Nike’s Supply Chain: Failure and Eventual Success

During the 1970’s retailers would make their orders with Nike 9 months in advance before their delivery date. The orders were then sent to Nike’s manufacturers all over the world. At the beginning this process worked well and allowed Nike to deliver its orders on time. However, during the 1980s and 1990s Nike’s business grew dramatically and customers became more demanding about style, comfort and variety leading Nike’s forecasting, manufacturing and distribution to become very complex.

In 1999, profits dropped by 50 percent due to supply chain factors. The situation led to the adoption of Nike’s supply chain project called NSC. The project attempted to improve the failing forecasting and order activities in Nike. However this didn’t work well for Nike, so it acquired and implemented i2 technologies’ demand forecasting system at a cost of $40 million. The objectives of this project were to forecast over 1 million stock keeping units (SKUs). Algorithms were used to generate Nike’s forecasts for manufacturing. However, later in 2000, the forecasts were found to be faulty, causing Nike to over manufacture some products while struggling to meet the demand for other products. It took Nike between 6 and 9 months to overcome its manufacturing problems and more than 2 years to makeup for its financial loss.

After analyzing its i2Technologies, Nike learned that it needed a more adequate training of users, more comprehensive testing for the application and a more careful integration of the application with other information systems. The review of the project found that there was too much reliance on forecasts generated by algorithms without using any judgment to evaluate the forecasts.

By 2004, Nike had an integrated and efficient supply chain with 12 technologies’ forecasting system, SAP’s ERP system, and Siebel’s CRM systems. Nike spent 6 years and $800 million on the project.

Turban, Efraim, and David King.Introduction to e-commerce. Upper Saddle River, N.J.: Prentice Hall, 2003. Print.