Question

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.

QUESTIONS:

Answer the below questions based on the text above, the course material, your own experience and information search on the internet and in academic sources from the AOU e-library. (i.e. companies’ webpages, AOU e-library databases…)

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)

1. Discuss the meaning of supply chain management.
2. 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.

Answer 1

1)

The operation strategy of Nike consists of so many factories.
It outsources its raw materials for products like footwear and apparel for manufacturing units through independent contractors. As a result, the costs of production are reduced. The outsourcing approach has resulted in lower wages and cost savings generating more revenues. As a result, reduced costs for consumers are provided. Outsourcing in cheap countries has resulted in reduced overhead costs and improved efficiency.
It outsources the production of apparel and footwear from factories located in different parts of the world. It moves the products from the manufacturing unit to the distribution centers owned by them. It moves the goods from those distribution centers to retail stores. The company has an operations strategy to maintain lower costs through outsourcing and maintain high quality. The company focuses on efficiency and productivity through its operations strategy. The company encourages the use of technology for manufacturing, consolidation of its goods, and supply across its network. The company is also making use of digital platforms to sell the merchandise directly to consumers and expand the distribution of its products. The company plans to expand its sales through Nike owned retail outlets and digital channels for better profitability.

The operation strategy at Nike has an excellent supply chain that continuously facilitates efficient production to support the Global demand for sports shoes, apparel, and equipment in its business. The strategic decision in the area of operation strategy management helps the company to align the supply chain with the company's overall strategic objectives.
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

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.

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 the 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.

Advantages

• Save time

Outsourcing activities like administration works free resources helping to focus on the core functions of the business

• Reduced costs

lower labor and operations cost. thereby can reduce overhead expenses.

• Expertise

well talent, assuring a higher quality of the outsourced tasks.

• Increased efficiency

An outsourcing Nike brings in well knowledge and experience, which leads to an increase in productivity and efficiency.

disadvantages

• Loss of managerial control

It will make harm to the company's reputation

• Quality issues

quality issues will cause a high defect rate