Supply Chain Management of Nike Jordan Brand - Case Study Example

Supply Chain Management of NIKE Jordan Brand Stage 1a) Explain how specific organizational services are distinguished from manufacturing. At Nike Jordan Brand, the manufacturing functions cover all activities that need to be performed in order for end products to meet the forecasted demand. Manufacturing assumes availability of all the required raw materials, labor, equipment, logistics or budget, and the production plans based on the sales forecasts prepared by the management. Factories are contracted for the purpose of manufacturing Nike brands of shoes, apparel, and equipment. These factories do not cover the many service functions which make all such resources ready for use so that Jordan Brand products can be produced with the right quality and the right quantity. It also does not include shipment of the end products to locations where all the produced Jordan Brand products will be made available to customers. Before manufacturing can process raw materials, many services that form part of the Supply Chain Management will have to be performed for the purpose of ensuring customer satisfaction. The theoretical end goal is customer satisfaction and efficiency of the company for best performance in terms of profitability, according to Slack, N.; Chambers, S.; and Johnston,R. (2004). But as of the present, Nike Inc. includes sustainability, green environment advocacy, least wastage and healthy working conditions or the empowerment of workers as part of the company’s Supply Chain Management (SCM) objectives (Nike Inc. 2012). Figure A shows some of the major services along with the manufacturing function or “make”. It is obvious that factories will not operate unless other major services are operational. Figure A. Services Include Planning, Designing, Deliveries, Marketing, etc. [ Source: Nike Inc. (2012). How We Work: Our Value Chain. Viewed October 19, 2012 @ http://www.nikeresponsibility.com/#how-we-work ] Aside from the services pictured, there are many other services within the organization to support the hundreds of factories (currently over 900 contracted factories) of Nike worldwide (See Figure B). These are management functions like policies and procedures formulation, control over all non-manufacturing operations by regularly auditing, ongoing monitoring activities, inspection of reports required and submitted; non-management functions like screening of suppliers that can meet the standards of Nike, screening of factories, performance evaluations, payments processing, auditing. Figure B. Global Contracted Factories [Source: Nike Inc. 2012. Global Contracted Factories in 2009, 2010, and 2011. Corporate Responsibility Report.Viewed October 18, 2012 @ http://www.nikeresponsibility.com/report/content/chapter/manufacturing] 1b) Integrate in the paper key manufacturing and operational processes and technology vital to product and service successes. In order for this to happen, the demand of customers would have to known for each given month in various locations worldwide, and the requirements of manufacturing should be always ready to produce the specific end products at the right quantity with the desired quality. Sales performance and profitability will be affected in case of failure to design the right Supply Chain system and strategies. Disruptions in the flow of raw materials can lead to insufficient volume of production at the right time when people would like to purchase Jordan Brand products. As of October 8, 2012 for example, Nike Jordan Brand planned to manufacture basketball gears for the cold weather and for outdoor purposes. McCarthy, Michael (2012) reported that sometime in January 2013, Nike Jordan Brand will supply the US market first and then the Chinese market with “cold-weather basketball apparel” for the winter when lots of kids and youthful adults play basketball. An example of this is the Hyperply Coat shown in Figure C below. Figure C. Nike Jordan Brand’s Hyperply Coat for Winter There will also be the usual On Court Jordan Sneakers and Off Court Jordan Sneakers in display outlets. To facilitate manufacturing, the management must decide on who the suppliers of raw materials will be, what will be the right quantity of raw materials inventory, how much will be the budget allocation, and how many people would have to be employed to meet target demand? Reported sales coming from thousands of sellers have to be utilized to generate the forecasted demand in various locations. All these require services not within the scope of manufacturing. From the planning in preparation for the manufacturing, to the distribution of products, and the marketing strategy implementations, there will be many services that would have to be rendered in order to produce the right mix of end Jordan Brand products with the right quantity per item. If the Winter Coats are not produced on time, those frustrated can buy alternative brands of similar coats. Or there can be complaints about the quality of Nike Jordan Brand similar to what happened to Jordan