The Study on Inventory Problem Faced By Nike

Abstract:
Nike a leading manufacturer of shoes and other sports equipment in the world faced lots of
problems in adopting new software to streamline its supply chain and manufacturing
processes in order to reduce gap between its products demand and supply.Nike obtains its
finished products from manufacturing facilities located whole across the world. Nike
followed a complicated supply chain system.
It obtained orders from retailers Nike a leading manufacturer of shoes and other sports
equipment in the world faced lots of problems in adopting new software to streamline its
supply chain and manufacturing processes in order to reduce gap between its products
demand and supply.six months before their dates of delivery. These orders were to be
forwarded to the various factories located across the world. Finished goods obtained where
then shipped to the respective retailers.

In order to improve its logistics and working schedule Nike thought of implementation of
supply chain but their implementations lead to sequence of failures but With strong
determination Nike was able to emerge successful and now nike is one of the top most
leading brand.

This case deals with the problems faced by nikein implementing a new software application
to streamline its supply chain and manufacturing processes.

Introduction:
Nike, originally known as Blue Ribbon Sports (BRS), was founded by University of Oregon
track athlete Phil Knight and his coach Bill Bowerman in January 1964. The company
initially operated as a distributor for Japanese shoe maker Onitsuka Tiger(now ASICS),
making most sales at track meets out of Knight's automobile.
According to Otis Davis, a student athlete whom Bowerman coached at the University of
Oregon, who later went on to win two gold medals at the 1960 Summer Olympics,
Bowerman made the first pair of Nike shoes for him, contradicting a claim that they were
made for Phil Knight. Says Davis, "I told Tom Brokaw that I was the first. I don't care what
all the billionaires say. Bill Bowerman made the first pair of shoes for me. People don't
believe me. In fact, I didn't like the way they felt on my feet. There was no support and they
were too tight. But I saw Bowerman make them from the waffle iron, and they were mine.

In 1964, in its first year in business, BRS sold 1,300 pairs of Japanese running shoes grossing
$8,000. By 1965 the fledgling company had acquired a full-time employee, and sales had
reached $20,000. In 1966, BRS opened its first retail store, located at 3107 Pico Boulevard in
Santa Monica, California next to a beauty salon, so its employees no longer needed to sell
inventory from the back of their cars. In 1967, due to rapidly increasing sales, BRS expanded
retail and distribution operations on the East Coast, in Wellesley, Massachusetts.

By 1971, the relationship between BRS and Onitsuka Tiger was nearing an end. BRS
prepared to launch its own line of footwear, which would bear the Swooshnewly designed by
Carolyn Davidson.The Swoosh was first used by Nike on June 18, 1971, and was registered
with the U.S. Patent and Trademark Office on January 22, 1974.

In 1976, the company hired John Brown and Partners, based in Seattle, as its first advertising
agency. The following year, the agency created the first "brand ad" for Nike, called "There is
no finish line", in which no Nike product was shown. By 1980, Nike had attained a 50%
market share in the U.S. athletic shoe market, and the company went public in December of
that year.

Together, Nike and Wieden Kennedy have created many print and television advertisements,
and Wieden Kennedy remains Nike's primary ad agency. It was agency co-founder Dan
Wieden who coined the now-famous slogan "Just Do It" for a 1988 Nike ad campaign, which
was chosen by Advertising Age as one of the top five ad slogans of the 20th century and
enshrined in the Smithsonian Institution. Walt Stack was featured in Nike's first "Just Do It"
advertisement, which debuted on July 1, 1988. Wieden credits the inspiration for the slogan
to "Let's do it", the last words spoken by Gary Gilmore before he was executed.
Throughout the 1980s, Nike expanded its product line to encompass many sports and regions
throughout the world. In 1990, Nike moved into its eight-building World Headquarters
campus in Beaverton, Oregon.
Phil Knight announced in mid-2015 that he is planning to step down as chairman of Nike in
2016. These are the problems that are faced by nike - and a lot of people looked past that,
because, as Mizuho Securities Managing Director Betty Chen told Business Insider, it's "the
better house on a bad block."
Nike has a similar problem, and, like Lululemon, is able to hide these problems behind sales
growth and a strong, beloved brand.Nike acknowledged that ridding itself of excess inventory
had a negative impact on the company's report - it caused gross margins to decline 30 basis
points.The company anticipates that it will still have excess inventory going into the first
quarter of fiscal 2017.

