The Hague University of Applied Sciences

MBA Operational Management

Lecturer: Drs. Bert Nijland

Individual Assignment

08070024 Jiang Yuqi

11th Feburary 2018
The questions below are related to the case Nike and ERP at Nike.

Questions:

1a) How does the transformation process in Nike look like?

Nike collects history information to forecast the future sales and outsources contractors to
produce the orders from the retailers. Then deliver to retailers with finished goods and to
end users the service such as Nike spirit.

1b) Which process(es) take(s) place? Explain your answer.

It takes place input-transformation-output process processes in Nike. There are facilities,

staff, and information such as fashion trend as input resources. Nike outsources contractors
to use machines and human labor as transformation process to produce finished products
as output process. So, there are input-transformation-output processes in Nike.

1c) How would you position Nike in terms of the 4 V’s? Explain your answer.

Visibility is medium, waiting time to have the latest Nike shoes are short, and
standardization of Nike products are high. There are around 25% sales from Nike direct sales
including online sales (Phalguni Soni, 2015), so it is low contact skill compare the rest 75%
revenue comes from wholesalers. The variety of Nike is high, but the unit cost is low. Above
all, the visibility of Nike is medium.

Variation in demand is low, because the production in Nike is more stable, predictable, with
more routine work, high utilization, and low unit cost.

Variety is low, the working process in Nike is more well defined, there is more routine work,
the work standard is more stable, and low unit cost.

Volume is high because the production process in Nike is high repeatable, the staff in Nike is
specialized, the capital is more intensive, and the unit cost is low.

2) How would you characterize Nike in terms of costs, dependability, flexibility, quality,
and speed?

Quality of Nike is premium, no matter the product or the service. The technology of quality
is also developed as the latest in the world. Nike’s product and service enhance the
definition of sport as well.

Nike’s dependability is known as the standard among customers. Customers have high
loyalty to Nike’s brand because of the dependability. But as a footwear giant in the industry,
the dependability is not perfect and complained by the contractor about the
communication.

The speed of product delivery in Nike is medium. Either customer spends the day to select
the product in direct retail shop and wholesalers, or customize a product on Nike’s portal
page and get to be delivered after three weeks.
As one of the top 500 in the world, the flexibility is always not top 500, the ability of Nike to
change is very low. However, the product flexibility, the mixing flexibility, and volume
flexibility are above average. And internally, low flexibility influences the cost higher, speed
slower and dependability lower.

The cost of Nike input comparing with output is quite a productivity. It is the very efficiency
of production.

3a) Describe 2 macro-economic variables (from the DESTEP analysis) that are considered
as order winning factors.

Demographic and social cultural are the two order winning factors. Nike spread the
distribution channels all over the worlds for decades, it has such geographical advantage to
win the orders. And customer’s information, history orders all help Nike to forecast and
optimize the future orders. The life style as the social factor in DESTEP analysis represents
Nikes to win the orders. The spirit of Nike, the behavior of Nike, the standards of Nike, and
the value of Nike all help Nike to win the order.

3b) Describe 2 macro-economic variables (from the DESTEP analysis) that are considered
as ‘qualifying’ factors.

Economic and technological in the DESTEP analysis are the qualifying factors in the macro-
economic variables. Nike as the giant of apparel and shoe industry has some market
characteristics. But the cloths industry is such red ocean that perfect competition makes
Nike is an only qualified role. The market share of Nike is not a small amount worldwide, it
takes more effort to increase a bit annually, which could be influenced by the economic
environment.

Nike also is known for leading the innovation in the sports clothes field. Nike doesn’t drive
the trend of sport, but it does influence the market because of its market share. From the
Nike Fuel band to Nike cooperated headset, these sports gears are quite successful but
don’t lead the market to a new direction. Thus, it is just qualifying factor.

4a) What process type is Nike using? Explain your answer.

Nike is under manufacture process type, and there are two process type, batch processes,
and mass process. There are standard and repeat products to be produced runners and
sneakers. There is a low skill required and huge quantity to be demand worldwide.

