Business Operation and Logistics Review 2022

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Business Operation and Logistics- NIKE
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Part A
Introduction
In the global business market, business operations and logistics management is not a simple task.
With distribution centers, factories, stores, and offices deployed in different countries,
multinational firms take the responsibility of coordinating all supply chain operations across a
global supply chain. According to (Mallory, 2016, p. 5), supply chain management refers to the
field of business operations and logistics management in which the flow of products, services,
and information across a network of enterprises, customers, and supply chain partners is done. In
the coordination of these diverse operations and logistics, companies have to minimize expenses/
costs, improve and maintain high quality, manage human resources and operations processes,
and continuously endeavor to launch new methods and strategies of competing in this highly
competitive and dynamic global market (Distelhorst, et al., 2016, p. 710).
Overview of NIKE
In order to explore the models, approaches, and techniques of solving operations and business
logistics problems, this report will consider a company that has faced operations and business
logistics problems in its supply chain for the past years. Nike, Inc. is a major footwear and
apparel manufacturer operating in more than 160 countries (Mallory, 2016, p. 8). Currently, Nike
runs 719 factories, recruiting approximately one million employees worldwide. At the moment,
Nike is among the world’s leading manufacturer, supplier, and seller of sports equipment and
athletic apparel (Goel, 2014, p. 24). The aim of this report is identifying an operations and
logistics business problem and solving the problem by applying the right approaches, models,
and logistics techniques. To achieve this objective, the report will concentrate on inventory and

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scheduling business unit of Nike and investigate the problems surrounding this unit in the
company. Last, the report will discuss the improvements proposed by the operations and logistics
management of Nike and propose a system to ensure maintenance of this system; and also
discuss the assumptions taken as well as the visible limitations of this proposed system.
Operations and Logistics Business Problem
In order to come up with the appropriate models, approaches, and techniques to solve the
operations and logistics business problem as required in this report, it is vital to identify the
problems that Nike face in its inventory and scheduling business unit. According to (Russel &
Taylor, 2015, p. 60), addressing inventory and scheduling problems faced by Nike requires a
proper consideration of the company’s supply chain and logistics management strategy and
design.
Inventory and Scheduling Business Unit
As highlighted above, this report concentrates on the operations and logistics problems facing
Nike’s inventory and scheduling business unit. There have been inventory control problems at
Nike, and these inventory control mistakes result to scheduling problems in its supply chain. As
a manufacturer, Nike faces the following inventory management and scheduling problems:
i. Increase in reverse logistics costs;
ii. Management of multiple stores and warehouses;
iii. Lack of stock rotation resulting to outdated inventory;
iv. Poor supply chain planning and logistics execution; and
v. Generation of inaccurate demand forecasts

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In the inventory management and scheduling business unit, Nike is faced with dynamic demand
fluctuations that make it difficult to satisfy market demand while fully minimizing other stock
management and logistics related costs (Distelhorst, et al., 2016, p. 722).
Approaches of Solving Inventory Management and Scheduling Problem at Nike
According to (Gerpott & May, 2016, p. 60), the primary issue facing Nike’s supply chain and
logistics is inventory management and scheduling which also affects its demand forecasting.
Solving this issue of stock management and scheduling requires the management of Nike to
consider their supply chain design and management perspectives. In this segment, an exploration
of the approaches, models, techniques, and strategies that Nike can implement to effectively
resolve the persisting problems associated with inventory management and scheduling as
highlighted above in order to achieve its global business operations strategy goals will be
undertaken (Goel, 2014, p. 25).
Accurate demand forecasting
According to (Chris, 2016, p. 2), inaccurate demand forecasting has been a disturbing operations
and supply chain issue for Nike. As per (Chris, 2016, p. 4), accurate demand forecasting is
among the most vital supply chain management components. This is because production/
manufacture, procurement, scheduling, distribution, inventory, and ordering are all determined
based on future demand predictions. The fact that demand forecasting has never been certain or
accurate, Nike can use various techniques to raise their predictions accuracy. For example is
using the i2 technology forecasting software and quantitative methods such as linear regression
in the generation and validation of in-house data. Linear progression will help Nike to relate

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demand with time and properly study the linear trend line (Chris, 2016, p. 7). Seasonal
adjustments are also vital as well as forecast error calculation so as to raise accuracy.
Use of ERP software
Nike needs to apply their recently implemented ERP software and also coordinate this software/
tool with their suppliers. By considering the supply chain of Nike, it is important to consider the
vendor managed inventory (VMI) and also the continuous replenishment program (CRP) for this
would greatly help in resolving reverse logistics costs problems (Ivanov, et al., 2017, p. 56). The
proper combination of these models would result to a significant effect to Nike and its key
suppliers; raising the whole supply chain and logistics unit beginning farthest upstream at the
raw materials procurement. According to (Ivanov, et al., 2017, p. 62), this would help Nike in
getting the right products delivered to the right outlet at the right time and thus success in the
procurement and supply chain of its footwear and apparel products.
Integration of inventory planning and demand planning
According to (Morgan, et al., 2016, p. 295), systems, people and databases must remain
integrated. Formal sales and operations planning (S&OP) technique with full-blown S&P and
dashboards suits can greatly help. With this doing, the problem of lack of stock rotation resulting
to outdated inventory will be adequately addressed. The proper integration of demand planning
and inventory planning greatly boosts supply management and logistics operations.
“UNICOMMERCE” approach
This is an e-commerce supply chain solution aimed at automating the broadly scattered footwear
sector in which Nike operates. The other approaches, models and techniques to take in order to

