The Study on Inventory Problem Faced By Nike
Nike a leading manufacturer of shoes and other sports equipment in the world faced lots of problems in adopting new software to streamline its supply chain and manufacturing processes in order to reduce gap between its products demand and supply.Nike obtains its finished products from manufacturing facilities located whole across the world. Nike followed a complicated supply chain system.
It obtained orders from retailers Nike a leading manufacturer of shoes and other sports equipment in the world faced lots of problems in adopting new software to streamline its supply chain and manufacturing processes in order to reduce gap between its products demand and supply.six months before their dates of delivery. These orders were to be forwarded to the various factories located across the world. Finished goods obtained where then shipped to the respective retailers.
In order to improve its logistics and working schedule Nike thought of implementation of supply chain but their implementations lead to sequence of failures but With strong determination Nike was able to emerge successful and now nike is one of the top most leading brand.
This case deals with the problems faced by nikein implementing a new software application to streamline its supply chain and manufacturing processes.
Nike, originally known as Blue Ribbon Sports (BRS), was founded by University of Oregon track athlete Phil Knight and his coach Bill Bowerman in January 1964. The company initially operated as a distributor for Japanese shoe maker Onitsuka Tiger(now ASICS), making most sales at track meets out of Knight's automobile.
According to Otis Davis, a student athlete whom Bowerman coached at the University of Oregon, who later went on to win two gold medals at the 1960 Summer Olympics, Bowerman made the first pair of Nike shoes for him, contradicting a claim that they were made for Phil Knight. Says Davis, "I told Tom Brokaw that I was the first. I don't care what all the billionaires say. Bill Bowerman made the first pair of shoes for me. People don't believe me. In fact, I didn't like the way they felt on my feet. There was no support and they were too tight. But I saw Bowerman make them from the waffle iron, and they were mine.
In 1964, in its first year in business, BRS sold 1,300 pairs of Japanese running shoes grossing $8,000. By 1965 the fledgling company had acquired a full-time employee, and sales had reached $20,000. In 1966, BRS opened its first retail store, located at 3107 Pico Boulevard in Santa Monica, California next to a beauty salon, so its employees no longer needed to sell inventory from the back of their cars. In 1967, due to rapidly increasing sales, BRS expanded retail and distribution operations on the East Coast, in Wellesley, Massachusetts.
By 1971, the relationship between BRS and Onitsuka Tiger was nearing an end. BRS prepared to launch its own line of footwear, which would bear the Swooshnewly designed by Carolyn Davidson.The Swoosh was first used by Nike on June 18, 1971, and was registered with the U.S. Patent and Trademark Office on January 22, 1974.
In 1976, the company hired John Brown and Partners, based in Seattle, as its first advertising agency. The following year, the agency created the first "brand ad" for Nike, called "There is no finish line", in which no Nike product was shown. By 1980, Nike had attained a 50% market share in the U.S. athletic shoe market, and the company went public in December of that year.
Together, Nike and Wieden Kennedy have created many print and television advertisements, and Wieden Kennedy remains Nike's primary ad agency. It was agency co-founder Dan Wieden who coined the now-famous slogan "Just Do It" for a 1988 Nike ad campaign, which was chosen by Advertising Age as one of the top five ad slogans of the 20th century and enshrined in the Smithsonian Institution. Walt Stack was featured in Nike's first "Just Do It" advertisement, which debuted on July 1, 1988. Wieden credits the inspiration for the slogan to "Let's do it", the last words spoken by Gary Gilmore before he was executed.
Throughout the 1980s, Nike expanded its product line to encompass many sports and regions throughout the world. In 1990, Nike moved into its eight-building World Headquarters campus in Beaverton, Oregon.
Phil Knight announced in mid-2015 that he is planning to step down as chairman of Nike in 2016. These are the problems that are faced by nike - and a lot of people looked past that, because, as Mizuho Securities Managing Director Betty Chen told Business Insider, it's "the better house on a bad block."
