Nike’s Race is On!
Nike, the sneaker giant, has recently decided to speed-up its manufacturing and delivery process in the US. This announcement came soon after Adidas’s retro superstar became the top selling sneaker in the United States for 2016 – the first time in the last decade.
To accelerate the time Nike’s shoes spend in the supply chain before reaching customers, Nike needs tospeed-up the processes at each point (manufacturing, wholesaling, retailing etc.) in its supply chain. As we witnessed in the supply chain lab in class, if one person failed to catch up with other members of the supply chain, the whole process was delayed. The confusion arising from this delay at one stage of the chain caused further holdups until the whole supply chain became a complete chaos. In order to overcome process delays and confusion, Nike is redesigning its supply chain by shifting its manufacturing from Asia to Latin America. This shift will ensure less holdups in the supply chain and faster deliveries to customers in the United States. Furthermore, it has decided to use automation to keep costs low and produce products at a faster pace.
As we saw in the supply chain lab, the group which was able to keep its costs the lowest used communication throughout the chain to manage production and orders. Similarly, Nike has moved into a “near-shore, purpose built factory” with Flex, its manufacturing partner. Through this partnership, Nike plans to “produce tens of millions of pairs near shore” by 2023. Moreover, it has also decided to move away from a “futures order” strategy to a “responsive model” of prod
uction. The futures strategy meant that Nike only started production if the order had to be fulfilled within six months. By moving manufacturing close to United States, it can produce products in response to what costumers are actually buying. Nike’s CEO, Sprunk said that the partnership with Flex “allows us to take our standard time, from just manufacturing to market, from about 60 days to 10 days or less.” This redesigning of supply chain is likely to give Nike a competitive advantage in the market by reducing shipping expenses, import duties, and risks of making a large volume of shoes in advance.
Nike is not only adopting automation in its factories near North America, but it also has plans to install more than 1,200 automated machines at the factories of its suppliers to handle cutting, cementing, shoe assembly, and making soles. Thus, it is helping its suppliers innovate to develop a faster way of making labor-intensive sneaker soles. Therefore, redesigning of supply chain needs to take place at each stage to ensure company is able to reach its competitive priorities’ goal.
Do you all think Nike’s redesigning of supply chain efforts are sufficient to beat adidas in the race to achieve greatest market share? What other things can Nike do to have a greater competitive over its competitors in the industry?
Also here’s a really interesting Nike ad for you all!
https://qz.com/1067801/nikes-iron-grip-on-the-sneaker-market-is-slipping/
Nike strikes me as a company that may have sat back on their previous successes and halted their pursuit of growth and continues process improvement for the future. Nike still is in control of this industry but that control is quickly diminishing. At one point Nike’s stock price (NYSE: NKE) fell from $60 all the way to $49 and has continued to be volatile ever since. Last year Nike had 52 shoes in the top selling 60, which is an 86.6% market share. In a year’s time, Nike fell to 35 shoes or 58.3%. During that same time Adidas went from having 3.3% to 40%. Also, Adidas has officially taken over Nike’s shoe line, Jordan, as the number 2 seller in U.S footwear sales. Now, Nike is forced to overhaul the implementation of their new strategies because of their previous complacent state. To answer your question, I do not think Nike’s efforts alone will be sufficient to beat out Adidas. I think Nike should expect to see improvement from their redesign, but there best chance is to hope that Adidas cannot sustain its recent growth and is left as a trend that has come and gone. This article reinforces the idea that supply chains and operations management require the constant pursuit of improvement.
I completely agree with Michael’s point, I think Nike has maybe gotten a little too comfortable being the premier athletic shoe company for so long. I think recently, we have seen athletic footwear, and attire as a whole, find its way into the fashion industry, and Adidas certainly made the most out of this trend (see attached article). Certainly, more and more celebrities are wearing Adidas products as part of their wardrobes, and this is something Nike hasn’t done the best job at adapting to. Growing up, I feel like everyone looked forward to new Nike releases whereas now, Adidas has perhaps overcome them in terms of hype surrounding their products. Nonetheless, with decreasing supply chain costs, this adjustment will give them a greater opportunity to explore more and more options in shoe design along with giving them quicker shipping times to stay as up-to-date as possible on trends, and I wouldn’t be surprised if this move by Nike is part of a long term plan to solidify, or regain, their place at the top.
