Nike Company is a multinational organization in the United States of America which manufactures high quality athletic shoes for sporting activities. The footwear made by Nike is for baseball, athletics, volleyball, golf, tennis and wrestling. It is also a manufacturer of fitness equipment, apparels and their accessories. These products are sold in more than 140 countries worldwide. The Company supply chain was initially founded in 1957 by Philip Knight and all its product developments, factory contracting and marketing activities are conducted at the Nike’s headquarters in Beaverton, Oregon USA.
Nike Company Supply Chain Management forms a massive business network which covers buying, manufacturing, logistics and warehouses to selling of the final product. It was introduced in 1975 for future programs where Nike retailers had to make a six-month order before delivery was done, this guaranteed 90 percent efficiency in the company. Later on this program was divided into five geographic regions namely Europe, Middle East and Africa (EMEA), Asia-Pacific, America, including Canada, Mexico, Chile, Brazil and Argentina (ICMR, 2005). This supply chain management has been used for distribution network configuration of the company’s product since then. It also helps Nike to choose the best strategy while enhancing its market penetration and customer loyalty. This has helped the company to have a better competitive edge as compared to its competitors. The supply chain management provides information feedback from various geographic segments to allow continuous improvement and innovations. Also it ensures better inventory management which reduces overstocking or stockouts in different geographic segmentations. Inventory management also discourages Nike Corporation from investing in dead stock. This led to the Company profits falling by 50%, from 798 million to 399 million U.S. dollars. This made the company launch NSC project which was initiated by Shelley Dewey the Vice president of Supply and Steele (Achanta et al, 2009).
This led to implementation of an integrated ERP, Supply Chain and customer relationship management (CRM) Software onto a single platform from the one initially installed by Siebel Systems (ICMR IBs, 2005). This has not been easy for the company as it has undergone various failures and successes that are discussed below.
Nike NSC project aims and objectives were to ensure that the Corporation had greater flexibility in its operations. It then aimed at solving all the real time constrains the company faced to facilitate higher future expectations. The main goals for this project were to ensure that Nike Corporation reduces inventory and capital investments. This goal was targeted to ensure appropriate allocation of the limited resources thus satisfying unlimited demands. The goals also aimed at improving services hence it introduced a CRM Software. This would have enabled efficient global supply chain and resulting to increased profit margins and customer satisfaction (Achanta et al, 2009).
The Software Vendors and the Estimated and actual costs of implementation
Nike USA-based Corporation relied on i2 technologies for all its software in 2001 which was the first part of its Supply Chain Strategy. The initial cost of this project was projected to be $40 million. This cost was intended to matching the current supply with required demands. The i2 software implementation was also aimed at reduction of raw materials usage. Nike Corporation used the i2 system as a legacy system rather than to make it as a part of SAP ERP project. The i2 software first phase implementation was direct strategy as the i2 trade matrix shows; the strategic planning objective was to maximize on profit margins through optimal allocation of resources.
The main problem with this planning was the fact that it had unclear parameters though it was capable of optimizing costs. This was planning implemented for long-term benefits. The i2 matrix plan solution on demand management also anticipated the influence of demand. The main challenge then occurred since the plan failed to estimate accurately the demand in the Nike’s market though it had demand channel collaboration. This would have resulted to improved customer service if it was well enhanced (Achanta et al, 2009).
Supply planning in the i2 matrix solution shows that it was intended to guide the company on what to make, when and how to distribute for maximum profitable gains. The huge challenge encountered was complexity of the existing problem despite being provided with collaboration optimization speed. This was to bring global picture into a more clear coordination which would react to the changing dynamic world. The i2 plan on production was to guide the company on what to produce and when. The main challenge to this implementation was the fact that managerial materials and capacity trade-off were very complicated. If this was well-handled, then there would have been a reduced inventory in the Corporation and improved due date performance, since the i2 company had fast finite materials for capacity planning and scheduling (Achanta et al, 2009). Towards the end of the i2 ERP strategy implementation by Nike Corporation, 400 million dollars had been invested in the warehouse software package which resulted to 100 million dollar loss in sales and it lost 20% of its stocks in the stock market prices. This led to Nike action lawsuits against the i2 (Jessica Bosari, 2012).