Nike has a similar problem, and, like Lululemon, is able to hide these problems behind sales growth and a strong, beloved brand.Nike acknowledged that ridding itself of excess inventory had a negative impact on the company's report - it caused gross margins to decline 30 basis points.The company anticipates that it will still have excess inventory going into the first quarter of fiscal 2017.
"As we go into the next quarter we expect clearly to remain in excess inventory through our factory stores and also through select third party value channels," Nike President Trevor Edwards said on a recent earnings call.
He defended the inventory, in part, by explaining how the company constantly brings in new products. Constant innovation, after all, is a hallmark of Nike's branding - from moisture-adapting apparel to self-lacing sneakers.
"But overall the inline full price market is clean and we continue to just make sure we maintain and sustain a healthy pull market and also to bring into new products and make sure that we are actively, proactively managing the flow of product into the marketplace
1. To know about the competitor drawbacks and use it as an advantages for their profit.
2. To study the problems faced in inventory and supply chain management.
3. To understand how companies improve upon mistakes made by them in implementation of their project.
4. To recognize importance of existence a good supply chain system.
5. To appreciate that a new system can work successfully only when it is well integrated with existing systems
1. The organization does have a diversified range of sports products. However, the income of the business is still heavily dependent upon its share of the footwear market. This may leave it vulnerable if for any reason its market share erodes.
2. The retail sector is very price sensitive. Nike does have its own retailer in Nike Town. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer. So margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike.
H0 : There is no significant reference on a study on the inventory problem faced by nike.
H1 : There is significant reference on a study on inventory problem faced by nike.
Review of Literature:
The study of consumer behavior has evolved since the Information Processing Model (Bettman, 1979) assumed that the individual is logical in his/her buying process. This model was criticized because it failed to treat different consumption phenomena motivated by symbolic meanings (Holbrook and Hirschman, 1982). Individuals are not always looking for efficiency and economy, but also for distraction, aesthetic, expression, etc. (Boyd and Levy, 1963). These are the study of signs, meanings and production of symbols. Fantasy, emotion and pleasant aspects of consumption were then tackled from an experiential point of view. The Experiential View is a phenomenological perspective that perceives consumption as a primary state of consciousness having a variety of symbolic meanings, responses and hedonist criteria (Holbrook and Hirschman, 1982. The basis of the traditional Information Processing Model is the optimisation of the utility of a product under the basis of a utilitarian evaluation of its tangible characteristics. Nevertheless, it neglects emotional aspects. On the other hand, the Experiential View leaves out different factors such as economic conditions, expectations, some elements of the marketing mix (price, distribution), perceived risk and conflicts, but mostly the social influence of the consumers’ reference groups (Holbrook and Hirschman, 1982; Business Central Europe, 1994) which is the aim of the Symbolic Interactionism Perspective. Acquisition, possession and consumption are activities taking place in a process of impressions creation or identity management which is, according to Belk (1978), an interactive process concerning both the image of goods consumed and that of the individuals consuming them. The Symbolic Interactionism Perspective deals with the relationship between consumers and the products they consume, and suggests that a significant proportion of consumption behaviors consist of social behaviors, and vice versa (Solomon, 1983). This leads us to consider the importance of socialization processes (family, reference groups) through which individuals learn the meanings of symbols and those of consumption. With the aforementioned meanings being negotiated and built through interactions with others, consumption is not only an individual activity, but also a social process of goods definition (Gallant and Kleinman, 1983). Thus, Symbolic Interactionism Perspective considers the human spirit as fundamentally social, and dependent on shared symbols. The symbols being generated at a global level (Geertz, 1973; Solomon, 1983;
McCracken, 1986, 1988; Leigh and Gabel, 1992), the Symbolic Interactionism Perspective accepts as precept the fact that society and its culture precede every individual action, and that a cultural consensus results from interactions, communication, and negotiation between social actors(Charon,1989).
If, at a conceptual level, the consumption good becomes an instrument of communication, at an operational level, image variables may be regarded as the intangible attributes of the product that carry cultural and social meanings. According to Erickson, Johansson and Chao (1984), an image variable is defined as “some aspect of the product that is distinct from its physical characteristics but that is nevertheless identified with the product”. The image variables emerge from four cognitive representations individuals have of their environment: the symbolism of advertising, the celebrity endorsement, the brand, and the country of origin of the product.