"As we go into the next quarter we expect clearly to remain in excess inventory through our
factory stores and also through select third party value channels," Nike President Trevor
Edwards said on a recent earnings call.
He defended the inventory, in part, by explaining how the company constantly brings in new
products. Constant innovation, after all, is a hallmark of Nike's branding - from moisture-
adapting apparel to self-lacing sneakers.

"But overall the inline full price market is clean and we continue to just make sure we
maintain and sustain a healthy pull market and also to bring into new products and make sure
that we are actively, proactively managing the flow of product into the marketplace

Objectives:
1. To know about the competitor drawbacks and use it as an advantages for their profit.
2. To study the problems faced in inventory and supply chain management.
3. To understand how companies improve upon mistakes made by them in implementation of
their project.
4. To recognize importance of existence a good supply chain system.
5. To appreciate that a new system can work successfully only when it is well integrated with
existing systems

Limitations:
1. The organization does have a diversified range of sports products. However, the income of
the business is still heavily dependent upon its share of the footwear market. This may leave
it vulnerable if for any reason its market share erodes.
2. The retail sector is very price sensitive. Nike does have its own retailer in Nike Town.
However, most of its income is derived from selling into retailers. Retailers tend to offer a
very similar experience to the consumer. So margins tend to get squeezed as retailers try to
pass some of the low price competition pressure onto Nike.

Hypothesis
H0 : There is no significant reference on a study on the inventory problem faced by nike.
H1 : There is significant reference on a study on inventory problem faced by nike.

Review of Literature:
The study of consumer behavior has evolved since the Information Processing Model
(Bettman, 1979) assumed that the individual is logical in his/her buying process. This model
was criticized because it failed to treat different consumption phenomena motivated by
symbolic meanings (Holbrook and Hirschman, 1982). Individuals are not always looking for
efficiency and economy, but also for distraction, aesthetic, expression, etc. (Boyd and Levy,
1963). These are the study of signs, meanings and production of symbols. Fantasy, emotion
and pleasant aspects of consumption were then tackled from an experiential point of view.
The Experiential View is a phenomenological perspective that perceives consumption as a
primary state of consciousness having a variety of symbolic meanings, responses and
hedonist criteria (Holbrook and Hirschman, 1982. The basis of the traditional Information
Processing Model is the optimisation of the utility of a product under the basis of a utilitarian
evaluation of its tangible characteristics. Nevertheless, it neglects emotional aspects. On the
other hand, the Experiential View leaves out different factors such as economic conditions,
expectations, some elements of the marketing mix (price, distribution), perceived risk and
conflicts, but mostly the social influence of the consumers’ reference groups (Holbrook and
Hirschman, 1982; Business Central Europe, 1994) which is the aim of the Symbolic
Interactionism Perspective. Acquisition, possession and consumption are activities taking
place in a process of impressions creation or identity management which is, according to
Belk (1978), an interactive process concerning both the image of goods consumed and that of
the individuals consuming them. The Symbolic Interactionism Perspective deals with the
relationship between consumers and the products they consume, and suggests that a
significant proportion of consumption behaviors consist of social behaviors, and vice versa
(Solomon, 1983). This leads us to consider the importance of socialization processes (family,
reference groups) through which individuals learn the meanings of symbols and those of
consumption. With the aforementioned meanings being negotiated and built through
interactions with others, consumption is not only an individual activity, but also a social
process of goods definition (Gallant and Kleinman, 1983). Thus, Symbolic Interactionism
Perspective considers the human spirit as fundamentally social, and dependent on shared
symbols. The symbols being generated at a global level (Geertz, 1973; Solomon, 1983;
McCracken, 1986, 1988; Leigh and Gabel, 1992), the Symbolic Interactionism Perspective
accepts as precept the fact that society and its culture precede every individual action, and
that a cultural consensus results from interactions, communication, and negotiation between
social actors(Charon,1989).

