SUPPLY CHAIN MANAGEMENT

Submitted to: Prof Tapas Mahapatra

Submitted by: Prateek Goel

Enrollment No.:08BS0002303

SCM DISASTER AT NIKE

Importance of Supply Chain Management

Businesses now not only need to operate at a lower cost to compete, it must also develop
its own core competencies to distinguish itself from competitors and stand out in the market.
Supply chain management plays an important role in successful running of any business. SCM
has allowed company to rethink their entire operation and restructure it so that they can focus on
its core competencies and outsource processes that are not within the core competencies of the
company.

SCM Disasters
But the opposite effect of the SCM also comes into the view at times. There have been
many cases in the past in which the SCM have proved to be a reason for poor financial
performance of the company. To cite few examples of this case would be:

FoxMeyer’s 1996 Distribution Disaster:

GM’s Robot Mania
The Web Van Story
Adidas 1996 Warehouse Meltdown
Toys R Us.com Christmas 1999
Hershey’s Halloween Nightmare 1999
Cisco’s 2001 Inventory Disaster
Nike’s 2001 Planning System Perplexity
Aris Isotones’ Sourcing Calamity in 1994
 Apple Misses Power Mac Demand

Nike Inc.
Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United
States. The company is headquartered in Beaverton, Oregon, which is part of the Portland
metropolitan area. It is the world's leading supplier of athletic shoes and apparel and a major
manufacturer of sports equipment with revenue in excess of $18.6 billion USD in its fiscal year
2008 (ending May 31, 2008). As of 2008, it employed more than 30,000 people worldwide. Nike
and Precision Cast parts are the only Fortune 500 companies headquartered in the state of
Oregon, according to The Oregonian.

The company was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bower man and
Philip Knight, and officially became Nike, Inc. in 1978. The company takes its name from Nike,
the Greek goddess of victory equipment; the company operates retail stores under the Nike town
name. Nike sponsors many high profile athletes and sports teams around the world, with the
highly recognized trademarks of "Just do it" and the Swoosh logo.

Nike’s 2001 Planning System Perplexity

The company’s headquarters are located in Beaverton, Oregon in the US. The company had a
good supply chain management wherein the company was in a practice of never manufacturing
the products. Instead the company used to outsource the manufacturing process directly to the
suppliers. These suppliers were known as the contractors.

Future program: It was in the year 1975 when the Nike introduced the Future Program. Under
this program the Nike’s global operations were broadly divided into 5 geographic regions. This
was aimed towards obtaining better operations and effective systems. During this era, toward the
end of the 1990s the supply chain management seemed to be ineffective and inadequate. There
were problems like ineffective forecasting and managing the changing trends.

NSC Project: Further in the year 2000 Nike launched the NSC project. This project aimed at
implementing its ERP, Supply Chain, & CRM Software onto a single SAP Platform. This project
ultimately proved to be a big disaster for the Nike’s operations.
The Failure: In the spring of 2001, Nike blamed i2 Technologies for a massive sales-and-
earnings shortfall. Nike posted a profit of only $97 million that quarter—at least $48 million
below forecast. Nike said the culprit was i2's demand-forecasting and supply-chain-management
systems. The supply-chain software was supposed to reduce the amount of rubber; canvas and
other materials that Nike needed to produce its shoes. It was also supposed to help make sure
Nike built more of the shoes customers wanted and fewer of the ones they didn't. Instead, Nike
was left with far too many of the wrong shoes and not nearly enough pairs of its hottest sellers.

The Reason: The total cost of i2's demand-forecasting and supply-chain-management software
was only about $40 million. The other $360 million was spent over five years—on customer-
relationship and enterprise-planning software from SAP. This whole project aiming at effective
forecasting proved to be a big SCM failure for the company. This meant huge financial losses for
the company. The reasons for the i2’s software implementation were finally designated over the
following reasons: Third party integrator, Inexperience of i2, Customization, Trying to
forecast too far out ahead, Pilot test, Lack of training, Inadequate information, Problems
in smooth integration, Changing market conditions, Complication of NSC project, Review
meetings.

The Result: This resulted in huge profit loss for the company. It effected the company
reputation a lot. Massive sales and earnings shortfall were observed. Nike was left with far too
many of the wrong shoes and not nearly enough pairs of its hottest sellers.

Thus company understood the importance of the SCM and forecasting. Forecasting for the Nike
was extremely important. It was important for them to determine the quantities. An important
feature that the company understood regarding its SCM was that it needed to lay attention on the
“make to order” rather than the “make to stock” policy. Company also understood that in a type
of business that the company is in, forecasting plays an important role in reducing the supply
time. For all this to obtain it was important for the company to obtain the best forecasting.

Nike further improved its supply chain management by installing well equipped and competent
system. Its continuous interaction with the consumers on the web portal proved to be the best
feature. Herein the consumers achieve the supreme level of customization of the products. Nike
also improved itself by proper analysis of the data and implementation. Feedback as in any other
industry plays an important role in Nike today. Nike obtains continuous feedback from the
suppliers and the consumers.
Conclusion:
Hence supply chain management for any company plays an important role in successful running
of a company. The reverse effect of the SCM can also be experienced if the implementation of
the SCM processes is not done in the best way. Implementation is a complex procedure and it
must be tackled in the best way. Evaluating pros and cons of any project beforehand is also
equally important. A pilot project can be turn around the fate of any business if handled
correctly.

References:

MEDIA RELEASES
MELAINE AUSTRIA FARMER,2001. I2-Nike fallout a cautionary tale. Cnet News. March 9,
2001

LERRY BARRET,2003. Long Strange Trip: Nike Finally Regains Footing. Baseline Mags.
January 11, 2003

INTERNET
NIKE PROFILE. 2009. [online]

Available from:

http://www.nike.com [Accessed 1 September, 2009]

WORLD SUPPLY CHAIN DISASTERS, 2006 [online]

Available from:

http://www.scdigest.com/assets/FirstThoughts/06-01-26.cfm?
cid=57&ctype=content/ [Accessed 2 september, 2009]

THANKYOU