Nike has been able to become a global player in the industry of sports apparel and athlete endorsements because of many different factors that are outlined in the way they manage their company. By analyzing the business plan of Nike we can see how their supply chain is set up as is illustrated above. The supply chain is very important for the transfer of their goods from the supplier of raw materials to a manufacturer, then to a distributer, then to a retailer, to then be available for the customer. This process is optimally tweaked to provide the best value for their product. One factor that Nike has strived to make as a standard for their company is the idea of reverse logistics. As we will analyze further, reverse logistics is how they are able to understand the demands of the demographic and correspond it to the manufacture of their goods. This is seen as a vital tool for product research and development at Nike. As we explore the different parts of the chain, it is important to keep your mind on the big picture and how this process comes together.
1. Contract Suppliers
What Nike has implemented into their system with outsourcing the production of raw materials, has been done by many large apparel companies and is seen as something that can be highly profitable rather than producing the materials within the company. So what Nike has done, is brought in contract suppliers from all over the world like Vietnam for instance. To help visualize this part of the process, we must understand that the supplier has its own supply chain and it ends with exporting the products to Nike, which is where Nike’s supply chain begins.
In the 90’s there were serious allegations of unethical practices carried out by Nike in terms of their Asian suppliers and how services were being carried out. In an effort to get away from this image that was painted of them, Nike has taken strides to implement disclosure to how the supply chain is run. Over the years, they had been using a “push” system to measure sustainability based on compliance from overseas suppliers. As of recently however, Nike has turned to a “pull system” which is focused around incentives for a well carried out process from their contract suppliers.
With this system in place, Nike is closely watching the performance of their suppliers and rating them in colors with the best being gold and descending from silver, bronze, yellow and red. Colors from bronze to gold are seen as successful and are given benefits and opportunities that would not be accessible to suppliers given a rating of yellow or red. These benefits and opportunities are seen as incentives for these suppliers and form the system they have created for managing sustainability.
This part describes the movement of the raw materials from the contract supplier to the manufacturer. This is usually done by either boat or plane and this step varies due to the fact that Nike’s manufacturing plants are located all over the world along with the suppliers. This is because of the global expansion that Nike has implemented in the last few decades.
The parties responsible for this transportation are also measured on this new system of incentives. Nike closely records each transaction and is in touch with the supplier and manufacturer to get the best idea of how the transportation was carried out. These third party transporters are rated in the same way as the suppliers and are given rewards for timely deliveries of material.
This is the stage in the supply chain where the raw materials brought in from the supplier are made into a final product which was designed by management. This is an important step in the cycle because this is where the ideas set by the research and development team, which are influenced by the target demographic, are made into reality and are kept until further movement of the product. Most Nike manufacturing plants aren’t designed to hold a large amount of products as once which brings us to the following step.
Nike has also been known to use manufacturing plant from a third party. Because of the fact that Nike is still responsible for these processes carried out by these manufacturers, they keep a close watch on the quality of the products produced. This is a very important part of the supply chain because it is where the product is built that will eventually be sold to the customer so it is important for Nike to know that these manufacturers are worth using. For measuring this, they have also been rating these manufacturers in the same ways they rate their other third party contracts for the different parts of their supply chain.
The second time that logistics comes into play is when the final product has to be moved to a distributing warehouse. This step also depends on the location of points A and B for each situation due to how global the Nike Company has become. This transport of products is a crucial part in the flow of the chain to move the manufactured product to a place where it can be stored.
Again, we are able to see the rating system built around incentives at work when we analyze the logistics between the manufacturer and the distributor. It is highly possible that both the distributor and manufacturer was third party companies used in Nike’s supply chain and so they have to be closely in tune with the two stages of the supply chain as well as the transportation in between. For this reason they record timely deliveries of products and of course look for damage and inconsistencies that the transportation company may be responsible for.
This stage in the chain is composed of either Nike warehouses set up to store their finished goods until it is demanded by a retail store or other vendor or a third party distributor which would serve the same function. Oftentimes, a third party is used for this step but this all depends on the most cost effective and logical method of distributing the products at hand. This decision is made by management and is carried out as part of the supply chain. The warehouse would hold the product for as long as it is needed but due to how well measured out the manufacture of each product is carried out compared to their well estimated demand for the product, it is usually moved fairly quickly to continue the flow of the chain.
