Analysis of the supply chain of nike PDF

AN ANALYSIS OF THE SUPPLY CHAIN OF “NIKE”
Chitra 2015B3PS0967P
Kavya Gupta 2016A5PS0749P
Paresh. G. Deshmukh 2016A4PS0412P
Akshit Ahuja 2016A1PS0319P
Kuppa Sai Sashank 2016A3PS0167P
Dibya Raman Patra 2016A2PS0838P
Sayan Kumar Das 2016A1PS0617P
Aishit Jain 2016A1PS0768P
Ashutosh Sahoo 2016A1PS0573P
Sachin Yadav 2016B4TS0961P
Diksha Kumari 2016B3TS0955P
Project pursued under the guidance of Prof. Srikanta Routroy in partial
fulfillment of the course “Supply Chain Management” (MF F421) Case
Study of NIKE Supply Chain

Birla Institute of Technology and Science
Pilani, Rajasthan
SUPPLY CHAIN MANAGEMENT MF F421
NIKE
SUPPLY CHAIN MANAGEMENT
By
Sachin Yadav - 2016B4TS0961P
Sayan kumar Das - 2016A1PS0617P
Diksha Kumari - 2016B3TS0955P
Akshit Ahuja - 2016A1PS0319P
Sachin Yadav - 2016B4TS0961P
Aishit Jain - 2016A1PS0768P
Chitra - 2015B3PS0967P
Ashutosh Sahoo - 2016A1PS0573P
K. S. Sashank - 2016A3PS0167P
Paresh Deshmukh - 2016A4PS0412P
Kavya Gupta - 2016A5PS0749P
Dibya Raman Patra - 2016A2PS0838P
29th April, 2019
Instructor-In-Charge
SRIKANTA ROUTROY
A project report submitted for the partial fulfillment of the course
Supply Chain Management (MF F421)

Introduction
Nike, Inc, is an american multinational corporation that is engaged in the design, development,
manufacturing, and worldwide marketing and sales of footwear, apparel, equipment, accessories,
and services.The company's headquarters are located near Beaverton, Oregon.Nike is the world's
largest supplier of athletic shoes and apparel and also a major manufacturer of sports equipment.
Product offerings are primarily focused at nine key categories that include Running, NIKE
Basketball, the Jordan Brand, Football (Soccer), Men’s Training, Women’s Training, action
Sports, Sportswear (sports-inspired lifestyle products) and Golf. The company also operates
retail stores under the Niketown name. Nike sponsors many high-profile athletes and sports
teams around the world, with the highly recognized trademarks of "Just Do It" and the Swoosh
logo. In 2018, it employs more than 73,100 people worldwide. Net income in year 2018 is 1,933
million USD$.
The company has majorly focused on two important things – product innovation and product
quality.It ranked No. 89 in the 2018 Fortune 500 list of the largest United States corporations by
total revenue, having revenue around 36,397 million US dollars.
It has offices situated in 45 countries outside the United States. Most of its factories are located
in Southeast asia including China, Taiwan,Indonesia, India, Vietnam, Thailand, Philippines,
Pakistan, and Malaysia.
Supply Chain Framework and Design
As of 2006, Nike products were manufactured by nearly 800,000 workers in 700 contract
factories located in 52 different countries.

The cogs in NIKE’s supply chain
Delivery precision in a multi-product and multi-jurisdictional company like NIKE, Inc. is
critical. It improves profit margins, reduces inventories, minimizes price markdowns, and
ensures that the customer receives the right product assortment on time. NIKE moved ~900
million units through its supply chain last year. Its manufacturing network consists of over 700
factories in 42 countries. Each product moves from 57 distribution centers across a network of
18,500 accounts and 140,000 retail doors.

Yet NIKE owns no factories for manufacturing its footwear and apparel, which make up
~88% of its revenues. Instead, manufacturing is outsourced to third parties because of the cost
advantages of doing so. Most raw materials in NIKE’s supply chain are sourced in the
manufacturing host country by independent contractor
NIKE’s manufacturers
NIKE is one of the pioneers of the industry-defining manufacturing outsourcing strategy. It’s
now exploring innovative ways of manufacturing so it can customize products on an
unprecedented scale.
Key manufacturing thrusts
● Lean manufacturing – By the end of 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
● Material consolidation – Reducing the number of vendors through which NIKE
sources materials and also reducing the materials used in manufacturing products
● Manufacturing innovation and modernization
Footwear manufacturers
NIKE’s footwear is manufactured outside the US by independent contract manufacturers that
often operate multiple factories. In fiscal year 2014, the company was supplied by ~150 footwear
factories in 14 countries. Contract factories in Vietnam, China, and Indonesia respectively
manufactured approximately 43%, 28%, and 25% of total NIKE’s footwear. The largest single
footwear factory accounted for ~5% of total NIKE brand footwear production.
Apparel manufacturers

Like footwear, all of NIKE’s apparel is manufactured outside the US by independent contract
manufacturers. In fiscal year 2014, NIKE was supplied by ~430 apparel factories operating in 41
countries. China, Vietnam, Thailand, Indonesia, Sri Lanka, Pakistan, and Malaysia accounted for
most of the apparel production. The top five apparel contract manufacturers together accounted
for ~34% of NIKE’s apparel production. One apparel contract manufacturer accounted for over
10% of production.
Third-party licenses
NIKE also has license agreements that permit unaffiliated parties to manufacture and sell using
NIKE-owned trademarks, certain apparel, digital devices and applications, and other equipment
designed for sports activities.
NIKE’s distribution centers
NIKE has five primary distribution centers in the US located in Memphis, Tennessee, three of
which operate on a leased basis. The company had 16 distribution centers outside the US at the
end of fiscal year 2014. NIKE brand apparel and equipment products are also shipped from its
distribution center in Foothill Ranch, California. Converse and Hurley products are shipped
primarily from Ontario, California.
Analyzing NIKE’s distribution channels and retail model
NIKE distributes its products through three major channels:
● By selling products to wholesalers in the US and international markets
● By direct-to-consumer (or DTC) sales, which include in line and factory retail outlets
(see graph below) and e-commerce sales through www.nike.com
● Sales to global brand divisions

Retail partnerships
NIKE, Inc. (NKE) has also tried to create category-specific retail destinations by partnering with
footwear retailers such as Foot Locker, Inc. (FL), JD Sports, and Intersport.
NIKE’s sales mix and retail slant
Sales to wholesalers are the largest revenue category. However, this category’s contribution in
the sales mix contracted from 83.3% in fiscal year 2012 to 79.2% of revenues in fiscal year 2014.
DTC sales, on the other hand, increased from 16.2% to 20.3% over the same period.
Comparing NIKE’s distribution channels, direct sales to the consumer provide higher margins
than do sales to wholesalers. Nike has been investing heavily in its direct-to-consumer sales –
they’re now worth 29.6% of overall revenue or just over $9 billion in 2017, per Nike’s FY17
financials. That percentage has grown from just 16% in 2011. That’s an annual growth rate of
14.7%, compounded.
What is Direct-to-Consumer (DTC)?
DTC involves a brand connecting and selling directly to its customers, whether online or offline,
through branded stores, in-store concessions, or pop-ups. Instead of wholesaling products to
retailers for them to do the job of selling on to the customer, the brand takes responsibility for the
whole chain from production to the customer having the goods.
What does it mean for Nike?
For Nike, the rationale behind their investment and business focus on direct-to-consumer is
multifaceted, but there are several key outcomes they’re able to achieve through direct sales that
their existing wholesale business was unable to do.
Firstly, their connection and relevance to millennial customers was limited and mediated by their
retail partners. For the brand to grow and retain its dominance, Nike needed to find ways to
connect with customers more directly. The cornerstone of modern retail and brand best practices
is customer data – without it, the brand cannot personalise, adapt locally, develop the best
products, test pricing strategies, etc. In short, customer data is the lifeblood of a consumer brand.
When a shopper picks up a pair of trainers or a running top in Dick’s Sporting Goods, Nike gets
less information less quickly about that transaction than if the same customer purchases in one of
Nike’s branded stores, where the information is available to Nike immediately and is more likely
to be relevant from a strategic perspective.

