NIKE - Global Supply Chain Management

NIKE: Global Supply Chain Management Introduction NIKE Inc (NIKE) is a global brand which designs, develops, markets and sells athletic footwear, apparel, equipment, accessories and services (MarketLine, 2020). NIKE believes in creating innovative and sustainable products , build positive relationships with its customers and entrusts an integrated marketplace with persuasive retail experience (NIKE Inc, 2020). This Report highlights the Global Supply Chain of NIKE Inc. It analyses NIKE’s International Strategy and Global Supply Chain Strategy, thereby evaluating its strategic fit. It also emphasis on the elements of the Nike’s Global Supply Chain and how the elements are integrated together in the Global Distribution Network. Thus, the report aims at analysing the gaps in the global supply chain of NIKE and to provide some recommendations in order to improve the value chain. NIKE’s International Business Strategy There are four main broad types of International Business Strategies which provides the trade-off between the pressure of the local responsiveness and the cost reduction. They are as below: 1. International Strategy: In this, the pressure for local responsiveness as well as pressure for cost reduction is low. Thus, it is used by the firms venturing abroad for the first time to extend their economies of scales, distribution efficiencies and brand positioning. 2. Localisation Strategy: In this, the pressure for local responsiveness is high but the pressure for cost reduction is low. It is used to enter into the foreign market to get locally adapted. 3. Global Standards Strategy: In this, the pressure for local responsiveness is low but the pressure for cost reduction is high. This strategy relies on the development and distribution of standardised products in order to get maximum low-cost advantage. 4. Transnational Strategy: : In this, the pressure for local responsiveness as well as pressure for cost reduction is high. This strategy has the best of both i.e. cost efficient as well as locally responsive. (Peng & Meyer, 2019) Exhibit 1: The changes in Strategies over time Source: (Houghton Mifflin Company, 2020) Initially NIKE started with the International Strategy where it entered the foreign market by initiating global manufacturing outsourcing in Japan and other countries, in the late 1960s. Later, it moved to Global Standardization Strategy after creating a brand image in the market, where their innovative, sustainable, high quality products were valued by the customers globally (Park & Kincade, 2010). NIKE’s strong operational network provides a platform for the future growth and expansion and also enhances its supply chain activities. The footwear products are manufactured by 112 factories outside the US, located in 12 different countries, by independent contract manufacturers (Marketline, 2020). Exhibit 2: NIKE’s Change of Strategy over Time Transnational Strategy NIKE Global Standardization Strategy International Strategy Localization Strategy Source: (Author, 2020) NIKE’s Global Supply Chain Strategy and its strategic fit with International Strategy Supply Chain Strategy starts with procurement of raw material till the distribution of the product to the customers plus any customer services required for the product. Also, it determines whether the above said processes will be outsourced or will be performed in-house (Chopra and Meindl, 2015). Exhibit 3: The Supply Chain of a company Step • Procument of Raw Material 1 Step • Transportation of the Materials 2 Step • Manufacturing/operations of the Products/Services 3 Step • Distribution of the Products 4 Step • Follow Up Services (if Required) 5 Source: (Author, 2020) The International Business Strategy goals should be aligned with the goals of the Supply Chain Strategy in order to achieve a Strategic Fit (Chopra and Meindl, 2015). NIKE has an efficient and responsive supply chain trade off. To help retailer anticipate the global shift of customer demand and to increase visibility in their supply chain with reduce lead times, Nike won 2019's ‘Company of the Year’ award. With the increase in demand of the product and to serve its customers at personal level, NIKE is more focussed on customer behaviour, data optimization and insight driven. Following their Lean Manufacturing Framework and continuous Innovation like 3 D printing has helped the company to minimise the product lead times to 10 days from 60days (Forde, 2019). Exhibit 4: Stages of NIKE’s Value Chain Source (NIKE Inc, 2020) Nike Value Chain includes a total of nine tiers which is more than most of the other industries. Thus, it is also a challenge to address each tier comprehensively, especially in those sections over which NIKE does not have direct control or influence (NIKE Inc, 2020). NIKE has setup a benchmark in defining manufacturing outsourcing strategy. It’s key manufacturing thrusts are lean manufacturing (i.e., better labour productivity with reduce waste), innovation and modernization, lastly material consolidation (i.e., reducing number of vendors as well as material used in manufacturing) (Soni, 2014). NIKE optimizes its manufacturing and production processes. The key to success is NIKE’s continual innovation and product quality. The lean manufacturing helps to improve efficiency, optimizes production, and reduce down waste, thereby driving quality and productivity (Singh, 2019). NIKE also has a closed loop supply chain. To fulfil its goal to have environment friendly image, Nike had a strategic alliance with NRC. The company help NIKE in collection of old shoes in order to recycle them for producing raw materials like grind rubber, foam and fluff. This strategy helped to strengthen its green image (Kumar & Malegeant, 2006). Exhibit 5: NIKE’s Responsive vs Efficient Trade Off Source:(Author, 2020) Elements of NIKE’s Global Supply Chain NIKE has a robust supply chain management which is the backbone for its global business. Its