Meanwhile, Nike has some customized service and limited edition to be sold. Those require
batch process because there is some specific character to be involved in the production
procedures.
4b) What layout type are the manufactures of Nike using? Explain your answer.

If we consider the layout type of Nike as a worldwide manufacture, the entire world is a big
factory, then Nike is using the cell layout. Different raw materials are purchased and
forwarded to other countries, finished products are shipment to a different continent on
sale. Cell layout requires more space but it is faster and it provides a good compromise.

4c) Explain for Nike the production to demand ratio.

Except for customized order on Nike’s website uses “partially create and deliver to order”
P:D ratio, mostly Nike is using “create to stock” as the production to demand ratio. Nike
collected information on the market, such as trend and history data, to created and produce
the products. It looks like customers choose themselves in the department store, but Nike
has done the research to provide the possible collection in front of end users. Before Nike
delivers to retailers, the company obtain the resources, create the design and complete the
production.

5a) What model(s) of capacity management are applicable for Nike? Explain your answer.

Nike used mixed capacity plans for the capacity management, chase demand plan and
manage demand plan.

“NSC has allowed us to create a build-to-order supply chain where we now buy from partner
factories based on actual customer demand rather than forecasts alone.” (Tim Clark, 2004)
After NSC project started to implement, Nike uses the chase demand plan to process the
capacity management.

On November 2000, Nike ended up ordering 90 million USD worth of shoes, but sales were
below expectations such as Air Force One by around 80-100 million USD, Nike had to sell the
shoes at bargain-basement prices. And Nike brought some good selling shoes even with a
very expensive shipment cost. It is management demand plan.
5b) What type of inventory profile/ model is Nike using? Explain your answer.

Since starting to implement the NSC project, the order leading time is shortened from nine
months to six months. And the re-order quantity is still equal to Q when re-order (see Figure
1). Based on 90% sales are guaranteed from Nike, retailers will receive the order before the
inventory is out of stock (the trough mostly won’t be equal to 0).

Figure 1: Jiang Y. 2018.

6a) Analyze Nike’s supply chain and outsourcing strategy and forecasting method in
comparison with their ERP implementation strategy (based on single instance strategy).
To what extent are these strategies coherent?

Outsourcing manufacturing strategy requires Nike to integrate the order entry, supply chain
into ERP implementation based on single instance strategy. When Nike needs busier
manufacturing schedules, tighter shipping dates, and growth in customer lists, the big data
base could provide a bigger picture of the entire supply chain.

6b) To what extent are these strategies not coherent?

Forecast method is based on history data input the system and according to the computer
model to predict the future, but history data doesn’t mean 100 percent correct for the
future. Single Instance Strategy needs to integrate financials, order entry, supply chain to
CRM, which forecast is no the key function.
6c) What activities in the supply chain will change when Nike decides to outsource their
production? Explain your answer.

Order entry process will change, the purchased raw material need to deliver to those
outsourcing manufacturers, or Nike needs to test those outsourcing manufacturers who
purchased the raw material themselves.

The centralized planning process will change, finished products are assembled in the
factories worldwide. Outsourcing manufactures are required Nike to plan the manufacturing
schedules are shipping dates more accurately.

Production and delivery process are also changed, those outsourcing manufactures couldn’t
use Nike’s Single Instance Strategy data base but Nike needs to plan to whom, where and
what to assemble, produce and deliver.

7) What would be your advice to a company who is about to implement an IT system in

the industry and on the scale of Nike?

The goals and objectives are the first to be considered. The goals and objectives must be
realistic, cleared and related to the company’s short-term strategy.

Such IT system has better integrate with an existed system in the company so that the
management team and users could have a vision what are going to use in the future. The
function and data need to be installed step by step, function by function.

A third-party project manager needs to be involved who is responsible for communication

between the management and the developer. Meanwhile, the project manager needs to
understand the business and some IT knowledge to recommend the sequence what to do
on the first hand.