If, at a conceptual level, the consumption good becomes an instrument of communication, at

an operational level, image variables may be regarded as the intangible attributes of the
product that carry cultural and social meanings. According to Erickson, Johansson and Chao
(1984), an image variable is defined as “some aspect of the product that is distinct from its
physical characteristics but that is nevertheless identified with the product”. The image
variables emerge from four cognitive representations individuals have of their environment:
the symbolism of advertising, the celebrity endorsement, the brand, and the country of origin
of the product.
The made-in is considered by Dichter (1962) as the fifth element of the marketing mix, and is
defined as the country where are located the corporate headquarters of the organization doing
the marketing of the product or the brand (Johansson, Douglas and Nonaka, 1985). The
country of origin carries a rhetoric that influences consumers’ preconceptions towards the
products of a country. Its meaning can be conceived as an indication serving as a basis of
evaluation (Bilkey and Nes, 1982), when one considers a product as a bundle of information.
Consequently, according to Kaynak and Cavusgil (1983), the images of a foreign country that
are formed by consumers are made of cognitive, affective and behavioral components. The
first one represents the perceived characteristics of the country. The second one concerns the
appreciation or not of those characteristics, and the third one corresponds to the actions about
the country that the consumer feels are appropriate. A tendency to evaluate positively the
local production compared to imported production, and biases in favor of industrialized
countries have been found in previous studies (Bilkey and Nes, 1982; Cordell, 1992). This
does not mean the consumer will not buy the product, but rather that he is not inclined to do
so (Schooler,1971). “When entering foreign markets, sellers often face quotas, tariffs, and
non-tariff barriers. In addition, they may face an intangible barrier in the form of consumer
bias on the basis of product origin” (Schooler, 1971).

The informational value of the country of origin was also found to vary according to the level
of involvement of the consumer in purchasing the product and the presence of other cues
such as brand name, guarantee and price (Ahmed and d’Astous, 1993). In a recently
published meta-analysis of country-of-origin effects, Peterson and Jolibert (1995) conclude
that the average effect size is lower (0.19) for purchase intention, higher (0.30) for
quality/reliability perceptions and context dependent. More specifically, they found that the
characteristics of the study (research design, type of respondents, study cues, sample size,
stimulus context etc.) influence the relative effect of country-of-origin to a lesser degree for
quality/reliability perceptions than for purchase intention. However, the type of respondents
(students, consumers or businesspeople) had no influence on quality/reliability perceptions.

It's all psychology. Consumers with well-defined preferences may be sceptical that a
marketer could match expectations. Those who don't know what they want may not ever see
the fit with what the seller wants them to buy. So, individualized offers depend on customers'
preferences; how the offer was extended & and on trust. "Effective individual marketing
requires not only an understanding of individual preferences and matching offers to those
preferences, but also a thorough familiarity with the various factors that impact customers'
responses," he writes.

This is a tall order, one that some companies have been able to fill at least to some extent. For
example, Amazon keeps track of customers’ purchases and suggests other books they might
like. Dell builds computers from mass-made parts to customers' specifications. But Simonson
argues some companies can take the concept too far, like the Custom Foot chain of shoe
stores that took detailed measurements and specifications from each customer to design one-
of-a-kind shoes. Simonson argues that Custom Foot didn't take into account that some
customers were put off by the individualized attention and felt obligated to buy the shoes
because the store went to so much trouble. They often didn't come back. Indeed, an Internet
search produces no Website.

Simonson, who has received many prestigious awards for his research on consumer
behaviour and marketing, teaches MBA and Ph.D. marketing and consumer decision-making
courses. The loyalty program article is slated for publication in the Journal of Marketing
Research this year.

Online customization gives consumers the opportunity to choose characteristics they want in
a product when they shop for it online. Many companies are looking at online customization
as the future of online business Janis Crow, Kansas State University marketing instructor,
researched how people make choices on the Internet. She recently studied consumers in an
online environment and their ability to customize several products - pizza, shoes, and
electronic devices.