The same principle applies to online shopping, perhaps more so because of the nature of
e-commerce where data about page visits, items added to the bag, and items purchased can
reveal all kinds of useful patterns of consumer behaviour.
Secondly, a major reason for the deal with Amazon specifically was the fear that Nike’s brand
image was endangered by third-party retailers selling through the marketplace platform, and
additionally by the ever-present challenge of counterfeit items making their way into the supply
chain.
By signing up to a pilot with Amazon’s Vendor service and wholesaling a limited selection of
inventory to Amazon, Nike was able to negotiate stricter controls on who is permitted to list
Nike brand items.
The third reason for Nike’s DTC emphasis is the bottom line. Margins in their
direct-to-consumer business were estimated by Merriman analysts to be 62%, compared to 38%
in the wholesale business. Also included in this line of thinking is the shakiness of specific forms
of offline retailers. Undifferentiated experiences and offerings no longer appeal to consumers,
and as department stores and other retailers are becoming less valuable as sales drivers, major
brands are rethinking their reliance on wholesaling to such businesses.
How is Nike approaching DTC?
1. Amazon
As mentioned, Nike established a pilot deal with Amazon to offer a limited selection of the Nike
product range through Vendor. This gives consumers the option to buy Nike goods straight from
Amazon and benefit from Prime’s free 2-day shipping, Amazon’s customer service and
accessibility.
2. Website
The Nike.com site offers a fluid ecommerce experience with free shipping for NikePlus members
(more on that soon) and 30 day free returns. At the same time, it’s a place where the brand is able
to tell its story and emphasise its creative collaborations and releases.
3. Branded Stores

Nike’s extensive store reach is another key angle to their direct to consumer focus, and again the
emphasis in these environments is on brand storytelling and engaging their millennial customers.
The stores offer features like a running stride analysis to help customers pick out the right
product for their unique style, and open early for NikePlus members.
4. Social
Nike’s social platforms have garnered an impressive reach and the brand’s famous eye for
visually arresting images combines with its sponsored athletes to create impressive imagery and
a level of brand storytelling that most can only dream of. With 78 million Instagram followers,
Nike posts a blend of product-led and athlete-fronted aspirational content and generates massive
engagement – at the time of writing, a post one day ago featuring Rafael Nadal has accumulated
half a million likes.
5. Apps
Nike currently has 7 apps available on the app store, including the retail app “Nike”, several
fitness related apps, a Jordan Keyboard featuring branded emojis, and the SNEAKRS app which
features behind-the-scenes content related to shoe design, as well as draws for the latest releases
and of course the ability to purchase sneakers.
6. NikePlus
NikePlus is a membership programme that furthers both the relevance and immediacy of Nike
with customers by becoming part of their exercise routines & shopping habits. Membership is
free, but requires a sign up, where the brand captures age, gender, email, location, et cetera.
Members get access to the apps mentioned above, early release information and access,
exclusive NikePlus events, and free shipping and returns.
Their “Customer Direct Offensive” press release announced the creation of a dedicated DTC
division – Nike Direct. This organisation encompasses Nike.com, stores, and NikePlus, all in
pursuit of connecting more deeply with customers, controlling the brand experience as carefully
as possibly, and leveraging that brand experience to increase margin-rich sales.

The Nike Considered approach: evaluating the impact of a product at every stage in its life. The
company developed the Nike Considered Index. The index uses a lifecycle approach to examine
design and production factors such as material selection, solvent use, garment treatments, waste,
and innovation for footwear and apparel. Considered products are rated as gold, silver or bronze.
If we do this across the company, we will have a 17 percent reduction in waste, a 20 percent
increase in the use of environmentally-preferred materials, and maintain our 95 percent reduction
in volatile organic compounds (VOCs)
Nike’s Steve Nash “Trash Talk” shoe is the first performance basketball shoe made from
manufacturing waste.
Product Configuration
Nike does not own any of the manufacturing plants for its products. It has outsourced them to a
variety of different vendors in different countries. But Nike designs all its products and all the
new manufacturing techniques in the company itself.
Broadly, Nike’s products can be classified into 2 categories: Shoes and Clothings. These two are
each further classified into 4 sub categories: Men, Women, Boys and Girls. Each of these are
further divided into a variety of other categories.

Figure 1: Flowsheet of products into various categories. In the 3rd row, the 1st bracket represents
number of products available and 2nd bracket represents price range in ₹.
Each of the shoes categories have a customisable option. This option increases the
responsiveness of the firm to cater to individual specifications and tastes of their customers. Nike
already had a huge variety of products. Adding the customisation to 168 products increased the
variety more. This can bring more challenges because these customisations are all different and
Nike cannot anticipate them beforehand. Also, the added costs of materials are different.
So, to remove these problems, Nike brought some changes to the usual customisable options. It
gave customisation options to its existing 168 shoe designs which did not have great customer
reviews so that people could design it themselves and get better shoes. This would increase sales.
Customers must keep the shoe shape same. All other parts of the shoes are customisable. This
helps to keep the existing machines in the supply chain constant.
Then for the customisable colours and materials, Nike gave options which they were already
using in various shoes. So, customers could mix and match to find out their best choices. This
helps Nike to not order newer inventory stocks and use any older stocks. This has helped Nike in
keeping prices of the original shoes and the customised ones same.

The delivery time of these customisable shoes is 3-5 weeks. The time is enough to procure raw
materials and produce the shoes. So, it might be a (Just In Time) JIT process. This reduces the
cost of inventory storage and more efficient operations and takes care of the high demand
uncertainty of these products. The demand uncertainty of these customisable products is high,
but their implied demand uncertainty is kept low due to the company using same in-line
machines to make the shoes and the same materials used in its other regular models.
This customisable shoe option places Nike well above its competitors in terms of variety in
product configuration.
Figure 2: Designing a custom shoe. Note that the price is same as the original one.
Placing most of Nike’s products on the Customer need vs. Implied demand uncertainty graph, we
get:
Figure 3: Customer needs vs. Implied demand uncertainty Graph.