Brand in February 2012 (Snapp, Dan 2012) wherein this $ 1 billion dollar revenue generating brand of Nike was criticized for its deteriorating quality. In greater details, Supply Chain systems design would have to find suppliers of the needed materials for the Hyperply Coat, consider their prices and capacity to regularly supply A decision would have to be made as to whether or not Nike should tap just one dedicated supplier for each part of the end products – zephyrs and/or buttons, textiles, rubber soles, adhesive and thread. Or multiple suppliers can be better because of the assurance of alternative sources in the event demand might suddenly rise to unexpected volume. The manufacturing division will only cover the production of end products once raw materials, labourers, and equipment are ready for manufacturing. Since Nike as a whole contracts factories and qualifies them as contracted factories, it can have one or more factories operating in each State. Each of those factories will then have their respective suppliers or raw materials, labor, equipment, and replacement parts in case of equipment repairs and maintenance, especially parts breakdown. For Nike, considering the Service Design Process, the concept begins with pre-qualifying the contractors who must first comply with the terms and conditions that will assure Nike of ongoing production of quality goods and services, so that the customers of Nike will always be satisfied with the products and services acquired and experienced. For one thing, factories must be ethical in the provision and maintenance of labourers, and must abide by the Nike Code of Conduct. Factory contractors are regularly audited, evaluated, and graded with A, B, C, D, or E. See Figure G (Nike Inc. 2012b) Naturally, those with higher grades will have priorities over the poorer performers when it comes to renewal of contracts. Before Manufacturing Within Manufacturing Stage After Manufacturing Figure D. Interconnections of Manufacturing Processes and Nike Inc. Services As of the present, Nike has a Supply Chain Disclosure website at http://help-en-us.nike.com/app/answers/detail/a_id/20878/p/3897 to ensure that contractors will meet the desired standards for Nike. Stage 2a) Provide illustration of capacity and facilities design and how they are part of the TQM process. Nike brands, are guided by specifications like having to “apply lean manufacturing processes” (Nike Inc. 2010) and to arrive at high quality end products efficiently. Nike gives people the skills to produce the desired end products, and the knowledge to improve processes. Although the factories are owned by the contractors, Nike deals with the supply chain issues like proper wages, excessive overtime, capacity building by building human resources, monitoring of working conditions for the factory workers. 800,000 workers (in 2010) were affected by all the services rendered by Nike, Inc. for contractors worldwide. The global supply chain involved is made up of not just suppliers but also buyers, consumers, workers, and communities. They are first of all monitored for compliance with terms and conditions of contractors. A few of the purposes of monitoring has been for the safety of workers, for their health maintenance, and for environmental issues. People dealing with Nike are obliged to work in accordance with a code of conduct. Nike also dealt with capacity building and tracing of root causes to prevent problems or resolve them quickly. Processes = monitoring + collaboration with tracing root causes of problems + capacity building + auditing + sharing of findings across many factories via internet and file sharing + achieving efficiency, e.g. by implementing the Nike Closed-Loop Business Model which seeks to achieve zero waste of resources by recycling or composting materials. (Nike Inc. 2010) Furthermore, for Total Quality Management (TQM) purposes, Nike Inc. classifies different areas for capacity build up as shown in Figure E. The management services included the analysis of capabilities according to Risk Management, Compliance, Partnership, and Redesign. It would take a lengthy discussion of the contents of each of the classifications. Presentation of Figure E shortens that presentation. Company capabilities, Supplier capabilities, and Contracted Factory capabilities are part of the major concerns of the entire organization. Figure E. How Nike Jordan Brand’s Capacities or Capabilities Are Monitored & Improved [ Source: Nike Inc. 2012c. How We Do Business. Corporate Responsibility Report. Viewed October 28, 2012 @ http://www.nikeresponsibility.com/report/content/chapter/manufacturing ] 2b) Explain human resources contribution to the success of the product and service provided. It will take well-trained, tested, and qualified employees of Nike Inc. and similarly well-trained, tested, and qualified employees of the Contracted Factories to implement the various prescribed procedures and to comply with Nike’s Code of Conduct. There were instances in the past when news reports divulged the poor working conditions of