The made-in is considered by Dichter (1962) as the fifth element of the marketing mix, and is defined as the country where are located the corporate headquarters of the organization doing the marketing of the product or the brand (Johansson, Douglas and Nonaka, 1985). The country of origin carries a rhetoric that influences consumers’ preconceptions towards the products of a country. Its meaning can be conceived as an indication serving as a basis of evaluation (Bilkey and Nes, 1982), when one considers a product as a bundle of information. Consequently, according to Kaynak and Cavusgil (1983), the images of a foreign country that are formed by consumers are made of cognitive, affective and behavioral components. The first one represents the perceived characteristics of the country. The second one concerns the appreciation or not of those characteristics, and the third one corresponds to the actions about the country that the consumer feels are appropriate. A tendency to evaluate positively the local production compared to imported production, and biases in favor of industrialized countries have been found in previous studies (Bilkey and Nes, 1982; Cordell, 1992). This does not mean the consumer will not buy the product, but rather that he is not inclined to do so (Schooler,1971). “When entering foreign markets, sellers often face quotas, tariffs, and non-tariff barriers. In addition, they may face an intangible barrier in the form of consumer bias on the basis of product origin” (Schooler, 1971).
The informational value of the country of origin was also found to vary according to the level of involvement of the consumer in purchasing the product and the presence of other cues such as brand name, guarantee and price (Ahmed and d’Astous, 1993). In a recently published meta-analysis of country-of-origin effects, Peterson and Jolibert (1995) conclude that the average effect size is lower (0.19) for purchase intention, higher (0.30) for quality/reliability perceptions and context dependent. More specifically, they found that the characteristics of the study (research design, type of respondents, study cues, sample size, stimulus context etc.) influence the relative effect of country-of-origin to a lesser degree for quality/reliability perceptions than for purchase intention. However, the type of respondents (students, consumers or businesspeople) had no influence on quality/reliability perceptions.
It's all psychology. Consumers with well-defined preferences may be sceptical that a marketer could match expectations. Those who don't know what they want may not ever see the fit with what the seller wants them to buy. So, individualized offers depend on customers' preferences; how the offer was extended & and on trust. "Effective individual marketing requires not only an understanding of individual preferences and matching offers to those preferences, but also a thorough familiarity with the various factors that impact customers' responses," he writes.
This is a tall order, one that some companies have been able to fill at least to some extent. For example, Amazon keeps track of customers’ purchases and suggests other books they might like. Dell builds computers from mass-made parts to customers' specifications. But Simonson argues some companies can take the concept too far, like the Custom Foot chain of shoe stores that took detailed measurements and specifications from each customer to design one-of-a-kind shoes. Simonson argues that Custom Foot didn't take into account that some customers were put off by the individualized attention and felt obligated to buy the shoes because the store went to so much trouble. They often didn't come back. Indeed, an Internet search produces no Website.
Simonson, who has received many prestigious awards for his research on consumer behaviour and marketing, teaches MBA and Ph.D. marketing and consumer decision-making courses. The loyalty program article is slated for publication in the Journal of Marketing Research this year.
Online customization gives consumers the opportunity to choose characteristics they want in a product when they shop for it online. Many companies are looking at online customization as the future of online business Janis Crow, Kansas State University marketing instructor, researched how people make choices on the Internet. She recently studied consumers in an online environment and their ability to customize several products - pizza, shoes, and electronic devices.
All participants in the study chose to customize products. In terms of customers’ likelihood to purchase, a greater number of customers made purchase decisions when there are more options to choose, she said. However, it was slightly more difficult when more features were offered.
Research Methodology The methodology used in the present study includes both descriptive and exploratory. primary is collected through various print and electronic resources.Convenient sampling technique is followed for the study.
Method of Data Analysis
Ø The Primary data was collected by internet.