Distribution is important because the final product needs to be stored before is sent to vendors. For this reason, Nike also works in monitoring the companies that work with them for warehousing purposes. To do this they closely analyze the inventory of their products being held at these distributors and make sure everything is kept by the books and reported back to Nike. The rating system is also in place for distributors to better measure this stage of the supply chain to make future decisions regarding what third party distributors they should use.
For the third time in the supply chain, Nike has to move their goods to another part of the process. This time, the product has been stored in a distributing warehouse and is now ready to move to a place where it would be available to the customer. Nike is available all over the world and uses many different systems of transportation for bringing the product to the vendor.
We have noted that the “pull” system in place for rewarding third party companies on merit which serves as incentives are very much used by Nike to handle their logistics. This is no exception with the transportation of the finished goods from the distributor warehouse to the vendors. They are graded on the condition of the products when they arrive to the vendor and how efficiently and timely the delivery was just like in the other parts of the supply chain where transportation of either materials or the finished product were needed.
7. Nike stores/ Retail stores/ Online stores
This is the first and only time in the cycle where the finished product becomes accessible for the public. In today’s world, there are many people whom shop online for most of their needs so it is important to mention the distribution of the products to online vendors such as Amazon whom keep the product in their own facility until it is ordered. Retail stores are still a big part of this step because many purchases are still made in stores around the world that are licensed to sell Nike products. Finally, there are specific Nike outlet stores which get direct shipments from the distributor and exclusively sell Nike products. From here, the products are purchased by the customer, but the cycle does not end there.
8. Reverse logistics/ Customer feedback
An important part of Nike’s supply chain and business plan is being in tune with the demands of their customers. This helps them to design new products that they hope will sell efficiently because of the feedback they received from their target demographic. This process is known as reverse logistics and can be implemented through blogs, ratings, customer support, and other services set up by Nike for this purpose.
9. Product Development/ Management
Even though this is the last step which I am describing, it is right in the beginning of the process where it comes into play and is where the cycle of reverse logistics and the supply chain meet. This is because the information collected from the customer feedback is researched by management and in turn is used to form a new design or designs. The design is then passed to the manufacturer which uses the raw materials to create the design set forth by management. This way, the cycle is continuous and efficient.
This is the part of the cycle where innovations come into play. Ideas like switching to a “pull” system of managing sustainability are a prime example of what management is tasked with. Nike is constantly looking at ways to improve their processes. An example of this is how they’ve worked on a shoe made to be lighter for athletes but also optimized to produce the least amount of waste as possible. By utilizing a single thread to basically make the entire shoe. By doing this they were able to not only cut waste but also cut costs and therefore became optimal in multiple ways. Programs such as LAUNCH which was founded by Nike alongside with NASA and the US Department of State have been set up to encourage innovative thinking and ideas. These are just a few examples of the work being done by the people in charge of product development and supply and Nike says that their ultimate goal is “a fully sustainable supply chain”. Nike also hopes that their new rating system for parts of their supply chain will help them to soon have all the companies working with them to be rated a bronze level or above. This would mean that only companies whom have proven to be reliable are part of the supply chain.
Nike, Inc. 2011. Sustainable Business Performance Summary. Available at http://www.nikeresponsibility.com/report/files/report/NIKE_SUSTAINABLE_BUSINESS_REPORT__ FY10-11_FINAL.pdf
Paine, L. S., Hsieh, N., Adamsons, L. 2013. Governance and Sustainability at Nike. Harvard Business School Teaching Case.
Porteous, A.H., Cohen, S. A., Lee, H. L., Rammohan, S., V. 2012. Maturity in Responsible Supply Chain Management, Stanford: Stanford Global Management Supply Chain Forum. Available at: http://www.gsb.stanford.edu/scforum/sisscr
Schifrin, D., Carroll, G., Brady, D. 2013. Nike: Sustainability and Labor Practices 1998-2013. Stanford Graduate School of Business Teaching Case.
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