This curve was plotted with respect to responsiveness and customer needs and assuming
customer needs directly proportional to customer ratings of products. All prices got arranged
themselves accordingly.
Nike nowadays mostly design their new products after seeing the demands and needs of athletes.
They have moved from catering to the masses to the athletes. After reading through various
articles (https://www.huffpost.com/entry/behind-the-scenes-at-nike_b_818132), I concluded that
Nike branding and its association with top notch athletes help sell its products. According to an
article, a customer said that if the shoe was designed keeping in mind the problems faced by a
world class basketball player, then people think it will also be the best for other local basketball
players. This helps sell its products.
Demand Forecasting
The demand for Nike apparels and footwear is notoriously hard to forecast. Demand is
highly volatile and the products have short life cycles. On the supply side, there is a long and
complex process with many manufacturing steps. This, and sourcing to low-cost countries leads
to push-based supply chain strategies and sensitivity to the bullwhip effect, i.e. forecasts leading
to supply chain inefficiencies. The effect is further exuberated by high product variety, e.g. from
product categories, design variation, size, colors, etc. Many decisions are based on demand
forecastings, such as purchasing, order, replenishments, and inventory allocation. Accurate
demand forecasts are therefore a key success factor for Nike. Sales are heavily influenced by
exogenous variables, such as weather, competitor strategies, and sales promotions. This makes
forecasts context-specific, and therefore different forecast methods yield different accuracy
depending on the context.
Nike had a well-set demand forecasting system that had been performing quite well
throughout the 1980s. The supply chain was built around a six-month order cycle, called the
"Futures" program, that was developed in 1975 in response to the then-chaotic market for
running shoes. In this system, orders from retailers were placed six months ahead of delivery.
The system was running fine until Nike made the transition from being the 12th largest shoe
manufacturer (in 1984) to the undisputed leader in the footwear industry (by the mid-1990s). As
a result of this transition, its manufacturing schedules became more complex. The company’s
manufacturing schedules became busier and shipping dates tighter as the numbers of customers
increased considerably. As Nike became increasingly global, its supply chain began to fragment.
With 27 order management systems around the globe in 1998, Nike’s supply chain began to

fragment. It became extremely difficult for Nike to make demand forecasts using the existing
system.
Nike then decided to implement a new demand forecasting and supply chain management
system provided by i2. The i2’s solution was expected to help Nike align production to focus on
its most popular selling brands. Though the problem started to manifest within the first few
months after implementation of the demand forecasting solution, Nike and i2 tracked the
problems down and tried to develop ways around them. The i2 software technicians tried to
overcome the problem by changing operational procedures or by writing new software. But by
the time modifications were made, the inventory problem had already started. Nike was over-
manufacturing some products while struggling to meet the customer demand on other products.
On account of Nike’s excessive reliance on automated projections, it ended up ordering
$90 million worth of shoes, such as the Air Garnett II, which were selling very poorly, from the
suppliers across the globe. On the other hand, there was a shortfall of $80 million to $100 million
on popular models, like the Air Force One. It took about 6 to 9 months for Nike to overcome the
problem of incorrect proportions in its inventory, and more than two years to make up the
financial loss.
Nike continued to use i2 as its sole supplier of demand forecasting software for its small
but growing apparel business (it stopped using i2’s demand planner for short and medium range
planning for sneakers). Nike sells too many products(120,000) in too many cycles (four per
year). So, Nike gradually shifted its demand planning to SAP (Systems, Applications and
Products) and ERP (Enterprise Resource Planning) systems, which depended more on orders and
invoices than predictive algorithms. Learning from experience, Nike combined the earlier
demand forecasting techniques that were chiefly based on intuition with the modern integrated
computerized system so that a reasonable logical result could be obtained.
‘Demand planning strategy was and will be a mixture of art and technology’.
- Roland Wolfram, Nike’s Vice President of operations & technology
The company also decided to give more importance to the opinions of retailers for demand
forecasting, that would be profitable in the long run. Nike also converted its supply
chain from ‘make-to-sell’ to ‘make-to-order’.
To gain control over its nine-month manufacturing cycle, Nike decided that it needed
systems as centralized as its planning processes. ERP software, specifically SAP’s R/3 software,
became the bedrock of Nike’s strategy, with i2 supply, demand and collaboration planner
software applications and Siebel’s CRM software also knitted into the overall system using
middleware from STC. It skipped AFS (Apparel and Footwear Solution), the initial version of

SAP’s R/3 software developed specifically for the apparel and footwear industry. Archrival
Reebok, which partnered with VF on the beta effort to develop AFS beginning in 1996, struggled
for years to implement the buggy, unstable AFS software. And although Nike purchased AFS in
1998, it didn’t attempt to install it until SAP began working on the second, more stable version of
the software.
Supply chain experts agree that actual data from stores, rather than software algorithms,
are the best predictors of demand. But Nike’s SAP system cannot yet accept POS (point-of-sale)
data. So, there’s still some scope of improvement to Nike’s demand forecasting system.
Digital Demand Sensing
The ability to bring new products to market fast is only as good as Nike's understanding
of what its customer demand, and where. As a result, Nike started coordinating a wave of new
efforts to wring every bit of data out of its global sales. The company is investing significantly,
in digital demand sensing, consumer data and analytics, connected inventory, digital product
design and creation, a digital content engine and a new enterprise resource platform that will help
unlock speed and flexibility in our supply chain.
More advanced demand forecasting may also affect Nike's retail locations. For example -
The company opened the first Nike Live concept store in Los Angeles in July, 2018 with a
concept based on constantly evolving inventory tailored to specific local demand, predicted
using digital sales data.
Understanding The Supply Chain
Strategic Fit
The Strategic fit of Nike can be evaluated through the SWOT framework.
Nike’s strengths include its leadership of the footwear and apparels market which makes it easy
for Nike to compete effectively without even investing much in communications aimed at
increasing the market share. The low cost manufacturing base and very strong distribution
channel enable Nike to improve income even in periods of economic adversity. Nike’s weakness
lies in its large pension plan liability. For instance, by May 31, 2011, unfunded pension liabilities
amounted to $113 million. Such pension liabilities reduce company’s reserves that can be used
for expansion processes when required in the future. Nike has a battered corporate image with
respect to its labour sourcing practices. Such battered image limits the extent to which Nike can

penetrate the market, for instance in the North American market where customers are highly
sensitive. Opportunities include partnerships with sporting organizations in its markets to
increase its market leadership, for instance, Air Jordan is a subsidiary of Nike. It is a brand of
basketball footwear and athletic clothing and created for Chicago Bulls basketball player
Michael Jordan. Also, the NBA has signed an 8-year apparel deal with Nike. Threats in the
market include intense competition. Major competitors for Nike are Adidas and Puma, which
belong to the same strategic group as Nike. In the North American market, the entity faces
additional competition from Dicks’ Sporting Goods and Finish Line. With products being
identical among the competitors, Nike could lose its market to competitors due to low switching
costs. Additionally, cheaper imports from Asia could present a challenge for Nike with respect to
a price-sensitive segment.
Now, considering response time and efficiency as parameters:
Nike has an average response time of 2.8 hours, well below the Interbrand 100 average of 5.4
hours. 55% of the time @NikeSupport is able to respond within 30 minutes, and an additional
13% of responses are made within the next hour. Nike has reduced lead times by 83.3% by
combining various process and technology innovations, i.e reduced lead times for its orders from
60 days to a mere ten days by redesigning its logistics network, nearshoring more facilities,
improving contract manufacturer relationships and investing in automation, (Quartz reports).
When we take web services into account, Nike.com generated an average high broadband
Internet backbone response time of 0.59 seconds to lead a list of 50 top e-retailers, according to
measurements from Gomez, the web performance division of Compuware Corp. For this, By the
end of 2018, Nike planned to have installed a minimum of 1,200 new automated machines at its
Asian suppliers' factories, in order to speed cutting, cementing, shoe assembly, and sole creation
Industry experts predict that such efforts will likely improve margins and help attain greater
market share. Nearshoring reduces shipping expenses, import duties, and over-production risks.
But Nike's efforts are based on more than a drive to innovate. The brand is responding to
consumers' demand for a greater variety of clothes to be available more often. Yet recent
examples show succeeding in that mission-shared by consumer brands across various industries-
requires a full supply chain transformation. The reason is switching to a direct-to-consumer
model means upturning how the design-to-market cycle operates in the first place.
In the past, Nike's product cycle began with a "futures-order" months in advance. This would
then prompt more than 1 million workers at 566 factories to produce an estimated 1.3 billion