Source: https://qz.com/869637/in-2016-adidas-was-the-coolest-brand-in-fashion/
I definitely agree with Nike having gotten too comfortable. I very much don’t think Nike’s classic logo and motto can be replaced, but it’s shown that the Adidas superstar overcame Nike in popularity. Honestly, it was because Adidas saw an opportunity to capitalize on athleisure wear in fashion, whereas Nike has always been serious about its function and performance for athletes and active consumers. With the move to decrease supply chain costs, I also agree that it can provide more value for consumers with quicker shipping and possible trends. However, with Adidas and puma leading fashion styles, it will take Nike more than just performance and cutting inefficiencies to regain its position as the top fashion athletic wear company in the midst of such fierce competition.
https://investorplace.com/2017/09/nike-losing-market-share-adidas/
It all depends on how the demand for Nike’s shoes has been in the past year. If the main reason Nike could not top Adidas in sneaker sales recently is because they could not properly match demand, then moving the manufacturing plants from Asia to Latin America is probably a smart idea in order to create greater communication with the other aspects of the supply chain. However, if it was their marketing approach that was the issue, then this move to Latin America strikes me as more of a cost cutting strategy. Nike really has to look themselves in the mirror and ask themselves why they have been struggling of recent – in fact, they recently shut down their operations in the golf equipment segment because the area was not profitable for them.
Perhaps they will figure it out, but Adidas and even Under Armour have shown of recent they are going to be competitive with Nike, especially in the United States.
I agree with Brandon, I think that Nike needs to really reevaluate why they’re being beat out by Adidas. The reason that Adidas is beating out Nike is because they shifted their target market to fashion influencer and teens. The rise in the popularity of Adidas’ Stan Smith shoes came at a time where sneakers became fashionable again. Consumers wanted Stan Smith’s in every color and as many “cool” sneakers as possible. Nike on the other hand remained the top choice for athletic shoes. However, not many people need multiple pairs of running shoes. In order to compete with Adidas, Nike should focus on tapping into the most popular markets and shifting their forecasting and supply chains accordingly.
https://www.bloomberg.com/news/articles/2017-05-03/adidas-spins-marketing-gold-with-a-70-year-old-in-nerdy-shoes
Following a shift in dominance in the sneaker industry, Nike decided it is time to improve the efficiency of their supply chain. It is shocking to me that it took Nike this long to make these changes. I would have expected Nike to take on a more proactive role in the market, rather than having a shift in the market be the reason Nike begins to redesign their supply chain.
Nike’s ultimate goal is to decrease the overall time in the supply chain in order to reach their customer base at a much faster rate. When Nike reaches more customers much faster, the company will grow and increase their revenue.
I liked how you related the delays Nike has been faced with to the class exercise we did last week. I cannot imagine the confusion Nike has with members of its supply chain when they are in an entirely different country. There was already much confusion during the activity when every member of the supply chain was located right next to one another. It makes sense that Nike would work to redesign their supply chain and limit this confusion. Nike’s plan to implement a “near shore purpose built” factory seems like a great step in solving this problem.
I believe that Nike’s plan in redesigning their supply chain is a great idea to increase their supply chain efficiency. In conducting further research into other statistics about this plan, I found that “Nike supply chain operations teams can reduce lead times by 83.3 percent by combining process and technology innovation” (Supply Chain Drive). Decreasing lead times connects back to what was stated earlier about reaching customers at a much faster rate, as the time to get inventory to customers is decreased.
In order to beat the competition in the industry, Nike must make a strong commitment to continuously improving their supply chain operations and design. This would hopefully prevent another company, like Adidas from gaining the upper hand.
https://www.supplychaindive.com/news/nike-lead-times-innovation-automation-consumer/508606/
Good Post. Nike is my favorite clothing brand. Despite keeping prices relatively low, they always offer the best quality items. As you mentioned, what keeps Nikes growing its almost perfect use of outsourcing. As this article mentioned, Nike moved about 900 million units through its supply chain last year. That’s amazing. There are three main actions that led Nikes to keep costs low and deliver superior products. Lean manufacturing is the first aspect. As stated,” By the end of the fiscal year 2013, between 70% and 76% of its apparel and 85% of its footwear products were manufactured on lean lines. This delivered additional savings of $0.15 per unit through better labor productivity and lower waste.”
Nike also participate in material consolidation by reducing the number of vendors through which Nike sources materials and also reducing the materials used in manufacturing products
Lastly, most of the cost savings Nikes experiences is due to manufacturing innovation and modernization. Nikes definitely listened to it consumers, retailers, and wholesalers in these aspects. Consumers want lower prices and consistent quality. Retailers want to be able to receive timely shipments. By increasing automation and moving manufacturing closer to the U.S Nikes should see another surge in its market share. I also think the switch “responsive” production will also assist in cutting holding and ordering costs. To conclude, I think your main point about the exercise we did in class is that communication is key. If Nike wants to continue beating its competitors its must communicate with all levels of their supply chain.
https://marketrealist.com/2014/12/overview-nikes-supply-chain-manufacturing-strategies
It is fascinating to see how much of an impact the supply chain can have on the success of a business. A business as large as Nike, Inc., which everyone assumes to possess all the keys to success. Knowing this, I believe that expediting the supply chain processes, and reducing some of the bottlenecks a production line may face through manual labor would benefit Nike, Inc. As a manufacturing company that needs to produce countless goods at a fast rate, automation would be best for this as it eliminates the possibility of human error and streamlines the communication throughout much easier. I am also shocked by Nike’s “futures order” strategy. I know that buying in bulk and far in advance is a cost saving strategy, but with a company as large as Nike, which has an inventory turnover of 3.77 as of May 2017, would be restocking its goods depending on which shoes were selling the quickest, which cannot be predicted six months in advance. A lead time of 60 days to 10 days is an incredible achievement, and I applaud Nike for doing the necessary testing to discover what process improvements could be made to achieve customer satisfaction and beat out its competitors. The process strategy of time and cost are two that many customers focus on. When ordering a new pair of shoes, you want the delivery to ship immediately and for a low shipping cost, so this improvement would drive more customers to Nike’s already populated website. I am sure that Nike’s ecommerce sales will soon increase. This change was definitely a smart one.
