Production System was developed as a mean to compete with the US car manufacturing industry. For this reasons they tried to improve their organization while reducing their costs (Noda, 2015). Lean production led to the restructure of the manufacturing and operating practices. The main idea behind lean is the growth of quality, safety and productivity whilst decreasing the cost and time consumption. Today, multiple companies are implementing the lean concept in order to succeed profitability and ensure sustainability. Although, there are many difficulties on how and when to use it. Lastly, one of the main philosophies used in many organizations is the Just-in-Time or JIT. This is connected with the inventory capacity and the overproduction issues that may occur. In other words it helps reduce this wastes by managing correctly the production schedule (Holwen, 2007). 1 Literature Review In todays globalized market, dominant competitive advantages and smart and effective strategies have been a primary necessity for organizations who want to flourish. Even though there are many ways and means which can cover this need, lean operation approaches seem to be the most effective for service, manufacturing and retailing organizations (Pakdil & Leonard, 2014). The concept of lean operations is lying underneath the operations management (OM) and in order to comprehend this concept, a basic knowledge about the OM is needed. As Smith states (2015) OM is the formation of customer value through the operative and efficient management of procedures. Lean production conception was originally introduced by Ohno as the Toyota production system (TPS) and it was spread through the MIT project team (Noda, 2015). Operations management literature defines lean production as a mean to eliminate waste and boost performance as well as increase corporate flow (Green, Lee & Kozman, 2009; Noda, 2015). Additionally, Smith (2015) refers to lean as a system with the purpose to eliminate the inventory and time consumption and increase the capacity usage by reducing the variability. Moreover, according to Pakdil and Leonard (2014) lean philosophy is the growth of a business through the creation of customer, society and economy value along with the reduction of costs and the improvement of quality and time delivery. Further on, Shah and Ward (2007) suggested based on a variety of literature researches the following definition “Lean production is and integrated socio-technical system whose main objective is to eliminate waste by concurrently reducing or minimizing supplier, customer, and internal variability.” In order for lean operations to be implemented correctly for a powerful competitive advantage business need to apply it in all its functions such as sales, marketing, HR and accounting (Pakdil & Leonard, 2014). 2 Elimination of wastes The application of lean operations principles assists a company with increased productivity, lower cost production, faster transportations and less quality defects (Noda, 2015). Any action that does not add any value to the product is a cost waste. By eliminating the wastes of a company’s production, the profitability of the product increases. There are seven forms of wastes-mudas in lean manufacturing such as excessive inventory, over production, motion, transportation, over-processing, waiting time and correction of defects (Pakdil & Leonard, 2014). Transportation Waste The transportation of products or raw materials from one place to another does not add any value to the product, but instead it increases the organizations costs. The transportation place must be near to each other so the costs can be reduced. Motion Waste Unsuitable and unnecessary ways of executing specific tasks are a waste of motion (Pakdil & Leonard, 2014). Inventory Waste Inventory surplus causes costs to increase; every finished product or material that stays in the factory is a waste until it is sold (Yeh, 2016). Waiting Waste The waiting time needed for the delivery of a raw material or for the repair of a machine, interrupts the productions flow (Lachance, 2015). Process Waste 3 Mismanagement of processes is wasting time and money as it is using the wrong practices for the production of the product (Lachance, 2015). Overproduction Waste Overproduction is the main reason for the extended inventory. When an organization is producing more than what it is needed and what can be consumed (Yeh, 2016). Defect Waste Defects or else scraps are causing resources and material waste (Pakdil & Leonard, 2014). Just-In-Time The most important wastes of these are the overproduction and inventory surplus. The inability to control the portions of materials needed and the number of products produced is having a direct effect to the inventory level (Pakdil & Leonard, 2014).The purpose of the company is to connect the production with the demand for the product; this is the idea behind Just-in-Time (JIT) (Lachance, 2015). Just-in-Time was firstly introduced by the Ford Motor Company in the 20s and it was later embraced and issued by Toyota Motor Corporation of Japan as part of its TPS. JIT manufacturing is a philosophy that guides an organization in reducing waste regarding inventory, time and labor (Radisic, 2009). Moreover, it controls the timeline for the manufacturing and transportation process while improving the quality of the product (Chen & Xu, 2016). The concept of JIT is to produce the quantity of products that is demanded by the customers. In this way the company can reduce their inventory usage and manage their material flows. JIT’s purpose is to change the manufacturing structure steadily by