units and ship them through 75 distribution centers to more than 30,000 retailers in 190
countries. The company seeks a business model where "consumer demand is our signal to
anticipate and demand," COO Erik Sprunk told investors at Nike's 2017 Investor Day. "To make
this shift, we're digitizing our end-to-end supply chain and creating a model with shorter lead
times to deliver what consumers want, when they want it, where they want it. Sprunk says this
transformation relies heavily on two goals: developing new methods of manufacturing and
"relentlessly driving automation in our traditional methods of make. To achieve these, Nike two
years ago announced it would open a 125,000 square foot innovation center, which now open-
appears to be paying off. Sprunk provided one example where the Advanced Product Creation
Centre (APCC) found a way to produce footwear uppers with 30% fewer steps and up to 50%
less labour. However, since Nike does not independently manufacture many of its products, such
a business model shift requires even closer relationships with its contract manufacturers. Nike
cites its relationship with Flex as an example of a successful strategic relationship.
Now, considering the efficiency criteria:
Efficiency comparisons Company Industry
Revenue per employee ($) 618,562 585,876
Net income per employee$ 66,725 60,806
Asset turnover ratio 1.71 1.69
Receivable turnover ratio 9.26 9.43
Based on the above-mentioned data it can be seen that Nike is comparatively ahead of the
industry average values taking into account the efficiency criteria.
Now considering leanness of Nike’s supply chain:
Lean supply chain management is about reducing costs and lowering waste as much as possible.
This methodology is important for companies with high volumes of purchase orders since waste
and costs can accumulate quickly. Additionally, companies with high volumes of low variability
purchase orders, benefit their efficiency greatly by utilizing the lean supply chain methodology.
By adopting a “better manufacturing” or lean approach as part of the sustainability initiative,
Nike has reduced material waste and production time, allowing the company’s supply chain to
operate more efficiently. The report stated that contracted factories that adopted Nike’s lean

approach experienced defect rates 50 percent lower than facilities that didn’t. Delivery lead times
from lean factories were about 40 percent shorter. Lean factory productivity increased 10 percent
to 20 percent, and the time to introduce a new product to a factory was reduced by 30 percent. In
some areas, including the reduction of excessive overtime at contract factories, progress was
slower than expected. Nike also changed its approach to some targets, including carbon
emissions, based on a deeper understanding of the challenges and to improve alignment with
business strategy, according to the report. Incremental progress against several targets was a key
driver for the company to redesign its factory evaluation and sourcing criteria to improve
performance in the long-term. This shows Nike has adopted a lean strategy and has also
improved its responsiveness. This implies it is moving toward the efficient frontier.
Now, considering demand forecasting as a parameter, demand is highly volatile and the products
have short life cycles. On the supply side, there is a long and complex process with many
manufacturing steps. This, and sourcing to low-cost countries lead to push-based supply chain
strategies and sensitivity to the bullwhip effect, i.e. forecasts leading to supply chain
inefficiencies. The effect is further exuberated by high product variety, e.g. from product
categories, design variation, size, colours, etc. Many decisions are based on demand forecastings,
such as purchasing, order, replenishment, and inventory allocation. Nike had adopted i2 software
to implement demand forecasting. But this system failed due to Inexperience of i2,
customization, inadequate information, changing market conditions and many more. But later,
Nike gradually shifted its demand planning to SAP (Systems, Applications and Products) and
ERP (Enterprise Resource Planning) systems, which depended more on orders and invoices than
predictive algorithms. Learning from experience, Nike combined the earlier demand forecasting
techniques that were chiefly based on intuition with the modern integrated computerized system
so that a reasonable logical result could be obtained. This can be supported by the fact that
Nike’s share of the global clothing and apparel market- 2.8%.
Achieving Strategic Fit:
So, considering all the above-mentioned details, Nike strategy embodies aspects of a cost-
efficiency focus and differentiation strategy. The cost-efficiency focus is achieved by sourcing
suppliers from contractors in low-wage countries. Such a strategy has enabled Nike to achieve
favorable performance even with an adverse economic environment. The wide range of products
that the entity controls facilitate the achievement of a differentiation strategy. Such a
differentiation strategy is achieved through technological competencies that enable Nike to
remain innovative. Despite its failure in forecasting the demand for a phase, later it improved its

forecasting methods and Nike’s strategic fit is evident with the large market share that the entity
enjoys. Nike is a leading player in the sports’ footwear and apparel industry. Nike’s continued
leadership is however affected by intense competition in the market and a threat posed by its
independent contractors. Such contractors could affect the entity’s cost-leadership strategy with
fluctuations in market conditions.
Initially, the supply chain focussed on being responsive as well as taking certain demand
forecast,(1) then on introduction of i2 technology and its failure in forecasting the demand, it
faced a huge uncertainty in the demand, which was accompanied by an increase in the product
variety. This led to its drift towards (2). As Nike introduced new technologies for demand
forecasting, SAP, ERP along with increased leanness, the demand forecasting somewhat became
more certain and the supply chain moved towards the zone of strategic fit. After that, as the
demand became more certain the company also increased the responsiveness of the supply chain
taking it towards the responsive side inside the zone of strategic fit(3).
Inventory Management
Inventory management is the planning and controlling of inventories in order to meet the
competitive priorities of the organization according to the textbook. Every manager in the
business is affected by this. Even supply chain is affected by this. An effective system of
inventory management includes having the right amount on hand to meet the consumer’s
demand. This is especially important in a retail merchandise store like Nike. Nike is constantly
producing new products. Therefore, to meet customers’ demands they must have the correct

amount of inventory available. Not only will the customers be dissatisfied, Nike as a company
can hurt profits.
Theory of Inventory Management Based on Demand Forecasting
The theory of inventory management is given by Kot et al., (2014, pp.148-156),
which states that efficient management of the supply chain is another factor on which the quality
depends since it is associated with the quality and the minimisation of cost. However, this quality
is not only associated with the product but also with the management of customer service.
Excessive inventory levels are the key cause of the constantly increasing cost throughout the
chain because of the maladjustment of the supply levels in terms of the demand in the market
resulting in stock surplus. This theory, therefore, within the operation management, suggests that
the initial point for the inventory level reduction is the forecasting of demand, which influences
the quality of a product in the market with the help of market prospects along with all the
associated supply chain links. Therefore, the theory of inventory management is related to
demand forecasting, which is necessary for the prediction of demand and the quality of a product
(Kot, Grondys and Szopa 2014, pp.148-156). The considerable significance of the forecast of
demands is related to the phenomena level of previous incidents since fluctuation or change in
the demand could affect the quality of the product.
Manufacturing process of shoes at NIKE-
1. The process map initiates by deciding the design of the shoe and selection of the material
considering factors of physical qualities of the materials, the total energy forfeited,
environmental impacts and availability of the materials, and the aesthetic appealing look of the
shoe.
2. Following this stage, different components of footwear (shoe) are cut by using animal leather
or some other synthetic material (Karel 2008. pp. 514-520).
3. In the process of stitching, all the components of a product are sewn together along with
shaping the shoes with the process of moulding through the help of tooling.
4. Later the upper stitched components and treated soles are joined together to the
assemblage.
5. One this road map is accomplished then the products, all the orders are received and
assembled since the factories of Nike are placed in different places and then shipped forward
(referred in figure 1) (Dojan 2014, pp. 1-15).

