OPS 908 - Supply Chain Management Systems of Nike Analysis Report

This report provides a detailed analysis of Nike's Supply Chain Management (SCM) systems. It begins with an introduction to the current business environment and the importance of supply chain strategies. The report then provides an overview of Nike, including its history and current operations. A key component is a supply chain map, illustrating both upstream and downstream activities, including the relationships with suppliers, manufacturers, distributors, and retailers. The analysis explores upstream and downstream integration, emphasizing the importance of strong partner relationships and vertical integration. The report also addresses sustainability and human rights issues, including criticisms related to labor practices and Nike's responses. The conclusion summarizes the findings and suggests recommendations for improvement, such as enhancing demand forecasting and further investing in corporate social responsibility. References to relevant sources are included to support the analysis.

Running head: NIKE SCMs
Supply Chain Management Systems (SCMs) of Nike
Name of the student:
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Table of Contents
1. Introduction..................................................................................................................................2
2. Overview......................................................................................................................................2
3. Draw Supply chain map...............................................................................................................3
Upstream......................................................................................................................................4
Downstream.................................................................................................................................5
4. Upstream and downstream integration........................................................................................7
5. Sustainability and human rights...................................................................................................8
6. Conclusion...................................................................................................................................8
References......................................................................................................................................10

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1. Introduction
The current external environment within which a company operates in, it is being forced
to use many strategies for its different business activities to ensure long-term survival and
sustenance of the business. The increasing market competition and the shortening life cycles of
products have encouraged organizations to invest more in the supply chain to yield maximum
benefits. The emergence of new technologies has also encouraged modern companies to invest
more in these technologies to increase the agility of the supply chain (Salam 2017). The supply
chain in this report will be discussed in the context of Nike.
2. Overview
Nike undoubtedly is the world's largest seller of sportswear, footwear, sports equipment
and clothing. The company is headquartered in the United States in Oregon. The company
started its business in 1964. During those times the company was popularly known as the blue
ribbon sports. The blue ribbon sports later change into Nike in 1978. Many of the products of the
company are marketed under Nike's brand. Apart from the manufacture of sportswear and sports
equipment, Nike also does retail with stores named Nike Town. These Nike stores only sell the
merchandise of the company. The company does the promotion of the product by sponsoring
sportsperson and women to promote the brand by wearing Nike's clothes (Nike.com 2020).
Nike has been into criticism for many years for human rights. The human rights
campaigners have been claiming that Nike violates the human rights of workers who are into
producing merchandise for Nike contractors based in China, Vietnam, Mexico, Indonesia and
Cambodia. For example, Nike suppliers based in Cambodia where being found as not adhering to

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the guideline of fair practices and were found as employing children to work under inhuman
conditions (Distelhorst, Hainmueller and Locke 2017). However, Nike didn't react to it
positively. With these concerns in place, Nike is investing more in corporate social responsibility
programs aiming to repair the damage done to its brand name.
3. Draw Supply chain map
Fig 1: Upstream and Downstream Supply Chain of Nike
This is a diagrammatic presentation of the upstream and downstream supply chain
operations of Nike. It shows that Nike works with many contract and sub-contract suppliers at
the different tier levels of its upstream supply chain. The downstream supply chain of Nike

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undertakes its many activities such as capacity, inventory level, delivery schedule, payment
terms, return requests and so forth (Jiang 2019).
Upstream
It is necessary to have a stronger relationship between the different partners in the supply
chain to be able to develop stronger business links. The value exchanged between business and
its partners result in value for the entire supply chain. It is worth mentioning that Nike enjoys an
extremely strong supply chain relationships with its network partners (Curtis and Hansson 2019).
This relationship has significantly resulted in the overall success of the company.
Vertical relations are about the relationship that exists between firms in the supply chain
network. These are for example retailers, distributors and manufacturers. The vertical integration
has many scopes such as ranging from the production of the product to its replenishment in the
distributors for retailers' shelves. In the context of Nike, vertical integration in the supply chain
network exists between the suppliers, distributors, manufacturers and retailers. It shows that
every single partner in the supply chain has significant stakes in the performance. One or more of
them pulling out from the supply chain would mean that the supply chain operations cannot be
effectively completed. Officials in Nike claims that the company gives a serious concern to its all
partners and always try to make sure that all business partners are in a closed bonding of work
relationship (Macchion et al. 2018).
Nike just like many other footwear companies outsources the majority of its
manufacturing units or functions to factories in the overseas locations. The reason to outsource
the manufacturing did happen when Nike could realize that they could make shoes in Japan at a