Ø The secondary data as it has always been important for the completion of any report provides a reliable, suitable, equate and specific knowledge. The data was collected from various magazines, fact sheet newspapers and websites.
§ The competitor drawbacks and use it as an advantages for their profit;
Nike co founders first time met in 1957, when Knight, a middle-distance athlete, was an undergraduate student at the University of Oregon. In the early 1960s, while doing his MBA from Stanford University Knight submitted his marketing research dissertation on the US shoe manufacturing industry. His contention was that low cost, high quality running shoes could be imported from labour-rich Asian countries like Japan and sold in the US to end Germany's domination in the industry. In 1964, Knight and Boweman, with each of them contributing $500, formed a partnership and thus formally came into being. Initially shoes were sold from the Knight's house basement and other local shops.
In 1999 Nike embarked upon a huge IT project. It was to implement a new supply chain system and several new applications in customer relations management (CRM). But the new system experienced some teething problems causing Nike to experience some problems during fiscal year but However Nike made modifications and re-bounce back to its world leader position. During 2001 Nike earned profits of $97.4 million; around $48 million below its earlier forecast. According to the Company the reason for shortfall was failure in the supply chain software installation by i2 Technologies. This admission of fail affected the company's reputation as an innovative user of technology. For more than a year Nike wobbled as a result of this failure. In public both Nike and i2 blamed each other for the failure
Today, Nike along with Adidas dominate the world of sports gear. To be honest, Nike even surpasses the German brand. However, there were times when the company founder Phil Knight felt reverence looking at the Adidas shoes that were in those years just luxuries for the American athletes. Knight was an excellent runner and knew how feet shod in the ordinary American running shoes bleed after a competition.Nevertheless, the German quality costs money and amateur athletes cannot afford it (for comparison – in the 1960s, Adidas running shoes cost $30 on average in the United States while ordinary American shoes cost $5). This situation brought Phil Knight and his friend Bill Bowerman to an idea that they could create their own sneaker brand or, in other words, American high-quality shoes at affordable prices.
The only question was how to do it. Bill Bowerman worked as a coach at the University of Oregon and as well as Knight was perfectly aware what kind of quality the running shoes should have. The idea of young entrepreneurs was to develop a model of running shoes in the United States, to produce them in cheap Asian countries (at that time Japan), and sell them around the world. Of course, they planned to start in the United States. Their plan was to make shoes that were not worse than Adidas by quality and to sell them cheaper. Indeed, they were able to do it. They found weaknesses of Adidas that produced its products within Germany, where labor was more expensive than in Asia. American entrepreneurs took advantage of it.
In 1963, Phil Knight went to Japan, where he negotiated a contract with the factory Onitsuka for the supply of well-known Olympic sneakers Tiger to the United States. During the negotiations, Knight made a deal on behalf of a non-existed US company that was interested in the partnership with the Japanese. The company was called Blue Ribbon Sports. The contract was signed, and Knight began to sell Japanese running shoes in the United States (“Preliminary Information: Iconography”).
By 1964, Bowerman and Knight sold shoes for more than eight thousand dollars. During that year they hired their first employee, sales manager Jeff Johnson. After one year the company got its present name Nike. It is believed that the idea of name belongs to Jeff Johnson, when he saw the Greek goddess in a dream. So, the trinity decided to name their offspring as Nike, in honor of the Greek Goddess of Victory. Sales have grown every year and “went from $10 million to $270 millions” (Seay).
In 1971, the landmark event happened and changed the face of the brand. A student of Portland State University Carolyn Davidson designed a legendary company logo, for only $35. Today, the Nike logo is known all over the world. Moreover, by many researches, it is the most well-known brand (“The Nike Logo”).
In 1972, perhaps, the most significant event in the Nike history happened. Bill Bowerman came to the idea of supplying shoes with “waffle” soles, which allowed, firstly, to reduce the weight of shoes and, secondly, to increase the momentum carried out by athletes at the races. It was a revolution. After 10 years since the foundation, it has begun a rapid Nike growth. It should be noted that the waffle sole is still the best and the most versatile for running shoes.
