Supply Chain Management - Nike Europe - Case Study Example

Supply Chain Management – The Nike Europe Case Study Student’s Name Course Tutor’s Name Date Executive summary This report identified the SCM-related problems at Nike Europe as: the ineffective communication systems, the inability of distributors to cooperate, and the inability of Nike’s management to coordinate the supply of products in the European market in a timely and efficient manner. The report identifies reforming the current decentralised warehousing and distribution system and centralising warehousing and distribution as the two viable solutions that Nike could use in order to resolve its problems. The report however identifies the centralisation strategy as the more appropriate of the two and hence recommends the same for use by Nike. Physical flow of goods As indicated by Ashford (1997) in the Nike case study, the company (Nike) sources its products from different manufacturers (mainly in the Far East). However, it is the Hong Kong Office that coordinates the manufacture and purchase of supplies based on orders from retailers. On arrival, the Nike products would be stored in warehouses and later distributed to retailers who would make the products accessible to the final consumers (customers). Products that are not purchased within a specified times are considered as “close-outs” and are hence subjected to three considerations as indicated in the diagram below. Supply chain map Information management at Nike is a critical aspect in the success or lack thereof of the supply chain management. Notably, and as indicated by Nederpel (2008, p. 11), retailers need to place future or at-once orders and this requires good information management. Additionally, retailers need to communicate customer requirement to the manufacturers through Nike’s coordinating offices, and this too requires good information management. As Indicated by Ashford (1997) however, Nike’s information management (especially at the retailers) could do with some improvements since it was uncoordinated, and in some instances, lost sales were not recorded. A further weakness in information management is indicated by Ashford by noting that in some cases, customer orders were not delivered in good time, there were challenges coordinating shipments to arrive at the same time for purposes of satisfying customer order requirements, and there were also challenges in communicating to customers about their order deliveries, and/or any delays. The organisational structures at Nike Europe were flexible especially since Nike worked with “independent and specialist sports retailer” as indicated by Ashford (1997, p. 64). Nike however maintained subsidiaries, and was responsible for the Hong Kong coordinating office, and the warehouses in different countries in Europe. The overall performance of supply chain at Nike’s European operations, when gauged based on customer service and costs seems to be poorly rated. Ashford notes that the customer service was deficient, and there were delays in productions factors that collectively led to products being left unsold at the end of the season. In other words, there were inefficiencies in the supply chain. Although it is hard to benchmark Nike’s SCM performance based on other best practices in the industry due to the unique aspects of the company’s business and culture, the management at Nike appear to have engaged in what is defined as “Internal benchmarking” (Piotrowicz, Cuthbertson & Islei 2010, p. 6). Internal benchmarking involves focusing on departments and business units and focusing on what would be needed for them to perform optimally. The management at Nike thus engage in an analysis which indicated that centralising the European distribution centres and managing stock-holding through a single inventory would improve the SCM performance. The analysis further showed that the operating costs incurred by Nike at the time would decrease significantly if a centralised inventory and distribution was introduced Critically analysing the performance of individual logistics functions at Nike can only be done through the limited information provided by the case study. As Ashford indicates, the inventory management systems could do with some improvement, just as the production control systems. The transport operations seem to be well managed, as is the case with supplier relationships. Other functions identified by Taylor (1997, p. 12) and which appear to need some improvement include the management information systems and the physical flow of products. The internal policies that seem to affect Nike most include their exclusion of discount retailers hence having an inflexible pricing policy, and their preference to deal with specialist and independent sports retailers. The future-orders system places the extra burden on sales forecasting on retailers. The external business environment that Nike is faced with include the following as suggested by Kourteli (2005): increasing competition from other shoe manufacturers; the natural environment which makes the sales of Nike shoes and apparel limited to two out of the four seasons; technology (especially since it markets it success as technology-anchored); customers (i.e. their changing preferences, their ability to purchase and/or willingness to purchase new Nike designs); and suppliers (e.g. Nike had been criticised for working with suppliers who uphold sweatshop conditions(Brooks, Weatherston & Wilkinson 2010, p. 313)). Main issues and problems According to Green Jr., Whitten and Inman (2011, p. 317), the ultimate strategy for SCM should be to have a “long-term, sustainable superior performance” which should “better serve ultimate customers and consumers while enhancing the performance of individual supply chain members”. On their part, Gammelgaard and Larson (2001) observe that manufacturing managers need to communicate, cooperate and coordinate with partners in the supply chain. Following these observations, the main issues and problems in Nike’s SCM seem to be the ineffective communication systems, the inability of distributors to cooperate, and the inability of Nike’s management to coordinate the supply of products in the European market in a timely and efficient manner that would be effective in satisfying consumer needs and requirements. All such identified problems need to be solved if Nike is to effectively and efficiently