improving quality, reducing cost and cultivating communication through the various company sectors (Yeh, 2016). Furthermore, the implementation of JIT helps to ease the wasting labor and production hours by controlling the manufacturing schedule. It also utilizes the labor force correctly 4 via assigning them were and when needed (Radisic, 2009). Moreover, it is creating trust worthy relationships with the suppliers with the aim to be able to rely on them for the required goods. Additionally, it increases the quality of the product while reducing the manufacturing expenses (Yeh, 2016).JIT is a concept which can help a company to succeed a completive advantage in the marketplace. However, it can also create some problems such as interrupting the production flow through the constant delivery of materials (Radisic, 2009). Kaizen The Kaizen method as defined by Shettar (2015) is one of the most important and successful ones regarding to the constant improvement of a company’s and an employee’s productivity and effectiveness. In order for this to be achieved a connection between the managers and the workers is important. Nevertheless, this method brings together all the employees and has as a result the development of the communication and the team work. Those companies which adopt the above method should motivate all their employees in order to accomplish their aim (Boca, 2011). 5 The Case of Nike Nike after facing some issues with its production the company decided to make some changes to their manufacturing process in order to resolve these problems. The reason that led to this decision was the need to decrease their wastes by improving their manufacturing practices and to deliver high quality products while reducing their production time (Distelhorst, 2016). The company achieved this by using sustainable materials and by reducing their water consumption. These helped in the development of their recyclability, and their value chain. Thus, Nike tried to find new solutions that could help in the elimination of their energy usage and their emissions, for instance in recent years they use solar panels so as to change to renewable electricity (Nike.com,2018). Moreover, Nike trained and motivated their manufactures through allowing its employees to take initiative and find innovative solutions which will lead to the improvement of the company’s productivity and effectiveness and therefore bring satisfaction and improvement to their employees (Porteous, Rammmohan,2013).Further on, Nike adopted some tools of lean production in tis footwear manufacturing one of these characteristics was the balance within the production process via the use of takt time. Furthermore, the company improved their operator participation with the intention of inspecting the quality of their products along with the steady problem-solving. The lean manufacturing in footwear has some positive results for the company, due to this, the productivity was increased while the defect rates and production time were decreased. The company after this accomplishment decided to enlarge their lean operations also in its supply chain (Locke, et al., 2014). The organization in order to make its supply chain more sustainable made some modifications to its functionality and to its suppliers too. Furthermore, Nike has associated their production with the lean principles through a variety of sustainability practices for example the reduction of waste and the growth of the value in the work environment which is remaining a continuous improvement progress. The company was rated by the Manufacturing Index which lines the environmental (water etc. and the labor (safety)) performance, the supply chain procedures, the Just In time, and also the costs and quality (Fox, 2013). The company was rated in many areas with Silver, Gold, Bronze or Yellow color. Additionally, Nike on the areas of quality, delivery and in general on the sustainability 6 performance managed to take a Silver rate, and as it seems to it had a huge success on their innovation ideas for the manufacturing area which managed to be rated with a Gold one. (Porteous & Rammohan, 2013). Nike’s success in not only based on their high quality and their innovative ideas it is also based on the use of innovative supply chain strategies. For its raw materials Nike uses outsourcing, however they are very careful in their choice of materials and suppliers. Thus, the company’s supply chain is in 42 countries, and it tries to emphasis on the quality and long-term contracts with its suppliers. The company chooses its suppliers through specific characteristics such speed and sustainability. Although, it also tries to invest in the use of more machinery in order to cut or make some of their materials. These machines help reduce the tack time from 60 to 10 days (Lopez and McKevitt, 2017). In the past, the company would start producing when it received future orders which means that it took them almost 6 months to finish. In addition, the company based on the new way of manufacturing their products they are faster than previously which result to quicker delivery to the customers (Green, 2017). A tooling group is included and is responsible for the control of the machine’s functionality however Nike is still searching for new ways to upgrade their technology system and improve their effectiveness (Nike.com, 2018). On the other hand, in the last couple of years the company seems to face some problems with its inventory surplus, fact that happened in Asia where the company had lower demand and thus had as a consequence the bounty of goods. Nike in order to avoid this