Nike SWOT Analysis and Supply Chain Management

2239 words (9 pages) Essay

19th Apr 2019 Business Strategy Reference this

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Introduction

Nike Corporation started in 1955 as a shoe distributor but has grown into a multi-product internationally with the company having a major global dominance in the market. Although with success, Nike has had its share of problems and challenges along the way. Nike through this still remains the biggest manufacturer worldwide of both athletic footwear and apparel in terms of sales. Nike operates in US, Europe, Middle East and Africa. It has manufacturing bases and operations throughout Asia.

SWOT Analysis of Nike

(S)trengths

  • Branding: One particular strength of Nike is that it has become a competitive organisation through the use of branding and has created an competitive approach from this. The slogan ‘Just Do it’ epitomizes its attitude towards its business.
  • Outsourcing: Strength of Nike is that it has outsourced all functions of production to overseas facilities and therefore by doing this doesn’t have any manufacturing outlet of its own. This has helped the company obtain a higher value through the adding activities like design, research and development.
  • Nike’s targeting is a very distinct way that they are able to gain advantage in the market. Nike gets top athletes like LeBron James, Tiger Woods to wear and sponsor their products rather than events or competitions. [1]From this people tend to remember the brand worn by the players and not the brand that sponsors the events that the players perform at.
  • Customer satisfaction: Nike invests a lot in product research and development in order to offer better sports apparels to customers.
  • Strength of Nike is that it has a consistent level of growth each year with 2011-2014 with expected forecasts showing that it will continue to grow 7% every year.  By continuing to grow, this is strength of Nike given that the market has been experiencing a slowdown in sales growth.

(W)eaknesses

  • The market that Nike participates in is very price sensitive. Most of Nike’s income comes from the selling of its products to retailers. This usually shows that margins tend to get squeezed as retailers try to get low price competition on Nike’s products. [2]
  • The income of the business is still heavily dependent upon its share of the footwear market which may leave it vulnerable if for any reason its market share erodes
  • Even though Nike is outsourcing its manufacturing aspects which is seen as an strength, this can create negative publicity because of poor labour conditions in overseas outlets. The poor pay and work conditions deem the term ‘sweatshop’.
  • Nike has the image of being too ‘premium’ and a ‘luxury brand’ which can be seen not a negative thing but the current market situation with consumers migrating to the middle tier of luxury scale as they are being price conscious and quality focused could mean that Nike has to put out an extra effort to draw consumers in
  • The company focuses on retailers who stock other brands which can be a bad thing as they are not spreading out their products to exclusive retailer outlets.

(O)pportunities

  • The technology is always changing in the retail market as well as the sporting market giving Nike opportunities for innovation.
  • Nike is rooted by culture especially with youth culture as Nike is seen as a fashion brand and youth in particular view Nike as a must own brand. This creates its own opportunities.
  • Nike has the opportunity to develop products such as sport wear, sunglasses and jewellery with such items possess high profit.

(T)hreats

  • With the international nature of trade involving buying and selling in different currencies which means that the costs and margins are not stable over long periods of time this would mean that such a level of exposure could mean Nike may be manufacturing or selling at a loss.
  • The retail sector being price competitive could mean that consumers are shopping around for a better deal, for Nike this could mean fluctuations in sales.
  • Nike has to commit to a continuation of improving on its image where it has to resort to exploitative business practices in its overseas outlets. Nike would be forced to pay a heavy price as the emerging consumers are socially conscious which means that they would not like to buy the product of which a company is practicing bad business practices.
  • Given that Nike has a global supply chain can mean that it can be subject to a change of circumstances of international trade practices including labour strikes in its overseas locations, currency fluctuations which would lead to a decrease in profit margins disrupting the global supply chain.

Identification of main elements of a new strategy

Based on the Swot analysis that I have listed, Nike should be doing more towards concerns regarding competition, labour practices and customer service.  Given that Nike has the strength of outsourcing all of its functions overseas this was also seen as a weakness because there was the problem in the 1990s with Nike getting in apparel to retailers by the due date. This was due to long order lead times and unreliable supplies. This form of weakness can lead to a threat in particular as Nike would be essentially causing stock-out for retailers as the retailers would be unable to sell their products on time. What Nike should have done is create a relationship more closely with the manufacturer and the retailer, in other words close-collaboration. Although on the other hand Nike had such strength in brand that they were able to impose this in many cases as retailers had to agree to place future orders in order to obtain replenishes.