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far much lower cost than they could actually in the United States. However, when the production
cost in Japan also increased in the 1970s, it left no other option to the company than to look for
other cheaper alternatives such as Taiwan and Korea and later on to China, Vietnam, Thailand,
Cambodia and Indonesia (Distelhorst, Hainmueller and Locke 2017).
Some of the most notable activities of Nike could figure out as the acquisition of the raw
materials, suppliers of parts, manufacturer of the products, warehousing and distributors, etc.
Nike distributors are those from where customers can buy their desired Nike merchandise. The
strategy of outsourcing proved beneficial for the company as it allowed it to concentrate more on
its core competencies. The much-involving production part was outsourced to its partners located
in different countries in the world (Jiang 2019). With the help of effective supplier relationship
management, Nike has been able to deliver high-quality products at low cost and within the
given time frame.
Downstream
The product development strategy of Nike is distinctively different from the process
adopted by its competitors as Nike always aims at continuous improvement in its design. Any
new shoes of Nike take about 15 to 18 months to reach the market. Nike shoes normally and
usually have a market life of 3 to 6 months before it gets outdated or new products to replace
these (Curtis and Hansson 2019).
The shoe manufacturing industry has some important characteristics such as vertical
disintegration and high levels of subcontracting. Organizations like Nike no longer produce
goods but outsource all the production works to partner companies in overseas locations such as

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in China. One of the main reasons for outsourcing the manufacturing works is a fact that by
doing this, organizations can focus more on their core competencies such as designing and new
product development, and marketing (Brohi et al. 2016). It is how Nike creates a competitive
advantage. However, outsourcing is not always advantageous for the company as the lead times
for outsourced manufacturing is always longer. The longer lead times are due to the time
consumed in delivery as well as the shipment of products from overseas locations. Outsourcing
is also problematic for a reason that organizations would find it difficult to monitor the product
and also the working conditions deployed in the facility. Most of the manufacturing works of
Nike is done in Asian countries as China supplies more than 40% of the entire US market of
Nike. Nike ensures that the right partners are always appointed, so that, the partners do an
effective job for the company. The production system of Nike is broadly divided into three
different categories such as developed partners, developed sources and volume producers
(Merikanto 2019).
Lean Manufacturing
It is necessary for the footwear industry to have a short product life cycle, high levels of
impulse buying and high demands. It means the lead times should be shorter and the supply
chain should be very flexible with the market demand. However, the outsourcing of
manufacturing as done by Nike usually takes longer lead times due to the huge time consumed in
shipping through ocean freight. To overcome this issue, Nike has adopted subcontracting
processes to enable a high dynamic and flexible production system. It was done to make the
supply chain a demand-driven practice and to transfer the final goods from one country to
another in quick times. It is only a few years ago that Nike introduced a new supply chain

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concept, just in time approach to facilitate a faster shipment of manufactured goods to its
customers located in America and Europe (Niskanen 2019).
All the pieces of information furnished as above indicate that the distribution setup of
Nike plays an important role in every existing success of the company. The distribution structure
of Nike is there to balance the supply and demand throughout a fiscal year. It helps Nike protect
its operations from any uncertainties. The products of Nike can be kept in the warehouse for
sometimes to make sure that economies of scale are effectively utilized to the full effect. The
company can ship a large volume of the product if required through its ocean freight.
4. Upstream and downstream integration
As researched by Dutta and Hora (2017), the upstream and downstream supply chain
operations of a company should have good integration between the two to attain benefits such as
real-time demand communication and quick attainment of finished goods from partnered
suppliers of Nike. With regard to this concern, the use of emerging technologies and the
utilization of effective information systems can be useful. The supply chain of Nike is
centralized as decisions related to product design, outsourcing and logistics are all taken care
from its headquarter in the United States. To ensure the effectiveness of the supply chain, Nike
uses a single instance of SAP R3 to use it as a single planning engine to centralize the demand
management process and attain effective supplier collaboration. All the information related to the
supply chain management and customer relationship management has been integrated into one
shared platform. Such a system was done to have improved financial visibility, better