All participants in the study chose to customize products. In terms of customers’ likelihood to
purchase, a greater number of customers made purchase decisions when there are more
options to choose, she said. However, it was slightly more difficult when more features were
offered.

Research Methodology The methodology used in the present study includes both descriptive
and exploratory. primary is collected through various print and electronic
resources.Convenient sampling technique is followed for the study.

Method of Data Analysis

Ø The Primary data was collected by internet.
Ø The secondary data as it has always been important for the completion of any report
provides a reliable, suitable, equate and specific knowledge. The data was collected from
various magazines, fact sheet newspapers and websites.

Chapterization
§ The competitor drawbacks and use it as an advantages for their profit;
Nike co founders first time met in 1957, when Knight, a middle-distance athlete, was an
undergraduate student at the University of Oregon. In the early 1960s, while doing his MBA
from Stanford University Knight submitted his marketing research dissertation on the US
shoe manufacturing industry. His contention was that low cost, high quality running shoes
could be imported from labour-rich Asian countries like Japan and sold in the US to end
Germany's domination in the industry. In 1964, Knight and Boweman, with each of them
contributing $500, formed a partnership and thus formally came into being. Initially shoes
were sold from the Knight's house basement and other local shops.

In 1999 Nike embarked upon a huge IT project. It was to implement a new supply chain
system and several new applications in customer relations management (CRM). But the new
system experienced some teething problems causing Nike to experience some problems
during fiscal year but However Nike made modifications and re-bounce back to its world
leader position. During 2001 Nike earned profits of $97.4 million; around $48 million below
its earlier forecast. According to the Company the reason for shortfall was failure in the
supply chain software installation by i2 Technologies. This admission of fail affected the
company's reputation as an innovative user of technology. For more than a year Nike
wobbled as a result of this failure. In public both Nike and i2 blamed each other for the
failure

Today, Nike along with Adidas dominate the world of sports gear. To be honest, Nike even
surpasses the German brand. However, there were times when the company founder Phil
Knight felt reverence looking at the Adidas shoes that were in those years just luxuries for the
American athletes. Knight was an excellent runner and knew how feet shod in the ordinary
American running shoes bleed after a competition.Nevertheless, the German quality costs
money and amateur athletes cannot afford it (for comparison – in the 1960s, Adidas running
shoes cost $30 on average in the United States while ordinary American shoes cost $5). This
situation brought Phil Knight and his friend Bill Bowerman to an idea that they could create
their own sneaker brand or, in other words, American high-quality shoes at affordable prices.

The only question was how to do it. Bill Bowerman worked as a coach at the University of
Oregon and as well as Knight was perfectly aware what kind of quality the running shoes
should have. The idea of young entrepreneurs was to develop a model of running shoes in the
United States, to produce them in cheap Asian countries (at that time Japan), and sell them
around the world. Of course, they planned to start in the United States. Their plan was to
make shoes that were not worse than Adidas by quality and to sell them cheaper. Indeed, they
were able to do it. They found weaknesses of Adidas that produced its products within
Germany, where labor was more expensive than in Asia. American entrepreneurs took
advantage of it.

In 1963, Phil Knight went to Japan, where he negotiated a contract with the factory Onitsuka
for the supply of well-known Olympic sneakers Tiger to the United States. During the
negotiations, Knight made a deal on behalf of a non-existed US company that was interested
in the partnership with the Japanese. The company was called Blue Ribbon Sports. The
contract was signed, and Knight began to sell Japanese running shoes in the United States
(“Preliminary Information: Iconography”).

By 1964, Bowerman and Knight sold shoes for more than eight thousand dollars. During that
year they hired their first employee, sales manager Jeff Johnson. After one year the company
got its present name Nike. It is believed that the idea of name belongs to Jeff Johnson, when
he saw the Greek goddess in a dream. So, the trinity decided to name their offspring as Nike,
in honor of the Greek Goddess of Victory. Sales have grown every year and “went from $10
million to $270 millions” (Seay).