The role of systems thinking in this strategy

In terms of the role of systems thinking in a strategy essentially means having a systemic supply chain which monitors the mechanism in which can help address the worst practices as well as providing a greater transparency. In this particular case, Nike’s supply chain in the 1990s was very fragmented as they had no control of the inventory since it had too many suppliers, the company initially focused on outsourcing production rather than hosting any manufacturing plants. Nike have tried making it more of a collective identity by moving towards establishing long term relationships with fewer factories as trusted partners. Nike’s system wasn’t coordinated as there was a case where customers being the inputs for a system who had placed an order in advance but the goods weren’t available in stock by the agreed shipment date, this led to the problem where  customers weren’t able to receive coordinated socks, pants and sweatshirts in alongside for example a Jordan basketball shoe.

The role of the Four Fundamentals of supply chain management in this strategy

Fundamental one: Nike’s SCM objectives are to ensure that they are consulting with, coaching and building capacity with contract factories to optimize labor and environmental capabilities. They aim to manage sourcing through a balanced approach by taking into account environmental, social and cost impacts. They finally aim to offer suppliers real procurement opportunities as they arise.

Fundamental two: Supply chain integration is the close alignment and coordination within a supply chain with the use of shared management information system. [3] Nike was fragmented in terms of its supply chain based on 1) there were difficulties in keeping collections together as if a retailer wished to specify some special collection of their own then this would be impossible.

Fundamental three: moving Nike’s supply chain from being fragmented to being more integrated In consideration for Nike, there supply chain was seen as fragmented as they were getting problems in getting apparel to the retailer by the due date partly due to unreliable suppliers so in order for this problem to be integrated, Nike would have to create vertical integration in which the operations they are doing has an element of a presence in every segment from manufacturing down to sales. This ensures that the firms operating for Nike have a close relationship.  Nike also had a lack of information available to local management about the expected arrival date of shipments. In order to make this more integrated Nike should select specific vendors to provide specific inputs and develop an agreement to provide a set amount of inputs at a set cost. This ensures the company has a set amount of shipments that they will be collecting. Considering that in the 1990s, technology was very primitive, if Nike were to enhance the efficiency of the supply they could have used an ERP system (Enterprise Resource Planning) which is the integrated management of core business processes. This integration would have given Nike more control over the production process and better control of information which would have allowed them to relay information from the manufacturer to the retailor more quickly.

Fundamental four: SCM not just about technology but it’s about people and the relationship. In particular a collaborative relationship produces innovation as by holding supplier relationships raises the level of procurement and ensures that products are delivered efficiently within the supply chain. A successful relationship between customers and suppliers allows a connection in ways in which they can easily exchange information, demand date and visibility of status. One example would be working together to reduce costs and quality.

Consideration of specific logistics and transportation challenges, as well as the potential role of technology in addressing them

The challenges for supply chain and logistics are that there is a change in customers who nowadays have more information available to them than before and can create fluctuations in demand leading to prices being changed.  For a particular large product, customers would demand that at a lower price due to the vastness of information. In order to address the problem of customer service expectations, a company would perhaps need to use social media in a way in which informs the customers about products, informs them of price discounts and gets them turned in towards buying their products.  Interlinking with the supply chain, social media creates open communication which creates more visibility for them and reduces operational costs of the supply chain while improving productivity.

Another challenge for transportation is the skills shortage especially in the UK as there are not enough drivers and engineers to the sector this means that there would be a delay or reduction in the numbers of products circling the supply chain which means that companies can’t sell their products as quickly as possible. Like with the previous solution, using social media and advertising apprenticeships for drivers or in the manufacturing sector would help.

Furthermore there is the threat of globalisation in which companies are trying to reduce their supply chain cost and in order to please their customers’ price expectations, companies have planned to relocate manufacturing to low cost countries around the world in an effort to reduce costs and minimize taxes. Generally having global supplier’s means that delivery times are extended which then leads to customers not having their products on time. A way to solve this with technology is by using PO management in which streamlines the supply chain making you be able to hold suppliers accountable for delayed or missed orders which then can ensure efficiency with the flow of products within the supply chain.

In conclusion Nike has generally from a fragmented stage during the 1990s to a more integrated stage nowadays with the addition of goals and newer technology enabling them to improve the supply chain management as well as attain their global brand image. Perhaps what Nike needs to do now is ensure that they can improve labor practices for manufacturing bases in Asia to retain reputation and ensure that they can smoothly process products from there to Europe.


[1] Hossain, K. (2013, November 23). Nike competitive analysis. Retrieved from https://www.slideshare.net/KhalidHossain/nike-competitive-analysis-28592151

[2] Hossain, K. (2013, November 23). Nike competitive analysis. Retrieved from https://www.slideshare.net/KhalidHossain/nike-competitive-analysis-28592151

[3] C, Woods http://study.com/academy/lesson/what-is-supply-chain-integration-definition-lesson-quiz.html

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