In 1979, Nike offered another innovation. This year, an aerospace engineer Frank Rudy came to company and offered company a technology of putting air in shoes. So, Nike Air was emerged. Built-in running shoes airbag actually increased lifespan of sneakers.
Three years later, Nike made another innovation in the world of sports shoes, this time in the marketing arena. It was 1985. Nike actively sponsored many basketball players NBA. However, this year it negotiated a contract with the young talent Michael Jordan. He became a world legend in the next ten years and conquered the entire world playing in running shoes Nike but, in fact, advertising Nike’s sneakers. Actually, the contract with Jordan was signed just in time, as sales fell. However, Nike has managed to get it back, thanks to Michael Jordan (“About Air Jordan”).
Nike has become a symbol of world sport. Olympics games followed basketball, then baseball, hockey, golf, and other sport. In the 1990’s the company had a lot of changes. First of all, its organization was reconstructed. There were emerged independent branches, responsible for a particular sport.
The main weapon of new advertising of Nike campaign has become its slogan “Just Do It”, which later became the official motto of the company and one of the most famous slogans in advertising history of the world. With the campaign “Just Do It” and high-quality products, Nike was able to increase its market share of sports shoes from 18 to 43 percent, from 877 million dollars worldwide sales to 9.2 billion for only ten years from 1988 to 1998 (Goldman and Stephen 171).
The company continued to be active not just advertising but also participating in various activities, including the Internet. Namely, Nike set up street football tournaments “Joga Bonito” that is one of the most famous tournaments in the world. In doing so, company is actively working in the Internet, developing multiple social networks to their tournaments, or for specific sport. For example, Nike has created a social network dedicated to basketball (Goldman and Stephen 161).
Today, Nike uses the newfangled trend when the customers want to design products with their own hands. They can do it in one of the sites of the company. Moreover, they can order a model of sneakers created by their imagination. In addition, in the XXI century Nike negotiated a contract with Apple, under which two giants began to produce a Nike iPod Sport Kit, in which iPod is connected with running shoes, which could inform the owner about statistical data.
Today, Nike continues to sponsor famous athletes, organize its sports entertainments, and develop revolutionary footwear for sports. The staff of the company believes that if a person has a body, so he or she is an athlete in any way, which means that people are their targeted audience.
Nike's Supply Chain
Nike products are sold in 140 countries and they comprise of athletic shoes, sports equipments, fitness equipments, etc. Nike global operations spread over United States; Europe, Middle East and Africa; Asia Pacific. Since the mid-1970s, Nike has outsourced its manufacturing activities to various countries especially in Asia and Africa where labour is cheap.From 1975, Nike introduced a program whereby Nike's retailers where required to place orders with the company six months before the required date of delivery with the guarantee that 90 percent of their orders would be delivered within a set time period and at a fixed price. These orders were then forwarded to the manufacturing units across the world.
Fall of Nike profits
In 1999 Nike embarked upon a huge IT project to implement a new supply chain management and customer relations management.The new system experienced some teething problems. Resulting in reduction of Nike profits by 24% in 2001.
In February 2001, Phil Knight (Knight), the co-founder and CEO of Nike Inc (Nike), announced that the company's profits for the third quarter of the fiscal year ending May 2001 would fall short of expectations by almost 24 percent. The reason for the shortfall was a failure in the supply chain software that Nike had implemented in June 2000.
The supply chain software, which was implemented in Nike by i2 Technologies Inc , at a cost of $400 million, could not fully control the demand supply mis-match and thus lead to manufacturing in large numbers of less popular shoe models and small numbers of most popular shoe models. Both i2 and Nike blamed each other for failure and both companies shares fell down. This made the company to lose its reputation.
Troubles from software
Nike during 1999 implemented the first part of its supply chain strategy i.e. the demand and supply chain planning application software as developed by i2 technologies. This software was developed to help Nike to match its supply with demand by mapping out the manufacturing of specific products. The objective was to reduce cost and quantity of rubber; canvas and other materials used by Nike to produce wide range of its products and make it more affordable . Nike also wanted through it to build more shoes that were more demanded. Nike had 1,20,000 different varieties of products (SKUs). Some its products required 130 individual steps to manufacture.