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address this problem include: Advanced warehouse management by adopting FIFO based stock
picking, handheld and cycle counter (Morgan, et al., 2016, p. 301). Also by sing robust Omni
channel solution by routing orders done online to the nearest offline stores and warehouses. The
other technique is using unified vendor panels by managing all suppliers through a centralized
login point. Returns management is another approach to ensure central management of RTO and
CIR.
Improvements Proposed
Having in mind the existing inventory management and scheduling and demand forecasting issue
at Nike, the management has proposed various actions aimed at improving the condition or
solving the problem to enable the company achieve its global goals (Russel & Taylor, 2015, p.
63). The following are the already proposed strategies by Nike in attempts to solve its supply
chain management and logistics problems:
The i2 Technologies
Nike proposed the i2 technologies which failed in the year 2001. The supply chain and logistics
management of Nike had proposed the i2 technologies for purposes of demand-forecasting as the
best supply chain management software (Chris, 2016, p. 6). However, this software led to stock
imbalances as there were shortages in some stocks and excesses in other inventories. The
management failed in this strategy as Nike was compelled to dispose the excess stock through
discount distribution channels and hence loses.
Simplified fulfillment

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In this approach, the supply chain and logistics management of Nike propose to dispatch orders
to clients, warehouses, and stores in bulk. In the same approach, the management proposes a
progress report tracking through which schedule reports are produced to track daily and weekly
sales to the target market in all regions (Thorlakson & Lambin, 2018, p. 2072).
ERP management
The logistics management of Nike has also proposes a seamless integration with any ERP, for
example Oracle, SAP and Navision. This technique has been proposed to aid to aid inventory
accuracy and visibility (Thorlakson & Lambin, 2018, p. 2075). Also, the software has been
proposed to ensure that supply chain planning and logistics execution is at the optimal level.
A System of Maintaining the Proposed Improvements
There is a need to come up with a system worth of maintaining the above proposed
improvements by the business operation and logistics management of Nike (Archi, 2017, p. 2).
The main aims of devising this system are to ensure:
i. Effective inventory utilization and monitoring
ii. Efficient and timely products and services delivery to the target market
iii. Proper management of multi-stores and channels while offline
iv. Seamless integration and management of stock returns and order cancellations
v. Reduce the cost of reverse logistics
vi. Enhance stock rotation and alleviation of outdated inventory in the warehouses
In this perspective, the first thing is to efficiently manage inventory by generating accurate
demand and supply forecasts. The next approach to take is to use the recently implemented ERP

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software in order to coordinate well with all its suppliers (Archi, 2017, p. 8). In particular, Nike
should consider VMI and CRP for it will even go beyond Nike to benefiting its suppliers. Third
is ensuring advanced warehouse management for all its footwear and apparel products using the
FIFO based stock management approach, cycle count, and also handheld depending with the
current need. Last is by ensuring logistics and marketplaces integration.
Part 2
Stating the Problem
The main business operation and problem facing Nike is inventory management and scheduling
due to inaccurate demand forecasts and stock control. This report has proposed a new system of
maintaining Nike’s proposed improvements, and this will form the basis of our cost-benefit
analysis (Nike, Inc, 2018). In order to prepare a cost-benefit analysis in relation to Nike’s
business operation and logistics problem, this part will be based on approximate values or
assumed values that may have some limitations in justifying the results of the analysis.
Cost-benefit Analysis
Cost-benefit analysis (CVB analysis) refers to the process of weighing the sum of the benefits
out of a given project, such as financial gain, against the costs, or negatives of undertaking that
action or project (Distelhorst & Hainmueller, 2015, p. 9). Cost-benefit analysis will help the
management of Nike in making sound business decisions on which projects to undertake or not
to undertake. Also, it helps Nike monitor the benefits or losses associated with any investment
changes by the management with an anticipation to spearhead profits to the firm.
The formula for cost-benefit analysis states:

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CVB = Benefit
Cost or B
C
In this CVB analysis, we will analyze the benefits or costs associated with the new system
proposed to ensure maintenance of the already being used improvements.
Problem Solution
In the analysis, this will be first assumed:
 Option A: Improvements Proposed
 Option B: A System to Maintain the Proposed Improvements
Costs
Costs Option A
(USD)
Option B
(USD)
Costs of implementing i2 technologies $ 7,500 $ 1,000
ERP software installation costs $ 8,200 $ 10,000
CRP and VMI software costs $ 2,000 $ 4,000
Demand forecasting costs $ 4,800 $ 5,500
FIFO implementation costs $ 3,000 $ 3,500
Warehouse management costs $ 2,500 $ 3,000
Total Costs $ 28,000 $ 27,000
Benefits
Benefits Option A (USD) Option B (USD)

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Footwear $ 6,000 $ 9,500
Nike brand sales $ 2,500 $ 3,800
Apparel $ 7,000 $ 12,000
Equipment $ 2,000 $ 4,200
Other $ 1,500 $ 2,500
Total benefits $ 19,000 $ 32,000
Costs and Benefits Comparison
Comparison Option A (USD) Option B (USD)
Benefits $ 19,000 $ 32,000
Cost $ 28,000 $ 27,000
Profit/ Loss $ (9000) $ 5,000
In this cost benefit analysis, the results indicate that:
Option A; which represents the existing proposed improvements, results to losses of $ 9,000; this
is because the costs associated with the proposed improvements equal $28,000 and the benefits
resulting from these incurred costs equal $19,000. ($ 19,000 - $ 28,000 = $ -9,000).
Option B; which represents a system to maintain the proposed improvements, results to gains of
$ 5,000; this is because the costs associated with the proposed improvements equal $ 27,000 and
the returns resulting from these expenditures equal $32,000. ($ 32,000 - $ 27,000 = $ 5,000).
Assumptions

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 The costs associated with the proposed amendments should exceed the costs associated
with the system of maintaining these proposed improvements.
 The benefits of option A should be less than the benefits of option B because option B is
assumed to bring more profits to the company.
 Implementing Option B is the best decision, for it results to monetary gains and
profitability to Nike.
Limitations
 The CVB analysis was based on assumptions and thus cannot be relied upon in real-life
situations to the company
 The data is highly subjective and thus can derail the results applicability and usability
 The CVB analysis can sometimes be difficult to understand by all people, and thus
require proper interpretation
Conclusion
Over the recent past, Nike has endured great strides to raising their supply chain and logistics
management. This report has been based on Nike’s past conditions and operations in the supply
chain and procurement field. The aim of the report was to come up with approaches, models, and
techniques that Nike can adopt to recover from its inventory management and scheduling
problems that resulted from demand forecast errors particularly caused by adopting the i2
technology tool/ software. The key areas of concern that were addressed in the report were
inventory management and scheduling unit problems. Last, the report proposed that Nike
embraces the newly implemented ERP software, generate accurate demand forecasts, and

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consider the CRP and VMI software, and use the FIFO and cycle count methods for purposes of
stock tacking in order to resolve the mother problem of inaccurate demand forecasts.
References

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Archi, B., 2017. Footwear Industry: Trends, Challenges & Solutions. Unicommerce, 1(1), pp. 1-
12.
Chris, K., 2016. Five Lessons Learned from Nike's i2 Debacle. CIO News, 3(2), pp. 1-7.
Distelhorst, G., Hainmueller, J. & Locke, R., 2016. Does lean improve labor standards?
Management and social performance in the Nike supply chain. Management Science, 63(3), pp.
707-728.
Distelhorst, G. & Hainmueller, J. L. R. M., 2015. Does lean improve labor standards? Capability
building and social performance in the Nike supply chain. Watson Institute for International
Studies Research Paper, 2(1), pp. 9-10.
Gerpott, T. & May, S., 2016. Integration of Internet of Things components into a firm’s offering
portfolio–a business development framework. Info, 18(2), pp. 53-63.
Goel, P., 2014. Supply chain management Disaster at Nike. Scribd, 4(3), pp. 24-26.
Ivanov, D., Tsipoulanidis, A. & Schonberger, J., 2017. Global supply chain and operations
management. A Decision-Oriented Introduction to the Creation of Value, 3(1), pp. 55-68.
Mallory, S., 2016. Nike is facing unprecedented headwinds. Business Insider, 3(2), pp. 4-8.
Morgan, T., Richey Jr, R. & Autry, C., 2016. Developing a reverse logistics competency: the
influence of collaboration and information technology. International Journal of Physical
Distribution & Logistics Management, 46(3), pp. 293-315.
Nike, Inc, 2018. NIKE, Inc. Reports Fiscal 2018 Fourth Quarter and Full Year Results. NIKE
NEWS, 1(1), pp. 1-16.

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Russel, R. & Taylor, B., 2015. Operations Management. 7th ed. Hoboken, NJ: John Wiley and
Sons, Inc.
Thorlakson, T. & Lambin, E., 2018. Companies’ contribution to sustainability through global
supply chains. Proceedings of the National Academy of Sciences, 115(9), pp. 2072-2077.