In 1971, the landmark event happened and changed the face of the brand. A student of
Portland State University Carolyn Davidson designed a legendary company logo, for only
$35. Today, the Nike logo is known all over the world. Moreover, by many researches, it is
the most well-known brand (“The Nike Logo”).

In 1972, perhaps, the most significant event in the Nike history happened. Bill Bowerman
came to the idea of supplying shoes with “waffle” soles, which allowed, firstly, to reduce the
weight of shoes and, secondly, to increase the momentum carried out by athletes at the races.
It was a revolution. After 10 years since the foundation, it has begun a rapid Nike growth. It
should be noted that the waffle sole is still the best and the most versatile for running shoes.

In 1979, Nike offered another innovation. This year, an aerospace engineer Frank Rudy came
to company and offered company a technology of putting air in shoes. So, Nike Air was
emerged. Built-in running shoes airbag actually increased lifespan of sneakers.

Three years later, Nike made another innovation in the world of sports shoes, this time in the
marketing arena. It was 1985. Nike actively sponsored many basketball players NBA.
However, this year it negotiated a contract with the young talent Michael Jordan. He became
a world legend in the next ten years and conquered the entire world playing in running shoes
Nike but, in fact, advertising Nike’s sneakers. Actually, the contract with Jordan was signed
just in time, as sales fell. However, Nike has managed to get it back, thanks to Michael
Jordan (“About Air Jordan”).

Nike has become a symbol of world sport. Olympics games followed basketball, then
baseball, hockey, golf, and other sport. In the 1990’s the company had a lot of changes. First
of all, its organization was reconstructed. There were emerged independent branches,
responsible for a particular sport.

The main weapon of new advertising of Nike campaign has become its slogan “Just Do It”,
which later became the official motto of the company and one of the most famous slogans in
advertising history of the world. With the campaign “Just Do It” and high-quality products,
Nike was able to increase its market share of sports shoes from 18 to 43 percent, from 877
million dollars worldwide sales to 9.2 billion for only ten years from 1988 to 1998 (Goldman
and Stephen 171).

The company continued to be active not just advertising but also participating in various
activities, including the Internet. Namely, Nike set up street football tournaments “Joga
Bonito” that is one of the most famous tournaments in the world. In doing so, company is
actively working in the Internet, developing multiple social networks to their tournaments, or
for specific sport. For example, Nike has created a social network dedicated to basketball
(Goldman and Stephen 161).

Today, Nike uses the newfangled trend when the customers want to design products with
their own hands. They can do it in one of the sites of the company. Moreover, they can order
a model of sneakers created by their imagination. In addition, in the XXI century Nike
negotiated a contract with Apple, under which two giants began to produce a Nike iPod Sport
Kit, in which iPod is connected with running shoes, which could inform the owner about
statistical data.

Today, Nike continues to sponsor famous athletes, organize its sports entertainments, and
develop revolutionary footwear for sports. The staff of the company believes that if a person
has a body, so he or she is an athlete in any way, which means that people are their targeted
audience.

Nike's Supply Chain

Nike products are sold in 140 countries and they comprise of athletic shoes, sports
equipments, fitness equipments, etc. Nike global operations spread over United States;
Europe, Middle East and Africa; Asia Pacific. Since the mid-1970s, Nike has outsourced its
manufacturing activities to various countries especially in Asia and Africa where labour is
cheap.From 1975, Nike introduced a program whereby Nike's retailers where required to
place orders with the company six months before the required date of delivery with the
guarantee that 90 percent of their orders would be delivered within a set time period and at a
fixed price. These orders were then forwarded to the manufacturing units across the world.

Fall of Nike profits

In 1999 Nike embarked upon a huge IT project to implement a new supply chain
management and customer relations management.The new system experienced some teething
problems. Resulting in reduction of Nike profits by 24% in 2001.