workers in factories, the hiring of children to labor, and the use of overtime in order to meet standards, and even the maltreatment of factory worker in 2011 (Daily Mail Reporter 2011). These became hard lessons for Nike management to be more thorough in the effort to closely monitor the things that are actually happening in contracted factories. In every department of Nike business operations, there should be control and diligent supervision of manpower in order to discipline people into performing their share of the responsibilities to arrive at satisfactory to excellent customer satisfaction. A simple delay in the release of expected payroll can result in de-motivation within the system. With de-motivation comes decline in the quality of workmanship of the products. And with negative impact on quality, sales will eventually decline as well. Stage 3a) Identify priorities for qualitative and quantitative forecasting. In the observation of Blanchard, D. (2010, p. 28), Nike had experienced the problem of having wrong product mixes, as a result of producing too many of one product end and too little of a product in demand. It resulted in a decrease in the profitability of Nike. At Nike Inc., qualitative forecasting can take place whenever there are no available data based on actual sales. The very recent plan to launch a Jordan Brand Winter Coat, for instance, (See Figure C.) will mean having to estimate how many residents in the USA might decide to purchase that branded Hyperply Winter Coat. The management can base their forecast on the number of loyal followers of Michael Jordan nationwide. Or a survey of people planning to buy a winter coat in each State can be conducted just to find out the market potential by January 2013. Then the management can consider the number of competitors with their own brand of winter coats, the probably lower price, and places where people can buy them. Nike Inc. Jordan Brand management can thereafter aim to penetrate a percentage market share in each State. Opinion and intuition would have to be tapped. If in the opinion of management, almost 100% of the loyal followers of MJ will strive to secure one, there must be a good basis. Perhaps there was a past MJ apparel which was sold, and the loyal followers of MJ did secure that MJ apparel. If it happened before, the management can decide that it will happen again. Quantitative forecasting for the newly launched product will not be as accurate as the forecast for known products with statistical data of their respective demand. Nonetheless, factories will be given a basis for producing specific quantities even if it will be just a rough estimate given some bases for computations. But for the other products with reported sales statistics from actual business operations in various parts of the world, quantitative forecasting will have better accuracy and solid basis of actual demand monthly, quarterly, semi-annually, and annually. Electronic data are reported on regular basis and in fact consolidated by Nike Inc. Headquarters. Figure H shows the integration of thousands of reported sales each year since 2009 until 2011 yearend. 3b) Explain how forecasting is a key component to TQM. Total Quality Management (TQM) especially at Nike Inc. means that the forecast will be accurate enough to achieve almost zero waste of resources and unnecessary costs like the cost of raw materials purchased that would be stored for a year in case demand will not be sufficient to consume all the manufactured products. There will be unnecessary handling costs if not all the target volume of winter coats are sold. Once financial resources get tied up with inventories, the value of such financial resource will be diminished. It cannot earn at least a bank interest rate until after the goods are sold. In case of an under-estimated sales forecast, customers can become dissatisfied with the Jordan Brand. Opportunity to gain more sales will be lost if the people run out of stock in department stores. The next opportunity for the same product will have to be next winter. TQM requires performance measurements not only in achieving quality products but also in the way management satisfies customers, stakeholders, employees, and suppliers. TQM must measure how leadership has performed in terms of good planning and achievement of standards. (Oakland, J.S. 2012). A wrong forecast can be evidence of poor judgement resulting in the dissatisfaction of many people who make up the Supply Chain Management. 