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Supply chain management Disaster at Nike

Supply chain management Disaster at Nike

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Published by Prateek Goel
this document talks about the importance of supply chain management, disasters in the past. document throws light on the nike case that faced major supply chain disaster. further how the company evolved and overcomed the situation. hope you guys find this handy
this document talks about the importance of supply chain management, disasters in the past. document throws light on the nike case that faced major supply chain disaster. further how the company evolved and overcomed the situation. hope you guys find this handy

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Published by: Prateek Goel on Dec 27, 2009
Copyright:Attribution Non-commercial


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Submitted to:Prof Tapas Mahapatra
Submitted by: Prateek GoelEnrollment No.:08BS0002303
Importance of Supply Chain Management
Businesses now not only need to operate at a lower cost to compete, it must also developits 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. SCMhas allowed company to rethink their entire operation and restructure it so that they can focus onits core competencies and outsource processes that are not within the core competencies of thecompany.
SCM Disasters
But the opposite effect of the SCM also comes into the view at times. There have beenmany 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 ManiaThe Web Van StoryAdidas 1996 Warehouse MeltdownToys R Us.com Christmas 1999Hershey’s Halloween Nightmare 1999Cisco’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 UnitedStates. The company is headquartered in Beaverton, Oregon, which is part of the Portlandmetropolitan 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. Nikeand 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 andPhilip 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 townname. Nike sponsors many high profile athletes and sports teams around the world, with thehighly 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 agood supply chain management wherein the company was in a practice of never manufacturingthe products. Instead the company used to outsource the manufacturing process directly to thesuppliers. 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. Thiswas aimed towards obtaining better operations and effective systems. During this era, toward theend of the 1990s the supply chain management seemed to be ineffective and inadequate. Therewere problems like ineffective forecasting and managing the changing trends.
NSC Project:
Further in the year 2000 Nike launched the NSC project. This project aimed atimplementing its ERP, Supply Chain, & CRM Software onto a single SAP Platform. This projectultimately 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-managementsystems. The supply-chain software was supposed to reduce the amount of rubber; canvas andother 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, Nikewas 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 softwarewas 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 effectiveforecasting 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 thefollowing reasons:
Third party integrator, Inexperience of i2, Customization, Trying toforecast too far out ahead, Pilot test, Lack of training,
Inadequate information, Problemsin smooth integration, Changing market conditions, Complication of NSC project, Reviewmeetings.The Result:
This resulted in huge profit loss for the company. It effected the companyreputation a lot. Massive sales and earnings shortfall were observed. Nike was left with far toomany 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 Nikewas extremely important. It was important for them to determine the quantities. An importantfeature 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 typeof business that the company is in, forecasting plays an important role in reducing the supplytime. 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 competentsystem. Its continuous interaction with the consumers on the web portal proved to be the bestfeature. Herein the consumers achieve the supreme level of customization of the products. Nikealso 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 thesuppliers and the consumers.

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