Order/Inventory Philosophy at NIKE-
Nike’s order/inventory management system is based on long term future forecasts. Nike has
established a “futures” program that rewards retailers with significant discounts if orders are
placed six months in advance. Nike uses these orders as a basis for global demand. This demand
information is used to set production levels at Nike’s various manufacturing locations
worldwide. The manufacturers will produce the demanded quantity of goods and distribute them
to the retailers within one month of the expected delivery date.
Order/Inventory Management
There are many limits and vulnerabilities with this strategy. Nike accepts all “future” orders
without considering their manufacturers production capacities and promises delivery within one
month of requested delivery date. Nike attempts to remedy this flaw by ordering their
manufacturers to produce up to 55% for the anticipated level of goods, before any demand
information is available and sometimes up to four months in advance of receiving any orders.
They then add to production when the “futures” information becomes available. Unfortunately, if
there has been an excess inventory of products produced before the demand information is
available, then Nike will have to pay its manufacturers for the goods they produced or partly
produced, even though there is no demand for them.
Effectiveness of the strategy followed
● Nike’s current strategy for managing its ordering and inventory is not effective.
● Long lead times associated with Nike’s order/inventory policies is a major vulnerability
to managing demand.

● Lead time for orders Nike places with its manufacturers is around four months. In
addition Nike pre-orders four months in advance because its manufacturers cannot meet
demand.
● Nike purposely does not meet demand on high end shoes in hopes to encourage
customers into newer models.
● Long lead times, poor forecasts, and unmet demand add great variability to Nike’s supply
chain.
Limitations and vulnerability
● The futures program creates significant variance because it requires production to begin
ten months in advance due to the fact that manufacturer’s capacity cannot meet demand
in six months.
● Variance in the supply chain increases further when retailers are overstocked and
permitted by Nike to cancel futures. With all this variance it is likely excess inventory
will remain, and not uncommon for Nike to hold excess inventory on freight ships,
docked and waiting for the necessary demand.
● Additional fluctuations in demand are increased because designers do not base designs on
past sales data. If high-top sneakers were not in demand and designers did not know due
to a lack of information, they may develop another high-top sneaker that has no demand
thus adding to the cost and overall inefficiency of the supply chain.
Alternative Order/Inventory Strategy that can be followed-
An alternative to this ineffective strategy would be to establish a POS information system at all
retail locations. This would help Nike create accurate short term forecasts of demand that could
be delivered to manufacturers in a timely manner. This will decrease the bullwhip effect that is
inherent in the current supply chain. Nike will have the ability to meet short term demand with
their distribution centers while accepting shipment from their manufacturers.
Information Systems Recommendation
It would be advantageous for Nike to establish an ERP system to support this new strategy. This
effort should be coupled with the goal if integrating their many independent manufacturers into
their ERP system. This integration would give Nike more control over the production process
and better control of information. This information control is imperative to the future success of
the organization if Nike is to manage the supply chain from the manufacturer to the retailer
efficiently. If Nike were able to easily retrieve information from each level of the supply chain in

real-time, they would be able to cut costs, and streamline their supply chain and manufactures
could begin production based on POS data gathered by way of the ERP system from retailers.
Supply chain integration is the key to the future success of Nike.
Inventory management procedure at stores of NIKE-
Following is the general system which is adapted by many stores of Nike in America. They make
use of an S&R department. S&R simply stands for shipping and receiving. It is one of the most
important departments of the store. Its functions include receiving shipments, handling shipment,
inventory management, and the process inventory undergoes before it is put on the sales floor.
What is also an essential tool that is used by the S&R department is the Hand Held Terminal.
(HHT) The HHT is a machine that holds information on the entire S&R department including
inventory, audits, bin storage, and item inquiries.
Nike Factory Store uses their S&R stock room as the main area for their inventory.
Nonetheless, the HHTs are used to help look for item or determine the quantity. At the Nike
Factory Store, a continuous review system is used by having the HHTs which will be discussed
later on how this occurs. Also, the store has independent demand items which are defined as
items for which demand is influenced by market conditions and is not related to the inventory
decisions for any other item held in stock or produced. (Operations Management) This type of
inventory is common in retail merchandise stores. Nike has a great amount of inventory that is
influenced by market conditions. For example, cold weather has a lot to do with Nike’s inventory
on winter hats, warm running apparel, and warm accessories that customers expect to buy.
Therefore, Nike must have enough inventory to meet their customers’ needs.
Shipment is received in boxes. Usually footwear contains the bigger boxes, but is easier to
process. The entire S&R process consists of about two to three workers plus a manager. The
manager will scan the boxes into the HHT and that determines if the right amount of boxes came
in. While that occurs, the employees bring in the shipment and place them in accordance with
their PO number. Since footwear is easier and faster to process, it goes first. Equipment needed
are box cutters, price guns, censors, hangers for apparel, tables to fulfill the process, and
carts/rolling racks to hold the apparel or footwear that will go out on the floor.
There are usually about two to three employees working in the stock room during the receiving
of shipment. It also depends what day of the week it since more shipment is received by the end
of the week. This occurs in order to have enough on hand for the weekend. Customers’ demands
are a lot higher during the weekend, especially when there are events or special promotions. To

start with footwear, an employee cuts open the boxes, the HHT is used to determine the correct
price. Then the correct price is applied to all shoe boxes. They are placed on the table and one
has to apply censors to each pair of shoes.
For apparel the same process occurs. However, after the apparel is censored then they are placed
on the appropriate hanger. Men’s clothes go on men’s hangers; the same applies to women and
children. One the clothes are fully processed they are then placed on rolling racks to take out on
the floor.
Statistics pertaining to inventory-
Nike is spread across 41 countries with total number of 1182 stores (as in 2018).
Nike has 527 factories around the world where finished goods are produced and 77 factories
which are used up for material preparation, with a total workforce of 1069674.
NIKE inventory valuation from 2006 to 2019. Inventory can be defined as the total value of
inventories in all stages of completion.
• NIKE inventory for the quarter ending February 28, 2019 was $5.415B, a 0.91% increase
year-over-year.
• NIKE inventory for 2018 was $5.261B, a 4.08% increase from 2017.
• NIKE inventory for 2017 was $5.055B, a 4.49% increase from 2016.
• NIKE inventory for 2016 was $4.838B, a 11.55% increase from 2015.
Cross Functional Drivers
1. Pricing Strategy of NIKE
Firstly, we will start with the cost breakdown, then we’ll move to the strategy that nike applies
for pricing.
COST BREAKDOWN -:
According to a report in 1995, Breakdown of costs for a pair of Nike shoes from an Indonesian
plant, 1995 (Behind the Swoosh).