3c) Provide a detailed listing of inventories and how they are vital to the successful sales and operations planning According to Nike Inc. (2012d), the company uses “over 16,000 materials” yearly, and the shoes require “more than 30 materials”. Most of the details of listed materials are not made known to the public. However, the major components include Nylon Fabric, Polyester Fabric, Recycled Polyester Fabric for the production of short pants; . In the production of Hoodie, wool fabric, cotton fabric, and organic cotton fabric would be the options. Organic cotton amounting to 15 million pounds was used in 2010 because it required far less chemicals to process that raw material. For the production of shoes, recycled polyester fabric was preferred for the upper part of the shoes because it contributed to the utilization of “280 million plastic bottles” removed from garbage. For the mid-sole, the choices were Ethylene Vinyl Acetate (EVA) Foam or Polyurethane TPU foam. The Polyurethane option required less energy and produced less waste materials than EVA Foam. For the outside sole, the R & D of Nike has formulated an environmentally friendly rubber. Chemical was added to the standard rubber. On the overall, the major materials utilized are Polyester, Rubber, EVA Foam, Cotton, Synthetic Leather, and Leather. This was made known to the public as shown in Figure I. In terms of machines used, Nike Inc. found and maintained DyeCoo Textile Systems because of its invention of the “waterless textile dying machine”. This company is based in Netherlands. Nike Jordan Brand’s Supply Chain Management (SCM) follows the corporate SCM expectations. This was summarized by Nike Inc. as follows: (Figure F) Figure F. Nike Inc. Supply Chain Expectations [ Source: Nike Inc.(2012). Supply Chain Expectations. Corporate Responsibility Report. Viewed October 18, 2012 @ http://www.nikebiz.com/crreport/content/charts/chart-5-10.php ] As can be seen from the list of expectations, Nike Inc. is concerned with the sources of raw materials, their respective costs, their proper use, and innovations or improvements to improve capacities or capabilities. Although the Nike Inc. management does not own the factories, the Nike management is very much involved with ensuring quality products and the efficiency of arriving at those standards. Figure G. Nike Inc.’s Grading of Contractors (continued next page) [ Source: Nike Inc. (2012b). Workers and Factories. Viewed October 18, 2012 @http://www.nikebiz.com/crreport/content/workers-and-factories/3-2-2-factory-monitoring-and-results.php?cat=profiles ] Figure G. Nike Inc.’s Grading of Contractors (continuation) [ Source: Nike Inc. (2012b). Workers and Factories. Viewed October 18, 2012 @http://www.nikebiz.com/crreport/content/workers-and-factories/3-2-2-factory-monitoring-and-results.php?cat=profiles ] Figure H. Consolidated Revenues of Nike Inc. 2008-2012 [ Source: Nike Inc. (2012e). Nike FY2012 Annual Report. Viewed @ http://investors.nikeinc.com/files/doc_financials/AnnualReports/2012/index.html#select_financials ] Figure I. Major Materials Used by Nike Inc. 2012 [ Source: Nike Inc. (2012f). Materials. Nike Responsibility Report. Viewed October 18, 2012 @ http://www.nikeresponsibility.com/report/content/chapter/materials ] References Basu, Ron J. and Wright, Nevan N. (2012). Total Supply Chain Management. UK & USA: Butterworth-Heinemann http://books.google.com.ph/books?id=AGfMgnnMAc8C&printsec=frontcover#v=onepage&q=services&f=false Blanchard, David (2010). Supply Chain Management Best Practices. USA: John Wiley & Sons. Daily Mail Reporter (2011). Nike Workers Kicked, Slapped, Verbally Abused at Factories Making Converse. Mail Online, July 13, 2011. Viewed October 20, 2012 @ http://www.dailymail.co.uk/news/article-2014325/Nike-workers-kicked-slapped-verbally-abused-factories-making-Converse-line-Indonesia.html McCarthy, Michael (2012). Nike’s Jordan Brand Planning Cold-Wealther, Outdoor Basketball Gear. Sports Biz USA. Viewed October 17, 2012 @ http://sportsbizusa.com/blog/nikes-jordan-brand-rolling-out-cold-weather-outdoor-basketball-gear Nike, Inc. (2010). Workers & Factories. Nike Corporate Responsibility Report. Viewed October 18, 2012 @ http://www.nikebiz.com/crreport/content/workers-and-factories/3-1-0-overview.php?cat=overview Nike Inc. (2012a). Targets and Commitments. NikeResponsibility.com. Viewed October 19, 2012 @ http://www.nikeresponsibility.com/#targets-commitments Nike Inc. (2012b). Workers and Factories. Corporate Responsibility Report. Viewed October 18, 2012 @http://www.nikebiz.com/crreport/content/workers-and-factories/3-2-2-factory-monitoring-and-results.php?cat=profiles Nike Inc. (2012c). How We Do Business. Corporate Responsibility Report. Viewed October 28, 2012 @ http://www.nikeresponsibility.com/report/content/chapter/manufacturing Nike Inc. (2012d). Material Choice and Impact. Viewed October 18, 2012 @ http://www.nikeresponsibility.com/infographics/materials/index.html Nike Inc. (2012e). Nike FY2012 Annual Report. Viewed @ http://investors.nikeinc.com/files/doc_financials/AnnualReports/2012/index.html#select_financials Oakland, John S.S. (2012). TQM: Text with Cases. US & UK: Routledge Russell,Roberta and Taylor,Bernard W. (2011). Operations Management: Creating Value Along the Supply Chain, 7th Edition. USA: John Wiley & Sons Slack, Nigel; Chambers, Stuart; and Johnston, Robert (2004). Operations Management, 4th Edition. UK: Pearson Higher Education. Snapp, Dann (2012). Jordan Brand is Losing its Luster. Brandemonium, February 14, 2012. Viewed October 18, 2012 @ http://www.brandextract.com/blog/2012/02/14/jordan-brand-is-losing-its-luster/ Read More