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 3: Outsourcing (30 marks, 200 words) Discuss the advantages and the disadvantages of outsourcing for Nike.
Question 3 - Some of the advantage of outsourcing for Nike is:
Some of the Disadvantage of outsourcing for Nike is:
So, these are the some advantage and disadvantage of outsourcing for Nike.
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