2 AU ew4Ce) yO) ] Vert) This unit describes how Nike, the US sports shoe producer, operates its global supply chain. vce ca gaa 1 When you hear the name ‘Nike’, what images come to your mind? 2. ao Sp ts Os VIA in tc Ust 3 Ya unsaid Preavinc Understanding the main points Read the article on the opposite page and answer these questions. What is the profile of Nike products in the marketplace? 2 How much of Nike's shoe production is outsourced? 3 How important is product innovation for Nike? 4 How does Nike co-ordinate its complex global production and distribution acti Understanding details Read the article again and say whether these statements are true (1) false (F) or there is not enough information given (N). Identify the part ofthe article that gives this information. Nike sports shoes are mass-market products. Running an efficient supply chain is a key to Nike's success. Nike has a very small number of fulltime employees. Nike outsources most ofits R&D. ‘Nike designs its basketball shoe in the US. 's basketball shoes are the only product manufactured in the US. All of Nike's products go through at least 120 checks before they are released onto the market. Nike releases more than 300 new shoe designs each year. Nike sometimes gets its sales forecasts wrong and is let with unsold stock. 10 Nike outsources the distribution of finished products in the US and Europe. 11 Nike is planning to move away from sports shoes and into sports equipment, clothing, watches and eyewear. 3 4 5 6 7 8 9UNIT3. *» THE GLOBAL SUPPLY CHAIN a The logistics challenge of global business A In ittle more than a generation, US-based sports company Nike Inc. reinvented the concept of the sports shoe. Ittrans- formed the cheapest of mass-market footwear into high-tech, high-performance products, with all the cachet of haute 5 couture and carrying price tags to match. B__ Technologically, Nike's products ae leading edge, as is its brand-led marketing, which successfully used sporting- superstar endorsement to establish the brand as an icon of youth subculture. However, asin any global organisation, vo logistics and the management ofthe supply chain is a crucial strategic issue at Nike. C__ From ts headquarters in Beaverton, Oregon, Nike oper- ates a globe-spanning virtual enterprise. At its core are a set of business processes, designed t0 combine its 1s state-of-the-art R&D capabilities with a ruthlessly low-cost ‘manufacturing strategy. The company outsources virtually 100 per cent of its shoe production, for example, retaining. in-house manufacturing of a few key components of its patented Nike Air System. D__ Nike’sbasketball shoe, forexample, is designed in Oregon, and Tennessee and developed jointly by Asian and US technicians in Oregon, Taiwan and South Korea. The shoes themselves are manufactured in South Korea (men’s sizes) and in Indonesia (boy's sizes), from 72. components 2s supplied by companies in Japan, South Korea, Taiwan, Indonesia and the United States, Moreover, the comiplenity of the product means that it passes through more than 120 pairs of hands during the production process. It also means that there isa danger of extended lead times. . H ne ‘Tying the whole Nike enterprise together are information systems that co-ordinate each step of these far-flung acivi- ties, and a logistics infrastructure capable of bringing, the components together at precisely the right time, as well as managing the supply of finished goods into the global marketplace. Significantly, both are flexible enough to cope with the ‘constant product, materials and process innovation, allow ing the company to bring more than 300 new shoe designs to market each year. However, this punishing rate of innova- tion brings with it high levels of fnished inventory if sales forecasts are not achieved. Inthe United States and Europe, primary distribution of Nike products is increasingly outsourced to specialist third parties, who are linked into the company’s global-sales and ‘customer-service support systems. These links allow the ‘contractors to prioritise shipments and manage order fulfil- ment as cost effectively as possible, while ensuring that product-availability information is readily accessible to all decision-makers throughout Nike's virtual enterprise Importantly, too, these organisational capabilites will be extremely useful for Nike if fashion-conscious young consumers turn away from designer sports shoes, forcing the company to rely more heavily on sales of its widening portfolio of sports equipment, clothing, watches and eyewear ‘When the supply chains are global and the products are fashion oriented, the management of logistics becomes a key factor in business successor failure. from Logistics and Supply Chain Management ~ Creating Value-Adding Networks by Martin Christopher 3 LLee UNIT3.*> THE GLOBAL SUPPLY CHAIN 4 Perera Understanding expressions Choose the best explanation for each word or phrase from the article. 1‘... with all the cachet of haute couture...’ (lines 4-5) a) special reputation ») style 2 ‘and camrying price tags to match: (ine 5) 4) with prices similar to other sports shoes ) with prices similar to other high-fashion items 3 ‘...as an icon of youth subculture.’ (lines 8-9) a) something both famous and fashionable to young people ) a symbol of youthful rebellion 4a operates a globe-spanning virtual enterprise.” (lines 12-13) a) Nike has subsidiaries and plants in many parts of the world. ) Nike produces and sells worldwide, but does not have employees in lots of countries. 5. *..witha uthlessly low-cost manufacturing strategy’ (ines 15-16) 42) Nike treats its production workers very poorly. ) Nike is very strict about keeping production costs down, 6 ‘n.there isa danger of extended lead times.’ (line 29) 4) Itis possible that Nike products may sometimes come onto the market ahead of schedule. +) Itis possible that Nike products may sometimes be late to market. 7. ‘Tying the whole Nike enterprise together are information systems." (ines 30-31) ) coordinating everything the company does b)_ making the process too complicated 8 ‘this punishing rate of innovation. (ines 39-40) a) unusually high b) dangerously high Word partnerships ‘Match these words to make noun-noun partnerships from the article. information a) availability 2. business b) times 3. manufacturing ©) forecasts 4 production @) infrastructure 5 lead ©) processes 6 logistics ) service 7 sales 8) process 8 customer h) strategy 9 order ‘systems 10 product D) fulfimentUNIT3 »> THE GLOBAL SUPPLY CHAIN Sentence completion Use the word partnerships from Exercise 8 to complete these sentences. 1. Acomplex supply chain spread over ferent parts ofthe word can sometimes result in long, Nike's tenable it to co-ordinate all the steps in its complex virtual enterprise Nike has highly developed ‘to ensure that it can coordinate all aspects of ts supply chain as effectively as possible. Nike baseball shoes go through a very complex. IF Nike gets its wrong, it can be left with a lot of unsold stock at its retail outlets. Inthe US and Europe, delivery and. for customers are outsourced to contractors. Nike's ‘enables components from different parts ofthe world to be brought together in the right place at the right time. 8 To keep its production costs down, Nike has a very low-cost. 9. Making sure customers get what they need and are satisfied isthe role of the department. 10 In order to be able to replenish stocks quickly, the distributors need to have up-to-the-minute information about Word search Find adjectival word partnerships in the article which fit these meanings. located in the US (paragraph A) selling in high volumes at low prices (paragraph A) with a very good performance (paragraph A) where the product name and image is most important (paragraph B) inall parts of the world (paragraph C) extremely up to date (paragraph ©) spending as little money as possible (paragraph C) internally inthe company (paragraph C) indistant locations (paragraph E) 10 strongly influenced by trends in fashion (paragraph H) Gack 11 Nike outsources almost al ofits shoe production, as wel as its distribution in Europe and the US. Infact, itis called a globe-spanning virtual enterprise. What are the pros and cons of Nike's business strategy? 2 Nike has had some bad publicity in recent years about the working conditions in some of the factories in developing countries where its shoes are manufactured. Given the outsourcing business model Nike ses, how can the company ensure that its suppliers comply with good employment practice?