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reallocation of the resources of the company, and accurate forecasting and projections (Brohi et
al. 2016).
5. Sustainability and human rights
Due to having too many suppliers, Nike seems to have loose control of the inventory. In
cases when one or a few suppliers cannot be active in the works, this will affect the overall
supply chain efficiency of Nike. Since, Nike outsources its manufacturing works to developing
nations such as China (Distelhorst, Hainmueller and Locke 2017). This strategy has encouraged
its suppliers in developing nations to compete on costs charged to offer low wages scheme to
Nike. This is why the company's image later faced with issues such as human rights violations as
well as child labor. The image of Nike was heavily criticized for promoting the use of child labor
in merchandise production. In response to criticisms such as these, the company developed a new
code of conduct for its suppliers to adhere to, the failure of which will attract cancellation of
contracts. Additionally, Nike gives regular training to its suppliers on how they can assure to
adhere to the code of conduct (Distelhorst, Hainmueller and Locke 2017).
6. Conclusion
The assessment of the ‘Supply Chain Management Systems (SCMs)’ of Nike did reveal a
few important facts. The supply chain can be considered successful as it has been serving
numerous purposes of Nike for many years. However, the supply chain is hugely complicated
due to many suppliers based in overseas locations acting as contractors and subcontractors. The
information systems in use have helped in demand forecasting. However, Nike should make

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shoes according to customer orders rather than continuing with the generalized concept. For this
to happen, Nike would need to work on increasing its demand forecast efficiency.
Nike received huge criticism from human rights activities and environmental
campaigners for poor work conditions in its outsourced companies. The company should invest
in CSR works to promote its image of a socially responsible corporate. To avoid child labor
issues, it should develop clear work guidelines for its contractors. Any violation of the guidelines
should result in contract termination.
Nike should regularly invest time in devising new supply chain strategies to counter its
competitors and ensure that it remains the market leader in the long-term.

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References
Brohi, H., Prithiani, J., Abbas, Z., Bhutto, A. and Chawla, S., 2016. Strategic Marketing Plan of
Nike.
Curtis, A. and Hansson, A., 2019. Examining the Viability of Corporate Recycling Initiatives
and Their Overall Environmental Impact: The Case of Nike Grind and the Reuse-A-Shoe
Program. Case Studies in the Environment.
Distelhorst, G., Hainmueller, J. and Locke, R.M., 2017. Does lean improve labor standards?
Management and social performance in the Nike supply chain. Management Science, 63(3),
pp.707-728.
Dutta, D.K. and Hora, M., 2017. From Invention Success to Commercialization Success:
Technology Ventures and the Benefits of Upstream and Downstream Supply‐Chain
Alliances. Journal of Small Business Management, 55(2), pp.216-235.
Jiang, W., 2019. Sustainable Development of Supply Chain in Footwear Industry–Take Nike as
the Case. Asian Business Research, 4(3), p.86.
Macchion, L., Da Giau, A., Caniato, F., Caridi, M., Danese, P., Rinaldi, R. and Vinelli, A., 2018.
Strategic approaches to sustainability in fashion supply chain management. Production Planning
& Control, 29(1), pp.9-28.
Merikanto, S., 2019. Controversal Marketing-A successful strategy to grow a brand or risky
approach? Case study: Nike Inc.
Nike.com 2020. [online] Available at: <https://www.nike.com/in?cp=25297685579_search_
%7cin%7cCore+Brand+-+GN+-+Pure+-+XCategory+-+Nike+India+-+TM+-

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+Mens+Targeted+-+GN+LP+Test+-+EN_EN+-+Exact%7cGOOGLE
%7cnike&gclid=Cj0KCQjw6_vzBRCIARIsAOs54z5IZpxP-
ybhfPeaTGGXnUL5TbYFBvnigaaLDJypPC-
EMG4rm0O_rbAaAr0dEALw_wcB&gclsrc=aw.ds> [Accessed 29 March 2020].
Niskanen, H., 2019. Sustainability in the sporting goods industry: How Nike, Adidas and Puma
have developed company sustainability.
Salam, M.A., 2017. The mediating role of supply chain collaboration on the relationship between
technology, trust and operational performance. Benchmarking: An International Journal.