Case Study: Operations management at Nike Delivery precision is important for a multi-product and multi-jurisdictional company like Nike. It improves margins, lowers inventories, minimizes price markdowns, and makes sure that the customer receives the right product on time. Nike’s manufacturing network has over 525 factories in 40 countries. Products move from several distribution centers across a network of thousands of retail accounts. Nike owns no factories for manufacturing its footwear and apparel. The company’s footwear and apparel make up about 96% of Nike’s branded revenues. Instead, Nike outsources its manufacturing to third parties. It’s a huge cost advantage. Nike’s supply chain sources most of its raw materials in the manufacturing host country by independent contractors. The strategies of Under Armour, VF Corporation, Lululemon Athletica, and Adidas also include overseas manufacturers. Nike is one of the pioneers of the manufacturing outsourcing strategy. It optimizes the manufacturing and production processes. Plus, continued innovation and product quality are keys to success. The company’s lean manufacturing improves efficiency, optimizes production, and lowers waste. Also, it drives quality and productivity. Material consolidation, manufacturing innovation, and modernization support the manufacturing process. Nike has license agreements that permit unaffiliated parties to manufacture and sell Nike-owned trademarks, apparel, digital devices and applications, and other equipment for sports activities. Nike has six primary distribution centers in the US. Notably, four are located in Memphis, Tennessee. Among those four, two are owned and two are leased. The company had 67 distribution centers outside the US at the end of the fiscal year 2019. Keeping a tight grip on costs is important for any company’s profitability and for shareholder returns. Nike’s gross profit margin is lower than some of its competitors, including VF Corporation and Lululemon. However, Nike, through its Consumer Direct Offense strategy, is growing its digital business. The digital business will speed up revenue growth and supports margin expansion. Plus, the channel mix shift (direct-to-consumer) will support the margins of athletic footwear and apparel companies. NIKE enjoys large pricing power in the marketplace. This is due to its ability to innovate and provide a different product. Also, the company plans to expand its top line. Nike’s also been investing a lot in expanding its Nike Direct operations. This includes Nike-owned retail stores and digital platforms. Currently, revenues through Nike Direct operations make up about 32% of the sales mix. Nike Direct sales have high margins. Additionally, growth in the ratio of Nike Direct sales could positively impact Nike’s gross margin. Nike’s manufacturing operations are concentrated in lower-cost countries such as China, Vietnam, and Indonesia. Since Nike’s manufacturing strategy is based on outsourcing and contract manufacturing, growing protectionist actions could hit its supply-chain process. Question 1: Operations strategy and the five performance objectives (35 marks, 300 words) Discuss the operations strategy and any five of the performance objectives at Nike. Question 2: Nike’s supply chain (35 marks, 300 words) Discuss the meaning of supply chain management. As completely as possible, discuss the supply chain for Nike from raw materials to consumer purchase. Question 3: Outsourcing (30 marks, 200 words) Discuss the advantages and the disadvantages of outsourcing for Nike.
1) Companies might vary their strategic business procedures since they select the most suitable alternatives and solutions to solve problems over time. As a result, there will be certain measurement criteria for the company performance, which reflect the most successful alternatives to their most essential problems.
Nike specializes in producing sports shoes, a labor-intensive manufacturing sector. The increasing strict quality control management combined with the demand by consumers for affordable goods has suddenly put Nike in a precarious situation. The question of how high-quality products can be produced under many measurements at a price that consumers are willing to pay is addressed. This can be accomplished by applications of transformation procedure, which converts from batch to lean manufacturing at the strategic level.
The performance objectives at Nike are discussed below-
1. To build groundbreaking sports innovation products, which are best in the market.
2. Products must be sustainable and create diverse Global product which suits people according to as per their needs.
3. Products must focus on customer needs and provide them compelling experience across multiple channels.
4. The products must be of extremely good quality and the pricing must be reasonable.
5. Innovation and authenticity must be the main drivers for creating products
Five social media objectives for Nike are customer engagement, brand promotion, product promotions, sales, and increasing customer base, promoting sponsorships.
Nike uses different social media platforms like Facebook, Twitter, Instagram, Pinterest, etc. for promoting its products and doing brand promotions among its customers. Nike uses brand images and videos on social media pages to create interest and excitement among its followers. It also shares information about the brand and product through the content on social media platforms. It encourages users to follow the brand on social media platforms. Its videos and images show detailed information about the product along with brand values like fitness, health, and lifestyle. Nike shares other interesting facts related to its events and sponsorships through its social media platforms. Nike engages its customers with the sharing of interesting information and responding to customer responses. It creates dialogues and comments with its followers for increasing engagement and customer base.
2) Supply chain management is managing the operations of the brand from the procurement of raw materials to manufacturing and supply to consumers. It involves the movement of goods from the source until the endpoint. Warehousing, logistics, and customer delivery are an innovative part of the supply chain. Nike was started as a company that manufactured and designed the light and durable running shoes and related accessories and this helped it to become one of the leading shoe manufacturers across the world. Supply chain management is viewed as a weapon tool against competitors. The supply chain involves activities that are associated with flow and transformation of resources, raw materials, finished goods to the end-user (customer). Creating customer value is one of the aspects of Supply Chain Management. This tool is used to improve the customer relationship with the company. The company has made several changes in terms designing of the shoes, materials used, and manufacturing and marketing of its products. Nike has built up great supply chain relations all over the world. The supply chain management at Nike focuses on attaining the leveled flow of the products by taking on the actual point of sale-demand
The supply chain for Nike from raw materials to consumer purchase consists of outsourcing the manufacturing to several factories for cost and flexibility benefits. The procurement of raw materials for these factories is done by independent contractors. The material from these factories is then routed to distribution centers. The distribution centers then further supply it to the retail stores and finally to consumers.
For raw materials and manufacturing, Nike relies completely depends on external sources. Nearly all its products are manufactured by different sources. It has a huge number of suppliers that support business success. Hence quality is the main concern in Nike’s supply chain. The company maintains great awareness for selecting raw material and suppliers. There is a worldwide production team at Nike to obtain raw materials. It takes care of the whole production process from selecting the right suppliers for the right goods and services.
3) The brand value of Nike always dominates based on the sales figure as per the current financial survey is worth more the few billions, it is the only brand on the list with this two-digit billions value, the advantages more than disadvantages. There are so many factors behind the successes of the well know brand, considering it's also the most valuable fashion brand in the world. The advantages of outsourcing for Nike are that it saves costs in manufacturing by outsourcing manufacturing to areas where the labor costs are low. It helps in diversifying the risks associated with manufacturing. It has scope for focusing on the quality of the product and the use of fine technology. The disadvantages of outsourcing for Nike are that it has a risk to the intellectual property of the brand. It also has the pressure of working with violations of human rights. The need for coordination and supervising to monitor quality is high increasing the costs.
Outsourcing activities like administration works free resources helping to focus on the core functions of the business
lower labor and operations cost. thereby can reduce overhead expenses.
well talent, assuring a higher quality of the outsourced tasks.
An outsourcing Nike brings in well knowledge and experience, which leads to an increase in productivity and efficiency.
It will make harm to the company's reputation
quality issues will cause a high defect rate.
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