Reasons for i2’s software failure. Who did the work?
Internal staff, vendor, consultant, other actual costs of implementation
The plan failed because a third party integrator lacked there. This surprised Nike IT experts since the company was replacing older applications with the new supply chain application. Nike pursued this Single Instance Strategy for SAP implementations which was not to be questioned or put in discussion by any insider worker and expert as put by Gordon Steele, CIO of the Nike by then. Also the i2 company was inexperienced to handle such a huge multinational corporation. Nike also encouraged on too much customization which was against i2 specifications. This has been termed by analysts as lapse in project management and the company heavily relied on demand forecasting software. The i2 system ‘Single Instance Strategy’ was not well accepted by the workers especially the IT experts (ICMR IBs, 2005). Nike also did unrealistic forecasts beyond reasonable estimates. Pilot test lacked for the project implementation thus causing these adverse effects. Also the market Nike operated in was very dynamic and complexity of NSC project also contributed to the failure of the i2 plan (Achanta et al, 2009).
SAP Apparel and Footwear (AFS), mySAP successful implementation
Later the Nike Company implemented SAP Apparel and Footwear solution supply chain strategy successfully to handle this crisis (AFS) for its enterprise infrastructure in 2002. MySAP.com has since then been adopted by Nike Inc. as a platform for all its IT worldwide solutions. The SAP ERP (Enterprise Resource Planning) project was implemented in an Instance Single Strategy using R/3 variants which led to big bang approach in the market having about 5000 users in only North American operations (Nike Inc., 2008). This was done in a phase of transition plan, training and testing unlike the earlier implementation. The i2 company sought for a close partnership with stakeholders. This was done through outsourcing some of its manufacturing activities to its trading partners and contractors around the globe (ICMR IBs, 2005). This enabled global template towards implementation after the earlier learned lesson. The implemented SAP AFS software came with a slogan ‘Just Do It’ (Achanta et al, 2009). This led to successful implementation of NSC by 2004 which indicated centralization in planning, production, and delivery processes in a single instance. This made many companies desire this approach of implementation of the ERP software where Nike used 95% of SAP in its global business operations (ICMR IBs, 2005).
The ‘Just Do It’ SAP AFS emerged as a total success which led to better financial management, improved revenue forecasting, reduction in inventory levels and enhanced speed in manufacturing and design process, forming part of direct benefits obtained by Nike. Other non-quantifiable benefits obtained by the company included better interdepartmental integration, improved decision-making and better visibility into customer order transactions boosting company revenues. The i2 set measures to enable Nike overcome forecasting problems through use of better equipped component systems, customer continuous interaction, and accuracy in data analysis and enhanced feedback system from supplier and retailer (Achanta et al, 2009)..
The i2 new supply chain systems ensured monitoring occurs in delivery performance, coordination for troubled situations, enhanced report obligations, quick assessment of suppliers’ financial situations and also allowed press and other reports.
The company due to the first failure learned the need to be patient when implementing a strategy, definition of business goals, reengineering purposes and need to focus on market prices.
In conclusion, Nike corporation learned that implementation of a strategy is a very complex process which requires evaluation of its pros and cons before assigning it. The need for continuous assessment would have maybe prevented the failure of i2’s first implementation and the company may have realized the need for applying a pilot test project to reduce high risks (Achanta et al, 2009). The company disaster was greatly attributed to faultiness of the forecasting software causing massive loses to the Nike Corporation of 100 millions in sales. Nike has stayed with the i2 ERP implementation for the seventh year deal, which is estimated to have reached actual cost of 400 millions. I2 is keen not to repeat past mistakes of poor integration, inadequate training, unstable software and spotty testing (Christopher Koch, 2004).