Production labor $2.75
Materials $9.00
Rent, equipment $3.00
Supplier's operating profit $1.75
Duties $3.00
Shipping
Cost to Nike
$0.50
$20.00
R&D $0.25
Promotion and advertising $4.00
Sales, distribution, admin. $5.00
Nike's operating profit
Cost to retailer
$6.23
$35.50
Retailer's rent $9.00
Personnel $9.50
Other $7.00
Retailer's operating profit
Cost to consumer
$9.00
$70.00
Nike is one of the most successful companies in the sportswear market that uses the concept of
value-based pricing strategy. For a long time, it has been committed to providing the best
technology and high quality products to its customers. According to its mission statement, Nike
aims “to bring inspiration and innovation to every athlete (If you have a body, you are an athlete)
in the world”. The company proactively responds to changing trends and consumer preferences
by adjusting the mix of its product offerings as well as developing new products, styles, and
categories. With its successful marketing and pricing strategies, Nike has become the market
leader in the US footwear market with 16.2% market share in 2013.
The company mainly categorizes customers into 7 types based on sport activities which are 1)
Running, 2) Basketball, 3) Soccer, 4) Men’s training, 5) Women’s training, 6) Nike sportswear,

and 7) Action Sports. Then, Nike applies the concept of customization by offering different
functional qualities and designs of footwear based on each category. By doing this, Nike
develops a product line which allows customers sort themselves among various offering based
on their preferences. The design and function differences are intended to customize products
based on different user needs. For example, Nike’s running shoe has different cushioning
material that allows the force of impact to users’ feet to be evenly distributed and help to reduce
painful pressure points on users’ feet while running. This is the material that used specifically in
running shoes only.
Exhibit 1
Secondly, Nike also applies the concept of price discrimination by sorting footwear based on
buyer groups which are men, women, and kids as shown in Exhibit 1. This strategy allows the
company to implement fence building through 3 different groups of customers. The company
generally prices sport shoes for kids in a lower price range than men’s and women’s shoes.
According to the Nike website, the price of Nike epic react flynkit 2 shoes for men is at $200
while Nike epic react flynkit 2 shoes for boys is only Rs 9995, as shown in Exhibit 2.
Exhibit 2

In addition, Nike segments the product based on user purpose, as shown in Exhibit 3. Nike’s
website offers 4 main segments of running shoes which are of the “barefoot” ride (lightweight
and flexible), neutral ride (superior cushion for a smooth ride), stability (increased support,
excellent cushioning), trial (low-profile cushioning and traction), and racing (designed to
compete at high speeds). This allows Nike to differentiate itself from its main competitor,
Adidas. As a result, Nike can charge a premium price since better expected performance through
customization is one of the most significant factors that is desired by customers and found in
Nike products.
Exhibit 3
Nike Running shoes segmentation

Nike also utilizes the concept of channel segmentation and control availability, as the company
prices similar products differently through different channels. The premium product items are
only given to particular distributors, while the low price product items will be sold at discounted
prices at superstores such as Walmart. For instance, the Nike-owned store on Newbury Street in
Boston usually sells newly released product lines of Nike shoes at the full price. On the other
hand, Nike footwear sold at an outlet or at Walmart offers at a lower price range with slightly
inferior features.
The demand for overall sport footwear in the market is likely to move in accordance with the
economic condition since it is a non-durable good. Thus, I believe that the consumer’s price
elasticity of sport footwear is elastic and greater than 1. The drop in 1% of a sport shoes price
should have an impact on the sales revenue of increasing it by more than 1%. However,
consumer’s willingness to pay for Nike sport footwear is high comparing to other brands in the
industry. This is supported by Nike’s strong brand recognition that offers premium products to
customers. The company builds its brand awareness through product sponsorship by the
professional and well known athletic teams, college sports teams, and celebrity endorsements.

Nike understands the importance of attributes that are considered by consumers; therefore, it
always focuses heavily on research and development to provide new technology that will
improve user comfort and performance. Moreover, the company also provides aesthetic features
and colors according to fashion trends. This allows the company to set a premium price as it
provides superior attribute features, in combination with strong brand awareness in the US
market.
The company has also established a supplier’s tier system which allows Nike to manage
relationship with its suppliers. By doing this, the company gains strong bargaining power with
those suppliers through the tier system and can cancel alliances with any suppliers that fail to
maintain their standards in term of quality and cost. Moreover, Nike supports innovation within
its contract manufacturers by establishing and continuing the Nike research and development
center unit within those factories, mainly first tier suppliers.
Beside, Nike also has control over the supplier chain system since the company establishes
contracts with raw material suppliers and enforces shoes manufacturers to purchase raw
materials or components only from those companies listed by Nike. For instance, one of the
biggest independent contractors in China and Vietnam is the main supplier of the Air-Sole
cushioning components used in footwear products. Therefore, Nike can gain economies of scale
and maintain a stable quality standard and shipment period within its supply chain. All of these
reasons allow Nike to produce footwear at a very low cost without sacrificing superior quality.
This outsourcing production strategy also allows the company to gain the benefit of a lower
degree of operating leverage compared to its competitors such as Adidas and New Balance. Nike
does not own any production facilities, which gives them the benefit in term of low fixed costs
and minimal investment risk. On the other hand, Adidas has its own production facility in
Germany and outsources part of its production to Asian countries, which results in a higher
degree of leverage compared to Nike. New Balance probably has the highest degree of leverage
among the 3 companies, since it has its main manufacturing facilities in the US and United
Kingdom which results in high operating fixed costs.
Nike has successfully operated its business, become a dominant player in the US market, and
effectively implement a declared price leadership strategy. In this situation, it sets premium
footwear prices that competitors in the footwear industry follow. This strategy will stop being
effective if the company fails to align its mission, operating strategy, and other marketing
strategies. First of all, the company successfully aligns its mission with the rest of its business
strategy. The company mission to bring inspiration and innovation to every athlete in the world
explains Nike’s determination to provide the highest quality products to consumers.

In conclusion, Nike’s management team understands the importance of brand awareness and
applies valued-based pricing that allows the company to maximize its profitability in the long
run. Nike has established a pricing strategy that consistently complies with its mission statement,
operation strategy, and marketing strategy. For these reasons, I would recommend that the
company maintains its current pricing strategy for its footwear products in the US market.
2.SOURCING:
Nike’s production network consists of over 700 factories in forty two countries. Every product
moves from fifty seven distribution centers across a network of 18,500 accounts and 140,000
retail doors. It has strategically outsourced its whole of its shoe production and only manufacture
solely some of its technical components. They only focused on their major competency that is
research and development (pre production phase) and promotions, distribution and sales (post
production phase).Having developed an on-site program that helps them coordinate all its
suppliers and affiliates, Nike additionally outsourced its advertisements to Wieden & Kennedy,
whose creative efforts drove Nike to the highest of the product recognition scale. Nike
outsourcing strategy paved the trail for driving production to alternative countries. On the far
side the producing method itself, Nike additionally depends heavily upon freelance contractors to
supply the raw materials for its shoes from the countries during which they’re made. This
permits Nike to consolidate its intermediate prices by limiting the quantity of vendors with
whom it should discuss contracts. Nike outsources labor through freelance contract makers.
These makers usually own multiple factories. There are a complete of 42 countries that
manufacture Nike apparel and/ or footwear.
Why Nike prefers outsourcing?
With outsourcing comes the benefits of reduced value of operations, improved productivity, and
a rise in flexibility. Reducing prices was a result of terribly low wages that alternative countries
might get away with. Within the past factories were paying some workers $0.23 per hour to work
long hours. Nike benefited mostly by not having to pay the American remuneration value.