incident tried to sale its products on big websites but the company did not manage to cover its lost profits (Palmer, 2018). Advantages & Disadvantages Lean production practices have created some advantages and some disadvantages concerning Nike and its employees. As it is mentioned above, lean manufacturing decreases the time needed to finish the production and the company’s wastes. This early ability to purchase increases the customer’s satisfaction level and the attractiveness of the brand. Moreover, the quality of the product is constantly improving and evolving through investigating and discovering any product’s defect and to fixing it. The employees who tend to work under the lean manufacturing process are usually more motivated due to the higher contribution level in the company’s decisions and the healthier and safer 7 working environment. As a result there is a rise in the company’s performance, efficiency and profits (Melton, 2005). On the other hand, the adoption of lean manufacturing may cause some problems. First of all, the implementation of it may be expensive because of the employee training yeat it is the right choice for managers who already know how to work under it and so it is not so expensive. Furthermore, the purchase of the equipment needed for proofing any errors or for reducing wastes remains an extra cost for the company. Thus, in many cases employees seem to be resistant to changes and they reject this way of working because they are afraid to alter their casual routine. That, may have an effect on the delay of the production and consequently the reduction of the profits. Moreover, due to the fact that lean manufacturing is directly connected with the company’s suppliers may cause some problems. One of the issues that might occur is the delay on the transportation or even some quality problems which will also cause a manufacturing interruption. These can bring extra costs to the company in order to fix it, make them find new suppliers who will collaborate as desired or even cause dissatisfaction of their customers due to the product’s delay (Keitany and RiwoAbudho, 2014). Further actions First of all the company, in order to find any defect should measure its performance, which is associated with their consumer’s satisfaction. The satisfaction relies on speed, flexibility, dependability, quality and cost. One of the most important characteristics that can create fulfillment is the quality of the product, in other words understanding the customers need and wants and creating a products that is effective and equipped properly. Moreover, the second tool for the measurement is flexibility which helps the company to adapt into new changes or to present new products/services. Except from that, the flexibility applies also on the transport time (skill of changing the time) and on the volume. Important as well is the dependability which needs the right equipment, communication, and timetable for it to be on time. Furthemore, the effective performance is also connected with the cost, the lower the cost of production the better the company’s performance. Last but not least is the speed, which not only is beneficial for the company by making its transportation and production quicker, but also for the customer’s satisfaction (Barista2009). 8 Nike seems to have fixed its delivery time, but according to the inventory results it appears that they mismanage the quantity of the necessary raw materials that are needed as well as the amount of products they need to produce. This issue is causing the company to lose many profits since they are paying big amounts of money on inventory for products that are not currently wanted. Nike can solve or reduce this problem through implementing the JIT concept. JIT concept as explained above, will help Nike through organizing their production, discovering the demand for their products and thus arranging the quantity that needs to be produced (Relph and Milner, 2015). When a products stays in the inventory it does not add any value to it, instead it is reducing the earning of a company and it is depreciating. Nike is partly using the JIT concept only to the manufacturing of their product. They have a fast production but this does not help the company because eventually an important portion of the products stays in the inventory. This products might be destroyed or lose their value through the drop of demand either way there is a major loss in the profits of Nike. From the literature review it can be understood that the JIT concept can make a visible change to their inventory and therefore their costs. Lastly, some solutions for the existence of an excessive inventory are selling the products to some third-parties, offering discounts and if these do not work there is always a choice of donating them as part of the company’s public relations. 9 Conclusion As we can understand from this analysis, companies that use and implement lean operations are the most beneficial and profitable ones. Thought this concept they gain a serious competitive advantage by attracting and influencing more customers. Lean operations can create many new opportunities for companies which want to evolve and be viable. Moreover, there is also the philosophy of JIT which helps with inventory problems as well as time tracking and cost reduction. As it was mentioned above, Nike is using JIT operations partly only in their production. This creates a cost and efficient issue for the company. In conclusion, the organization has to take into serious consideration the application of JIT in their manufacturing process if it wants to be profitable. 10