supply chain model has evolved over time. The brand is known for its innovative and sustainable products and also for its continuous steps towards environment footprint, quality of products and customer services. Thus, making its supply chain agile, responsive as well as efficient (NIKE Inc, 2020). a. Facilities: NIKE has a diversified store network that broadens customer reach and deepens its market position. Nike sells its products through retails shops, online websites and also through mobile applications. As per the data for the year 2019, NIKE had 384 retail stores in the US and 768 stores globally. Overall, globally it operates 865 NIKE Brand factory stores; 86 NIKE Brand in-line stores (includes employee-only stores); 172 Converse stores (includes factory stores); and 29 Hurley stores (includes employeeonly and factory stores). It also had Converse and NIKE owned digital commerce platforms in 45 countries outside the US (Marketline, 2020). b. Sourcing/Procurement: In NIKE supply chain, the raw materials are sourced from independent contractors in the manufacturing host country (Soni, 2014). NIKE looks for ethically sound suppliers having transparency in their system and are devoted to rise above the benchmarked standards. NIKE focuses on quality, long-term sustainable supply agreements with very few factories, that are committed to their strict code of conducts for the product excellence. Also, in order to maintain its green image, NIKE seek suppliers having expertise in minimising the environmental impacts, thereby promoting a safe and developed culture for a valued workforce, which is a part of their growth strategy too (NIKE Inc, 2020). The selection and contracting with the right suppliers for the right goods and services is done by the Nike’s Global Procurement team, which manages the whole procurement process (NIKE Inc, 2020). c. Inventory: In year 2002, NIKE hired a consulting firm, Bristlecone Inc, having an expertise in complex supply chain software implementations. Its motive was to improve the performance by having a predictive analysis of demand in order to have an efficient inventory management (PR Newswire, 2002). d. Transportation: For all the transportation, NIKE rely on the logistics service providers they had partnership with. Their Global Operations and Logistics team has developed SCSI( Supply Chain Sustainability Index) which help to maintain minimum but efficient and sustainable logistics providers. The company has deployed SCSI with the inbound freights (includes air and ocean) as well as outbound freights (includes small parcel and road) (NIKE Inc, 2020). e. Information Sharing: NIKE has made its supply chain transparent in the year 2005, where one can get information about its current supplier through an interactive map available on NIKE’s website. The map outlines about the location of the factories, number of workers along with the percentage of male and female employees working and the type of products produced i.e. raw material or finished goods (NIKE Inc, 2020) NIKE’s Global Distribution Network NIKE has an efficient distribution network that caters the customers’ demands very quickly. The company sell its products through various retail stores, online platforms and through a blend of independent distributors, licensees and sales representatives in virtually all countries globally (NIKE Inc, 2020). It has a robust distribution and logistics network which help in a rapid shipment of goods as well as prompt response to cater customer needs. These centres help to deliver products to the various retail stores, digital sales and even to individual customers. In US, Nike has 6 primary distribution centres, where four of them are located in Memphis, Tennessee. These distribution centres are run by third party logistics providers. As per the data of FY-19, NIKE had 67 distribution centres outside the US. Thus, it makes NIKE supply chain efficient, sustainable, ethically focused as well as provide strong infrastructure or platform for selling the products (Singh, 2019). In FY-17, NIKE unveiled its Triple Double Strategy for its distribution network which can be divided into two parts: 1. Direct-to consumer network (DTC) which includes all the retail and outlet shops along with the digital platform like NIKE Direct or through ecommerce companies like Amazon. 2. Wholesale distribution partners globally. This Strategy helped company to double its innovation and also its speed (Danziger, 2018). Exhibit 6: NIKE’s Distribution Strategy Source: (Siso, 2015) In the year 2004, NIKE used MSI (an information technology to improve supply chain) with the goal to integrate all its operations for long term forecasting to the delivery of the products to its customer. Thus, it aimed to streamline its global supply chain (PR Newswire,2004). Recommendation As per the manufacturing map disclosed by NIKE, its manufacturing operations are concentrated in Asian countries due to low production cost, among which China is the largest supplier (NIKE Inc, 2020). Due to increasing labour cost in China as well as current ongoing trade war and protectionist actions between US-China, it can hit NIKE’s supply chain (Singh, 2019). Thus, NIKE can diversify its supplier more in other countries in order to keep its supply chain effective and efficient. NIKE should enter into robotics which may makes its manufacturing more efficient and the company will be less dependent on the workforce which in turn will result in low production costs on a long-term basis (Bissell-Linsk, 2017). NIKE has a powerful pricing of its products as it is valued by the customers which in turn increases the supply chain surplus. Despite in the increase in gross profit, selling and administrative costs have been on the rise (31.2% of its revenue). Also, a lot of investment is required for continuous innovation, marketing, digital platform, etc., therefore NIKE has to be more careful regarding its cost of products (Singh, 2019).