Problems faced due to OUTSOURCING:
The biggest disadvantage that Nike has faced through outsourcing has been the general public
backlash that came when news broke of the “slave conditions” that Nike was supporting. The
general public backlash came within the 90s when there were reports through documentation of
the Nike Factories, or Sweatshops. In 99’, Nike started the fair Labor Association that would
monitor conditions in factories. By the mid-2000s, Nike had become a frontrunner in monitoring
plant conditions in different countries. Nike’s efforts in changing their standards for mill
conditions in alternative countries saved them from going out of business; today they still grow
as an organization and be an example in outsourcing.
Nike’s move towards a sustainable FUTURE:
In 2011, Nike introduced the manufacturing Index. This incentive set up will increase the
importance of sustainable manufacturing practices. It provides a continuing framework for
measure performance throughout the complete supply chain, brands, and product. The
producing Index’s primary use is for observing, measuring, and rewarding suppliers on quality,
on-time delivery, cost, and property performance. Every class is weighted by 25th and also the
supplier is given a score between 0-100. This score gives them a color-coded class such as: gold,
silver, bronze, yellow, or red. Ultimately, this helps to market supplier ownership of responsible
practices that profit Nike and contracted factories. In terms of negative sanctions, any supplier
that performs at yellow or red levels are subject to review. If satisfactory progress doesn’t
happen, the supplier might receive drastically lower order numbers, or be thought of for removal
from the supply base. With all of this info in mind, Nike decided to greatly scale back the
number of factories from 1,000 (in 2009) to less than 800 (in 2013). This creates the potential
for Nike to better manage the factories, build capacities, and grow the factories with aligned
business and sustainability objectives.
3.INFORMATION
Nike uses the Enterprise Resource Planning (ERP) software, SAP to manage all their inventories,
deliveries, logistics and supply chain activities (it helped then reduce the production time from 9
to 6 months permitting quicker product-to-market cycle time and inventory levels were reduced

from cutting interval time from one month to 1 week. The system additionally allowed higher
demand prediction, and demand visibility thus reducing bullwhip effect).
In 2000, Nike set to implement a new system that might be able to forecast market demand, and
meet those demands quickly. At the same time the organization was in the process of
implementing a SAP ERP system, however found that its demand prediction was inadequate to
the wants at the time. Nike set to use i2 technologies supply chain management package that was
meant to enhance management of inventory, production, shipping, and sales forecasting. Nike
selected the i2 package to be able to respond quicker to shoe market changes, set up production
schedules of the new demand, and start production of the new shoes in one week, instead of the
one month it took before.
If successful, Nike would quickly be able to cut back the production of unwanted shoes, reducing
inventory, whereas increasing the production of shoe designs that were rising in demand. Nike
knew that ERP systems may be dangerous, and were being patient while implementing it.
However, since the i2 system was a lot of smaller, they failed to take as many precautions as they
ought to have. The new i2 system had to be customised to the legacy that was being employed at
that point Nike decided to do a big Bang approach for implementing their new supply chain
management system. In 2000 the demand-planning engine, I2, of Nike created orders for
thousands additional Air Garnett than the market had demanded and thousand fewer of the then
standard Air Jordans. This caused a loss of over a hundred million in sales, and depressed the
stock worth by 20 %. Nike expressed that the new system was responsible for producing the
wrong kind of sport shoe. However, Nike didn't properly train its workers to grasp the new
system that caused the surplus making of the wrong product. This being a serious blow to Nike
that spent over four 400 million bucks on the implementation. Nike also found the system had
some bugs. Though Nike faced huge losses and huge technical problems, they did not waver
when the system failed to operate properly. The organization brought in consultants to create
databases to bypass parts of the i2 application. They additionally designed bridges in the package
to modify information sharing. Nike switched its short and medium ranged sneaker reaching to
the SAP ERP system that used additional predictive algorithms for estimating demand. Finding a
replacement found respect towards the SCM system, Nike targeted heavily on coaching its
workers. Nike implemented a phased geographical approach when implementing its new SCM,
CRM, and ERP systems. Though visualized as a 2-3 year implementation, it took Nike 6 years,
and an upwards of 500 million bucks to properly implement the supply chain management
system. Since Nike enforced an ERP, CRM, and SCM system all right away, they experienced a
multitude of benefits. Benefits connected to the i2 management system were that they currently

had higher collaboration with their Far East factories. Production time was reduced from 9 to 6
months permitting quicker product-to-market cycle time. Inventory levels were reduced from
cutting interval time from one month to 1 week. The system additionally allowed higher demand
prediction, and demand visibility. A reduced risk of experiencing bullwhip effect. Lastly major
cost reduction through reduced inventory, method prices, and products prices, increasing gross
margins.
Nike has also developed a supply-chain-wide advanced notification system for its product retail
orders are shared with suppliers; the European distribution center receives an advanced
notification of shipments leaving suppliers; and retailers are then pre-advised of the scheduled
delivery of products which are within the pipeline. As a result, connectivity and transparency
between individual players within the info flow are taken to advanced level in which the whole
supply chain net is seamlessly integrated. In a very strategic drive to leverage the essential info
infrastructure for competitive differentiation, Nike is currently developing closed sites for its
long-term most well-liked suppliers in an effort to leverage transactional information and open
databases relevant to order fulfillment. Suppliers will be able to find out about future initiatives
and will be liberal to contribute to, or raise, further supply chain improvement opportunities
How coordination is achieved in NIKE
supply chain?
Coordination among different tiers , such as raw-material suppliers, manufacturers, distributors,
third-party logistics providers and retailers, is the key to attaining a successful supply chain
management.
To maintain a coordination with all the different subsidiaries globally, Nike has about 67
factories in Vietnam with about 330,000 workers producing a wide range of sports wear, shoes
and apparels.For a more sustained growth and coordination, Nike introduced a regional
headquarters to the existing organizational matrix for EMEa and this structure is cascaded down
to the regional level, also functions and responsibilities were introduced for each hierarchy.

● Three Coordination modes are identified:
(1) Logistics synchronisation: Nike has reaped profitability by concentrating on its strengths in
designing and marketing high-tech and fashionable footwear for sports and fitness (Tully, 1993).
Nike established one small manufacturer that makes some sneaker parts. Other supporting
activities such as footwear production are subcontracted to suppliers in Taiwan, South Korea and
other asian countries. Synchronising its speciality and its suppliers’ capabilities allows Nike to
build-in flexibility to keep up with the changing tastes of customers.
(2) Information sharing: With the introduction of a new hierarchy (regional headquarters),
Nike has been able to decentralize all the responsibilities.Nike uses the Enterprise Resource

Planning (ERP) software, SaP to manage all their inventories, deliveries, logistics and supply
chain activities. This gives the supplier,the receiver and the distribution channel a real-time
information on the status of the products. To further improve on the supply chain process, Nike
entered into a partnership with a software developing company Llamasoft Inc to get a solution
for logistics and environmental benefit as well.
(3) Incentive alignment: Incentives define how decision-makers are to be rewarded or penalised
for the decisions they make. The manufacturing index is used to monitor, measure, and reward
suppliers on quality, on-time delivery, cost, and sustainability performance. Each of the four
categories receives a 25% weighting. Nike has put into place incentives aimed at changing
supplier behaviour for the better.
Some of the negative consequences of poor coordination include higher inventory costs, longer
delivery times, higher transportation costs, higher levels of loss and damage, and lowered
customer service.
SWOT analysis of the supply chain
STRENGTH:
1. It is a global brand and no.1 shoe maker. 1182 retail outlets in 2018.
2. Slogan: “Just Do It” become the company’s signature slogan, helping to turn a niche
brand into a global multibillion-dollar giant it's a political slogan too.Coupled with its
iconic “Swoosh” logo and its equally catchy tagline, Nike’s strength is that it has
emerged as a “Can Do” company.
3. In 2006, Nike has a joint venture with apple’s IPod and developed the ‘Nike+iPod’, an
activity tracker that records the distance and pace of its user’s workout through a sensor
in the sneaker.
4. Has strong marketing campaigns and endorses different products Have different
segments as baseball, golf and footwear etc.
5. Large and well managed supply chain and distribution network – a large and well
managed supply chain and distribution network can help a brand achieve outstanding
results. Nike has a quite large and well managed supply chain and distribution network.
It relies almost fully on independent manufacturers for the production and supply of its
products. It has partnered more than 500 suppliers across 42 nations and has formed
strategic partnerships with 363 apparel factories in 37 countries and 127 footwear