manage its supply chain. The priority, which happens to be the crux of all Nike’s SCM challenges has to be in streamlining operations in Europe, by perhaps centralising warehousing and distribution in the region. As Ashford notes, Nike had problems getting apparel products to European retailers in good time. The problem was linked to unreliable suppliers and long lead times on orders. Local management also lacked vital information such as shipment arrivals, hence pointing a deficiency in the information management function of the company. Sending deliveries as a single collection is also identified as another problematic area once again pointing to the information management. The absence of consistent on-line inventory records, batching or prioritizing orders systems, or lost sales was also another problem that stemmed from the decentralised supply chain management strategy. Through centralising warehousing and distribution, it would appear that information management would be streamlined, and by extension ordering systems would be improved; the lead time issue would be resolved; and the inventory management problem would also be resolved. Evaluation of alternative solutions Centralised warehousing and distribution centre is one of the viable solutions that Nike could use to resolve its current problems in SCM, but it could also opt to stay with a decentralised warehouse system with improvements on key areas such as information management and communication among the retailers, Nike’s subsidiaries, the Hong Kong coordinating office, and the suppliers. If Nike opts for a centralised warehousing system, it would need to consider streamlining the order placing system with different retailers throughout Europe, and would also need to consider other functions such as proximity to individual retailers, transport, storage, and the costs involved. On the other hand, a decentralised warehousing and distribution system would require Nike to improve on factors that are undermining the optimal performance of such a system. For example, Nike could choose use a better system of information management, tracking of orders, ordering and delivery of goods, and management of inventory. As indicated by Lee & Billington (1992, p. 71), “effective control of a supply chain required centralised coordination of key data from different entities”. Through the use of an integrated database spanning its entire European supply chain, Nike could therefore succeed in linking its pipeline inventory, delivery schedules, production plans, backlogs, inventory stats and order forecasts hence making it easier to manage the supply chain effectively. Recommendation and justification Following the US model of SCM as referred to by Ashford (1997), I would recommend that Nike opts for the centralised warehousing and distribution in its European market. As Ashford notes, one of the Nike managers questioned how the company could justify multiple distribution centres in a market that was comparably equivalent (or smaller) to the State of Texas. Additionally, centralised warehousing and distribution would lead to a reduction in operating costs, better inventory management, and a reduction on close-outs. As indicated by Kohn (2005), the total cost of distribution factors in the cost of lost sales, the transportation costs, the warehousing costs and the inventory costs. A central warehousing and distribution approach would decrease the overall costs spent in warehousing thus reducing the overall costs of distribution. Moreover, it would be expected that the customer service provision in Nike would improve, hence encouraging more repeat buyers to consider Nike products even amidst increasing competition. While a decentralised system could also be modified to remedy the prevalent problems at Nike, it would be more time consuming, and there would be no guarantee that independent retailers would be willing to cooperate in factors such as information management. Additionally, the fragmented transport and shipping costs associated with delivering supplies to different warehouse and distribution centres in different European countries would still remain in a decentralised warehousing and distribution centre system. Conclusion Overall, and as indicated by CFFN (2009), a centralised system is able to control, coordinate and manage the flow of information better than its decentralised counterpart arrangement. As such, it is more suitable for use by Nike in the European market as a problem-resolving strategy that will also increase the company’s competitiveness in the market. References Ashford, M 1997, Nike Europe’, in Taylor, D (Ed.), Global cases in logistics and supply chain management, Cengage Learning, Hampshire, UK. Brooks, I, Weatherston, J & Wilkinson, G 2010, The International business environment: challenges and changes, Pearson Schweiz, AG, Chollerstrasse. CFFN 2009, The law of rule: Centralised decentralised and distributed systems’, CFFN.ca, viewed 1 April 2013, < http://www2.cffn.ca/usha/part-iii-article-by-pramod-dhakal/129-the-law-of-rule-centralized-decentralized-and-distributed-systems>. Gammelgaard, B & Larson, PD 2001, ‘Logistics skills and competencies for supply chain management’, Journal of Business Logistics, Vol. 22, No. 2, pp. 27-50. Green Jr., KW, Whitten, D, & Inman, R A 2011, ‘The impact of logistics performance on organizational performance in a Supply chain context’, Supply Chain Management: An International Journal, Vol. 13, no. 4, pp. 317-327. Kohn, C 2005, ‘Centralization of distribution systems and its environmental effects’, Masters Thesis, viewed 1 April 2013, < http://liu.diva-portal.org/smash/get/diva2:20333/FULLTEXT01>, Kourteli, L 2005, ‘Scanning the business external environment for information: Evidence from Greece’, Information Research, Vol. 11, No. 1, viewed 1 April 2013, . Lee, H & Billington, C 1992, ‘Managing supply chain inventory: pitfalls and opportunities’, Sloan Management Review, Vol. 33, No. 3, pp. 65-73. Nederpel, L 2008, ‘Improving the close-out supply forecast accuracy at Nike Inc.’, viewed 1 April 2013, < http://alexandria.tue.nl/extra2/afstversl/tm/Nederpel_2012.pdf>. Piotrowitz, W, Cuthbertson, R & Islei, G 2010, ‘Performance measurement and benchmarking in the supply chain: Literature review’, viewed 1 April 2013, . Taylor, D 1997, Global cases in logistics and supply chain management, Cengage Learning, New Hampshire. Read More