The only downfall I see with this change in processes is the about of human capital and labor being lost. I hope the replacement of humans with automation does not leave these workers left without jobs.
Good point, Maryam. It’s crazy to think supply chain efficiency increased for Nike when they moved manufacturing from China to Latin America. Us Americans, we think of Asia, especially China, as the manufacturing giant of the world, but Nike’s production in Asia was inefficient and was causing hold ups in production. The hold ups were limited because Latin American countries have an easier time shipping goods to the United States which is where the majority of Nikes customers reside. Latin American manufacturers offer “near-shore, purpose built factories.”
By moving closer to the United States, Nike can more accurately forecast customer demands, and they can manufacture the right number of goods. Supply chain strategy is planning supply chains based on competitive priorities. The goal of a supply chain is to increase production while cutting manufacturing costs. With the new ‘flex’ factories in Latin America, Nike achieves both goals and creates a competitive edge on competitors.
I find it so shocking that it has taken Nike this long to start implementing ideas like this and to just basically start working toward improvements. I think it very much begs the question of what caused this desire for change. In the United States, for the first time in a very long time, Nike is no longer one of the top most popular brands with teens (https://quartzy.qz.com/1250063/nike-is-losing-popularity-to-adidas-and-vans-among-teens-survey-finds/).
Additionally, with growing trends in ath-leisure across fast-fashion and other major stores, as well as the growth in Adidas as a national competitor, Nike really needs to step up it’s game in order to come back to being on top. Additionally, Nike is still working really hard to break into the European market (or at least take on some of the ground that Adidas has secured for years. With their ever-increasing endorsement deals, specifically with more and more big name soccer players, making their supply chain more efficient will be a necessity in this battle (https://en.wikipedia.org/wiki/List_of_Nike_sponsorships#Football_national_teams).
Mature companies like Nike are no stranger to fluctuations in demand. Moving manufacturing to Latin America will definitely decrease shipping time. This move also appears strategic as trade tension build between the US and China. Nike will need to meet the increase in shoe demand in time or else they will end up with an intolerable amount of holding costs. The shift from future production strategy to a responsive production strategy obviously gives Nike much more flexibility in its S&OP. In recent years, Nike has additionally reduced its exposure to China towards Vietnam and Thailand. Reduced Chinese sourcing, product mix, and geographic mix contribute to its lower risk as a supply chain and as a company (https://www.marketwatch.com/story/nike-pulls-back-in-north-america-in-order-to-grow-2018-03-23).
I have some cost concerns with Nike’s location change of where their products are manufactured from Asia to Latin America. My first concern is difference in cost of the materials in Latin America than Asia as the materials probably cost more. My second concern is the labor cost, and the different government laws in the countries that the manufacturing plants are located. The labor cost in most Asia countries are far less then they are in Latin America. Lastly, I wonder what currency Nike is paying the manufactures, as different exchange rates can seriously change the cost in making a move like Nike did.
This post brings up an interesting thing that is happening in the sneaker industry: Adidas is constantly gaining more and more popularity, taking customers from Nike. This has noticeable been going on in the past couple of years. For example, I have never seen so many of my friends wear Adidas sneakers over a pair of Nikes. This trend and movement in the sneaker industry is an example of how hard it is for a major company to continue to grow and dominate a market. It is extremely difficult for Nike to constantly stay on top; they can not get comfortable and rest on their past success. If they do that, new, hungrier firms will work extremely hard to catch and pass them.
Therefore, it is great that Nike has rethought their supply chain management. Nike will succeed the more that they can adapt and develop their processes. If these changes benefit the customer, then that is even better!
While I do think Nike’s changes in its supply chain will help advance the company, I do not think that these developments alone will match what Adidas is doing in the market. I believe that Nike’s products are starting to become out of day; they are no longer the trend. Similar to restructuring their supply chain, Nike needs to innovate more in regards to their product. Also, I think they need to rethink their marketing strategy. For instance, when I was a kid thinking about getting a new pair of shoes, I always would look to older, popular professional athletes to see what they were wearing. Therefore, I do not think that it benefits Nike to advertise a commercial where the common man is achieving great success as depicted in the commercial that Maryam shared. Instead, Nike should continue to highlight their plethora of professional athletes that they sponsor. Below please find a link to an Adidas commercial where they highlight their popular sponsors and innovation:
https://www.youtube.com/watch?v=sLmpxY_XRMU