factories in 15 countries. asia has the highest number of Nike suppliers and a very large
number of them are in China, Indonesia and Vietnam. The brand has 1142 stores
internationally of which around a third are in US and two third outside US. The brand has
Nike and Converse websites in 45 countries and is working on new innovative models for
getting closer to the customers.
6. Meaningful story – sell aspiration, not just a product. it induces emotion in the consumer
through ‘emotional branding’.
7. Each ad is carefully crafted to evoke particular feelings and needs in the consumer that
can only be satisfied by Nike products.ad is designed to inspire—to tell us that we can do
anything, if we just try.
8. During the FIFA 2014 World Cup, Nike partnered with Google to create ‘Nike
Phenomenal Shot’.
a. When a Nike athlete scored a goal, display ads were delivered to fans in real-time.
Fans could also rotate their players around in 3D, framing them for shots that can
be personalized with filters, captions, and stickers. Once you’re done with your
‘Phenomenal Shot’, you can share it on social media.
b. More than 500,000 “Phenomenal Moments” were created –amazing in itself, but
even more so considering the subsequent reach every moment could obtain once
shared.
9. It has outsourced all aspects of its production to overseas facilities and thereby, does not
have any manufacturing outlet of its own. This has helped the company focus on higher
value adding activities like design and research and development and at the same time, it
has saved the high labor costs that are part of the traditional manufacturing sector.
10. It has strong position over its minimal long term debt
11. Has innovative shoe design which enable consumer to design their own shoe online It
has diversified products worldwide
12. Nike stands to benefit from the current disarray among its competitors because of the
fragmentation of the market wherein Nike with its USP or Unique Selling Proposition
can standalone among them.
WEAKNESS:
1. Nike Controversy:
a. The negative publicity that Nike got because of labor unfriendly conditions in its
overseas outlets has badly dented its brand image. Indeed, the name “Sweatshops”
is used to mockingly describe the abhorrent conditions in its overseas

manufacturing facilities.
b. Internationally, mainly in poor third world countries, that is far from the truth.
Large corporations from the United States have moved a large portion of their
factories overseas to circumvent the strict working regulations within the United
States. The third world countries such as Vietnam, China, South Korea, and
Taiwan provide access to readily abundant cheap labor. These corporations could
now reap the benefit of the United States consumer market, while keeping their
costs extremely low in offshore production. Nike example and how it has
exploited workers in asia for financial gain.
2. The company does its business through retailers who stock other brands as well. This
means that the assiduously cultivated exclusivity is sometimes sacrificed because it has
not yet spread its wings to include exclusive retailer outlets as part of its business
strategy.
3. Nike has been criticized numerous times for its poor working conditions described as
sweatshops, low wages, and child workers in its manufacturing facilities, which has
tarnished some of its brand image.
4. Nike is majorly focused on its footwear market, that to some extent can be risky
considering that market trends change.
OPPORTUNITIES:
1. Backward integration- Nike depends nearly completely on independent manufacturers for
supply of its products. Nike can make its supply chain more agile and strong by acquiring
some of the manufacturers and suppliers. This will lead to reduce the supply chain cost
and help invest in other areas like advertising and R&D.
2. Emerging markets of China and India:Millions of new consumers are now aspiring to
western culture and their lifestyles which means that they would be become more
receptive like Nike. company can target these new consumers and could well be a game
changer for the company.
3. Digitization and product innovation – nike needs to remain focussed on digitization and
product innovation. Focusing on product innovation will give varieties to the customers.
Digital marketing ecommerce are going to have a very high impacts on profits and
growth.Its competitors are investing heavily in these areas. Focusing on these things will
affect the consumer experience of Nike as well as its sales and profits.In recent years,
Nike has begun to diversify into accessories and other premium products apart its
signature footwear segment. This is a step in the right direction and something, which

would stand the company in good stead as it attempts to look for revenues beyond its
traditional offerings.
THREATS:
1. Exchange rate risk – a stronger US dollar largely affects the profits of Nike company.
Stronger US dollar leads to increase in inventory costs and reduce the consolidated
earnings. biggest enemy of Us brands as In both 2016 and 2017, the detrimental effect
of fluctuation in foreign currency was felt strongly by Nike. It felt a detrimental impact of
$542 million and $1,985 million on its consolidated revenues for 2017 and 2016
respectively due to currency fluctuations. a similar detrimental impact was felt on Income
before income taxes because of fluctuating foreign exchange rates. The total detrimental
impact on Income before Income taxes was close to around $115 million and $449
million for 2017 and 2016 respectively.
2. Nike’s major competitors are: Hanesbrands,Puma,adidas,Under armour,Reebok
International.
3. as the company operates in 45 countries means that it is subject to the alteration of
international trade practices including labor strikes in its overseas locations, political
situations or societal conditions which have the potential to disrupt its global supply
chain.
4. Growing HR and marketing expenses – With growing size of business, the HR and
marketing expenses of Nike have also grown fast. In 2017, the total marketing costs of
Nike reached 3,341 million dollars. In 2018, the total marketing cost has increased by 7%
i.e. reached 3,577 million dollars.
5. Economic conditions can be a threat.during recession , consumers become more price
conscious and they may forego purchasing extras like sportswear and branded sports
shoes.these consumers will seek some other local cheap brand, may lead to a
price-cutting.

Conclusion:
From the above analysis, we had understanding about the pros, cons and risks of Nike’s core
marketing strategies with relevant marketing theories. Besides that, the difficulties Nike faced
when they competing with Adidas. We discuss from the distribution, price, products design,
promotion and advertising, market segmentation to analysis Nike’s competitive advantages in the
global market. We also find that the other side influences of Nike’s core marketing strategies
such as costly advertising, raw materials costs affected by the global economic, the
spokesperson’s behaviors which has negative influences to the Nike’s brand images. What’s
more, the risks of Nike’s core marketing strategies such as Nike cannot follow the world fashion
trends, the profits has affected by the currency exchange and economic recession when expand to
the global.
Nike has remained and continues to remain at the top in producing and distributing their sports
clothes and equipments. However, Nike should consider the competitive pressure is very heavy
and not allow the “sleep at the top”. So Nike should continuously find efficient marketing
strategies to keep their top leaders positions.
The following recommendations are suggested in a situation where marketing management is
competent. Nike should increase their market shares through issue new products, competitive
pricing strategies, and advertisement and promotions activities. Nike also should restructure
market dominance by separate themselves from the competitors mainly through mass promotion
strategies and pricing strategies which make Nike more attractive to customers. Besides that,
Nike must increase their awareness of corporate social responsibility to strengthen their image of
themselves. What’s more, Nike should pay much attention to their R&D department to research
out different kinds of people with different taste to get the market diversification goals.
All the above show a competent marketing management which can help Nike Keep their top
market leaders and keep their competitive advantages.

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