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Analysis of the supply chain of nike PDF

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Added on  2022-01-23

Analysis of the supply chain of nike PDF

   Added on 2022-01-23

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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
Analysis of the supply chain of nike PDF_1
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)
Analysis of the supply chain of nike PDF_2
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.
Analysis of the supply chain of nike PDF_3
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.
Analysis of the supply chain of nike PDF_4
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
Analysis of the supply chain of nike PDF_5
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
Analysis of the supply chain of nike PDF_6
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.
Analysis of the supply chain of nike PDF_7
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
Analysis of the supply chain of nike PDF_8

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