A large risk of the clothing and footwear industry is the speed at which the market conditions can change. This is driven by the fierce competition that Nike faces from other brands. NSC is designed to speed the time to market, and therefore allow for Nike to respond to those changes at a much faster rate. An example of the need to respond quickly to changing conditions can be seen with Nike’s recent reconciliation with its Footlocker account. For a time, Nike and Footlocker had restricted business in key footwear lines due to differences in business policies.
However, the relationship has been recently repaired and Nike is scrambling to provide shoes to the company for the Christmas season. However, because Nike has a 6 month lead time for product orders, Nike will only be able to divert certain product lines from other accounts into the retail giant. Nike’s hottest current product, the LeBron James shoe, will not be able to reach Footlocker in time for the holidays. If the NSC Project can continue to reduce the lead time required ordering products, such a situation may be avoided in the future. In 2003, inventory at Nike was valued at over $1.
5 billion. Inventory costs at this level are excessive, and inventory reduction would have a dramatic improvement to the company’s bottom line. Distribution centers and warehouses are extremely costly. Each facility that Nike has to add increases the amount of capital and labor costs that the company must incur. Having more effective visibility along the supply chain would mean being able to engage in activities much closer to just-in-time. Nike’s success depends on its ability to respond to customer needs within the ever-changing clothing and footwear industry.
Nike may find that one of its products has become an overnight hit with customers, and Nike needs to quickly respond to that increase in demand before the shelf life of the product dies. This is also true when Nike has a product that does not sell to forecasted expectations. If Nike is unable to stop or slow production of the product in a timely manner, the company will be left with significant amounts of inventory that it will have to sell at a reduced price through discount retail outlets.
Shrinkage from theft and competitors gaining access to product is another reason to better control the flow of inventory. Having the latest style of Nike is valuable to many people, and Nike has to ensure that its inventory does not sit too long in vulnerable places. This also ensures that the latest products do not end up in the hands of Nike’s competitors, who would then be able to copy the product, undercut the price, and rush it to market in order to disrupt Nike’s product launch.
It would also help decrease the product which is diverted to third world markets such as Mexico and sold in black markets. At its fundamental level, NSC is designed to provide information to the corporate level about how the supply chain is performing. Having the necessary information to make important decisions and evaluations allows for improvements to be made throughout the process, and ultimately improves the product quality. The implementation of the Nike Supply Chain solution was also designed to reduce the amount of materials it required for Nike to produce shoes.
The intent is to have a positive affect on the gross margin of its products, which will dramatically increase the profitability of the company due to the large volume of product that the company delivers to market each year. With the goals of NSC in mind, the project team that designed and implemented the project had some serious obstacles to overcome. One of the most apparent difficulties of the project is the size of the company and complexity of the supply chain into which the solution was being integrated.
According to SAP, the deployment of its Apparel and Footwear Solution into NSC was the largest implementation in history with 5,000 users. The nature of the fashion industry also provided a complexity to the project that may not be seen in more traditional companies. Most supply chain solutions deal with a much smaller amount of products and do not have levels of SKUs anywhere near the levels that Nike maintains. Nike products must deal with extensive sizes, colors, and styles.
Software dealing with the footwear industry had not been successfully created and some analysts believed that Nike was taking a significant risk using companies who have never implemented their software in the athletic industry. Even more difficult, the product line that Nike offers goes beyond athletic shoes and apparel. The company sells Cole Haan dress shoes, Bauer Skates, Hurley skateboarding clothing, sunglasses, bags, sports equipment, and even electronic equipment such as watches and MP3 players.
Another challenge of the project is the subcontracting nature of Nike’s manufacturing business. Instead of having a static upstream supply line, Nike makes significant changes depending upon market conditions and other opportunities (such as government subsidies). Finally, as is true in many large corporations, Nike was engaged in rolling out several large IT projects simultaneously. Certain components of Nike were being upgraded to SAP (such as the Cole Haan division) so a high level of integration and coordination was necessary to successfully implement the projects.