The schedule is another most important to be listed at the beginning. Time is money, if the
schedule is not clear, then there must be cost wasted. A clear schedule also shows when
and how the goals and objectives to be achieved.

Last but not the least, testing and training is the tool to connect to the system and users.
The system eventually is going to be used by human beings. The result of the system would
be accurate and efficient based on who is going to use.
8) Make a comparison of the advantages and disadvantages of customized system
solutions.

Advantages Disadvantages

Time cost Once the customized system A customized system will

is implemented, from some cost years to deployment
perspective it will save the successfully. And after
time to collect the clean data deployment, it doesn’t
and make the quick decision mean to save the time for
for the management team. the daily operation.

Financial cost The customized system can The customized system

help the company to save the truly costs a lot when
cost after deployment if the developing the solution.
system needs to be updated. Such cost has pressure on
the company’s financial
situation

Company’s demand The company has different The specific demand

demand on the system, it will won’t be fulfilled easily
highlight the specific needs of because it is difficult to
the business. And the consult a similar system. It
customized system is free to costs mistakes to
update when new needs implement and test.
come up with.

Testing and training The customized system is not The customized system
difficult to get used to it when needs several rounds to
start to use. The system is test and train the users.
developed according to the
demand of the company.

Communication A customized system has the Communication needs the

contract to deal with the developer understanding
developer. The the business and the
communication is much company probably needs
easier in this situation. a third-party to integrate
the communication.
9) Read the strategic and tactical critical success factors related to successful ERP
implementation on page 485 of the text book (Operations Management, Nigel Slack 8 th
edition). Evaluate them for Nike and motivate your answers.

There is strong and committed leadership at the top-management level of Nike. The NSC
project had the full backing of Knight, the founder of Nike. But when installation of the ERP
from i2 Technologies, Nike top management doesn’t have any clear visioning and planning
on the goals and objectives. Nikes wanted to have the forecast function so strong that
neglected the fundamental function of the NSC project. But later when developed the SAP
AFS, Nike felt to start from order and invoice function is more realistic.

What’s more, Nike was short of implementation strategy and timeframe. They claimed in
February 2001 that the supply chain software installation by i2 Technologies was a failure
after just two years, March 1999 Nike made that decision. Later it proves the successful SAP
AFS were entirely deployment worldwide from 2001 until 2006, which entirely six years are
spent to implement the Single Instance Strategy, step by step and geographically.

Nevertheless, the project management of such implementation is short of monitoring from

the top management. Reportedly, Nikes executives did not even hold a review meeting to
discuss the computerized forecast that turned out to be erroneous.

As the other experts questioned, Nike firstly even didn’t ask a third-party perspective to
integrate the point of view of such implementation. The project team of the implementation
is not even complete. i2 Technologies don’t have experience in the footwear industry. Nike
doesn’t have advantages to develop the independent system.

During implemented the SAP AFS, Nike ensured a close partnership between its business
and IT arms. Nike improved the communication plan as the tactical critical success factor.
Moreover, this time Nike ran enough test and training to from the beginning, to avoid the
same mistakes.

The project cost on the entire NSC project was around 500 million USD. To compare Nike
shorted the leading time from nine months to six months, the reserved order of shoes for
retailers from 30% to 3%, and a saving of 5 million USD annually. The project cost is so
valuable, no doubt the Single Instance Strategy advantage is made to compare with other
apparel and shoes competitors in the same industry.
Reference list

Jiang, Y 2018, Inventory profile of Nike, digital image, viewed 8 February 2018,
< https://drive.google.com/open?id=1N1jfGtazriQIu3yl38rAzva0pKHwKrqR>

Soni, P 2015 Nike in 2015: An Earnings Smash, a Widening Moat, and Record Highs [Online].
Available at:
https://marketrealist.com/2015/07/analyzing-digital-growth-enablers-nike (Accessed on 9
Feburary 2018).

Tim Clark, Power Users, Consumer Goods Technology Magazine, July 2004