In February 2001, Phil Knight (Knight), the co-founder and CEO of Nike Inc (Nike),
announced that the company's profits for the third quarter of the fiscal year ending May 2001
would fall short of expectations by almost 24 percent. The reason for the shortfall was a
failure in the supply chain software that Nike had implemented in June 2000.
The supply chain software, which was implemented in Nike by i2 Technologies Inc , at a cost
of $400 million, could not fully control the demand supply mis-match and thus lead to
manufacturing in large numbers of less popular shoe models and small numbers of most
popular shoe models. Both i2 and Nike blamed each other for failure and both companies
shares fell down. This made the company to lose its reputation.

Troubles from software

Nike during 1999 implemented the first part of its supply chain strategy i.e. the demand and
supply chain planning application software as developed by i2 technologies. This software
was developed to help Nike to match its supply with demand by mapping out the
manufacturing of specific products. The objective was to reduce cost and quantity of rubber;
canvas and other materials used by Nike to produce wide range of its products and make it
more affordable . Nike also wanted through it to build more shoes that were more demanded.
Nike had 1,20,000 different varieties of products (SKUs). Some its products required 130
individual steps to manufacture.

Could breakdown be avoided?

According to Nike the i2 software had failed to deliver as promised as it could not provide
good forecasts. However, i2 officials argued that Nike ignored their recommendations of
minimizing customization to 10-15% of the software deployment. Thus Nike made faulty
implementations. Other IT experts were of opinion that Nike should have hired a third-party
integrator as the company was replacing an already troublesome older application with a new
supply chain planning application.

Suggestions
1. Supply to customers
· In response to criticism of its outsourcing practices and of other issues regarding
sustainability, in 2007, Nike established a five-year corporate responsibility target for itself.
Nike recently released a report outlining the progress it has made for the past 3 years.
· According to the report, Nike has made progress on many fronts, such as implementing
proper Human Resource Management practices in contract factories, reducing waste and
toxins in manufacture and increasing its use of environmentally preferred materials.
· There remain areas for Nike to improve on, such as managing overtime in contract factories.
Nike has also revised and clarified targets in a few instances in the light of a better
understanding of the complexities of the strategy. More needs to be done to protect the brand
image of Nike in this regard.
2. Design and Development
· The growth target identified by Nike is not likely to come from a single market. Strategies
to achieve the target have been broken into mature market and emerging market categories.
3. Nike Branded Stores
· Nike has plans to open approximately 250-300 Nike branded stores worldwide within 5
years
· The objective of this strategy is to enhance the consumer experience by increasing the
visibility of the brand. In the past decade Nike has attempted a similar strategy, but on a
smaller scale

Conclusion:
Both, Nike and i2 suffered with the supply chain failure which was result of both Companies
mismanagement. The negative publicity affected both companies with monetary losses and
the production set backs. Nike realized that implementation of the software was not easy and
goals set were not realistic. Nike felt that a third-party perspective from an integrator's point
of view could have exposed the flaws in the implementation.
Still Nike continued to work with i2 on the five-year long project .By the end of 2003 Nike
had made considerable progress as Nike noticed that its ability to closely monitor the
movement of goods from raw materials through factories to retailers was finally paying off.

Nike stopped using i2 demand planner for its sneaker model which resulted in hike in the
nike products and the inventory system was working just fine , the orders given by the
consumer was given on the promised date, which brought the company’s reputation.

Nike, Inc. is a company based on competition. From equipping athletes with the finestsports
equipment in the world to continuously improving their financial performance, Nike
dominates competitors. Phil Knight and Bill Bowerman probably could not haveimagined in
1962 to what degree their handshake agreement and $500 investmentswould yield. They did
know that product quality and innovation would help athletesto achieve greater goals. Nike
must continue to expand their product lines to meet theneeds of an ever-growing market.
Nike must continue to improve the workenvironment where they do business in foreign lands
without involving themselves inthe political aspects of those countries Nike will continue to
face new challenges, such as technical advances of the futureand the unrest and changes
occurring in governments around the globe. Thecompetitive nature of Nike and their constant
seeking to improve, those challenges I believe will be met with a competitive view, ‘Just Do
It.