Could breakdown be avoided?
According to Nike the i2 software had failed to deliver as promised as it could not provide good forecasts. However, i2 officials argued that Nike ignored their recommendations of minimizing customization to 10-15% of the software deployment. Thus Nike made faulty implementations. Other IT experts were of opinion that Nike should have hired a third-party integrator as the company was replacing an already troublesome older application with a new supply chain planning application.
1. Supply to customers
· In response to criticism of its outsourcing practices and of other issues regarding sustainability, in 2007, Nike established a five-year corporate responsibility target for itself. Nike recently released a report outlining the progress it has made for the past 3 years.
· According to the report, Nike has made progress on many fronts, such as implementing proper Human Resource Management practices in contract factories, reducing waste and toxins in manufacture and increasing its use of environmentally preferred materials.
· There remain areas for Nike to improve on, such as managing overtime in contract factories. Nike has also revised and clarified targets in a few instances in the light of a better understanding of the complexities of the strategy. More needs to be done to protect the brand image of Nike in this regard.
2. Design and Development
· The growth target identified by Nike is not likely to come from a single market. Strategies to achieve the target have been broken into mature market and emerging market categories.
3. Nike Branded Stores
· Nike has plans to open approximately 250-300 Nike branded stores worldwide within 5 years
· The objective of this strategy is to enhance the consumer experience by increasing the visibility of the brand. In the past decade Nike has attempted a similar strategy, but on a smaller scale
Both, Nike and i2 suffered with the supply chain failure which was result of both Companies mismanagement. The negative publicity affected both companies with monetary losses and the production set backs. Nike realized that implementation of the software was not easy and goals set were not realistic. Nike felt that a third-party perspective from an integrator's point of view could have exposed the flaws in the implementation.
Still Nike continued to work with i2 on the five-year long project .By the end of 2003 Nike had made considerable progress as Nike noticed that its ability to closely monitor the movement of goods from raw materials through factories to retailers was finally paying off.
Nike stopped using i2 demand planner for its sneaker model which resulted in hike in the nike products and the inventory system was working just fine , the orders given by the consumer was given on the promised date, which brought the company’s reputation.
Nike, Inc. is a company based on competition. From equipping athletes with the finestsports equipment in the world to continuously improving their financial performance, Nike dominates competitors. Phil Knight and Bill Bowerman probably could not haveimagined in 1962 to what degree their handshake agreement and $500 investmentswould yield. They did know that product quality and innovation would help athletesto achieve greater goals. Nike must continue to expand their product lines to meet theneeds of an ever-growing market. Nike must continue to improve the workenvironment where they do business in foreign lands without involving themselves inthe political aspects of those countries Nike will continue to face new challenges, such as technical advances of the futureand the unrest and changes occurring in governments around the globe. Thecompetitive nature of Nike and their constant seeking to improve, those challenges I believe will be met with a competitive view, ‘Just Do It.
# Moving forward with Nike – http://officina.net
# Ann Sulvian, Nike says i2 fouled its profits, http://www.nwfusion.com
# R.Michael Donovan, ERP Successful implementation the first time, www.referesher.com
# About Air Jordan”. Shoesselling.com. 9 May 2009 http://www.shoesselling.com/nike-air-news/About-Air-Jordan-xx/
# Goldman, Robert and Stephen Papson. Nike Culture: The Sign of the Swoosh. Sage Publications Ltd, 1999.
# “Preliminary Information: Iconography”. American Studies. 9 May 2009 http://xroads.virginia.edu/~CLASS/am483_97/projects/hincker/nikhist.html
# Seay, Roland . “The History of Nike Sneakers”. The History of Nike Sneakers.5 Dec. 2008. EzineArticles.com. 9 May 2009 http://ezinearticles.com/?The-History-of-Nike-Sneakers&id=1760467
Author: J. Pooja & Co-Author – Mrs. G. Jayasheela