The Origins Of Nike Commerce Essay

Nike was founded by Mr. Phil Knight and his past coach Bill Bowerman in 1964 and they started Blue Ribbon Sports. Knights first shoe was called Tiger and then began distribution of shoes. Blue Ribbon got great success in 1971 and Knight changes the company name “Nike”. In 1971 it introduced Nike’s first brand line. Nike launched its product line in 1979. The new version of its Air shoe which was very successful and it was known as Air Jordan; introduced in 1985. Nike opened its first retail outlet in Portland, Oregon in 1990. In 1991 the company was very successful and its revenue reached USD $3 billion. In 1999 company started selling its products directly to customers from its website. Nike is the world’s leading sports and athletic shoes. Nike is the major manufacturer of sports equipment with $18.6 billion USD in the year of 2008. Nike has 30000 employees in worldwide. (Nikebiz:company overview, 2010)

Nike had generated profits of $97.4 million and its profit dropped down by 50% in February 2001. Nike said that it was because of the failure of supply chain software produced by i2 technologies. Both companies blamed each other. This failure also effected Nike’s reputation. The supply chain software was the first segment of NSC (Nike Supply Chain) project from SAP and also customer relationship management software from Siebel System. Analysts pointed out the fault of customization of the software and over demand forecasting. (Koah, 2004)

Company successfully implemented (NSC) Nike Supply Chain project by 2004. The (NSC) Nike Supply Chain project is centralized planning moving and manufacturing. At last Nike got success in Implementing ERP and it became the desired approach for those who want to implement the ERP systems in their company. Christopher Koch (Editor of CIO Magazine) stated that “If it was easy, everyone would just do it.” In the late 1990, most companies avoided to adopt ERP because of the huge cost of ERP systems. (Koch, 2004)

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“The lesson of Nike’s failure and subsequent rebound lies in the fact that it had a sound business plan that was widely understood and accepted at every level of the company. Given that resiliency it afforded the company, in the end the i2 failure turned out to be just a speed bump.” (Koah, 2004)

Products Range

Nike has wide range of sports equipment, running shoes, and jerseys and may other products as shown in figure 1.

Figure Nike Products (nike, 2010)

ERP (Enterprise Resource Planning)

ERP entitles a company’s information system which can bring more closely the company’s departments and functions like human resources, finance and inventories. It also creates the link between customers and producers.

1.1 Introduction of ERP (Enterprise Resource Planning)

Enterprise Resource Planning is the enterprise system tool which manages demand and supply. It has the ability to make link between customers and suppliers. ERP also provides the high degree of integration between purchasing, manufacturing, marketing, sales, logistics and marketing. ERP is the tool which can provide high level of customer services and productivity and also lower the cost. (Wallace & Kremzar, 2001)

Enterprise Resource Planning is a company which increase it sales by 20% because of ERP. The vice president states that “ERP has provided the key to becoming a truly global company. Design can be made with the accurate data and with the process that concretes demand and supply across border and oceans. This change is worth billion to us in sales worldwide”. (Wallace & Kremzar, 2001)

The Director of ERP “For the first time ever, we have a good handle on our future requirements for components raw and materials. When our customer demand changes, we-ourselves and our suppliers-can manage changes to our schedules on a very coordinated and controlled basis. I don’t see how any company can do effective supply chain management without ERP.” (Wallace & Kremzar, 2001)

1.2 Origin of the Term ERP

The Enterprise Resource Planning ERP developed from Manufacture Resource Planning (MRP). The ERP was introduced by an analytical firm Garner. Enterprise Resource Planning has all the functions of an enterprise except organisation business or charter. Many organisations like IBM, Dell and HP Microsoft, Intel and many other organisations are now using ERP systems. The ERP systems are typically for large and more broadly based applications although it is also used in small and medium sized businesses. The ERP systems provide standardization, lower maintenance and it can store all data in one database. So, we can say that it has greater reporting capabilities. ERP includes other applications like Manufacturing Resource Planning (MRP), Financials Resource Management (FRM), Customer Relationship Management (CRM), Supply Chain Management (SCM) and Human Resources Management (HRM). (Leon , 2008)

Figure : Information integration through ERP (ERP, 2010)

1.3 Overview of ERP

Many organisations choose to implement one part for ERP systems and stand-alone systems for the other ERP applications need to develop an external interface to the other ERP system. Because in an organisation one vendor choose to use human resource management system and the financial system choose another and integration between those systems. It is very common in midsized retailer and the retail sector will have a point of sale (POS) and financial application then they have a specialized application to handle other business requirements like logistics and merchandising. (Leon , 2008)

The quality of ERP system is that it provides a single database which contains all the data for the software module also shown in figure 3:

Manufacturing 

Supply Chain Management 

Financials 

Projects 

Human Resources

Customer Relationship Management  (Leon , 2008)

Figure ERP Database (google, 2010)

1.4 Reasons for Buying ERP Software

In these days when the business environment is increasingly complex and highly competitive then the organisations need the IT system which is highly competitive with time management. The organisations need the outstanding performance in their business by utilizing the time in the correct way. Enterprise system utilize the company time correctly. Enterprise Resource Planning is the planning in which the business resources like material, employees and customers moved from one state to another state. An ERP system maintains the data which connects with the business functions like manufacturing, supply chain, Management, finance, human resource, customer relationship management. (Leon , 2008)

1.5 Reasons of ERP projects Failure

Sometimes ERP projects fail if you do not implement them well. There are some of the reasons for the failure of ERP failure.

The company selected the wrong software of ERP for the company. The training of employee is also very important and some organisations don’t train well their employees. Some software is heavily customized and if these are not match with the company’s IT infrastructure then there can be problem. If we do not implement the effective change management strategies then it can be the result of failure of the project. If the business merger leaves out the work in the process then it can be also a big loss.(Glenn, 2008)

There are also some factors from where we can achieve the successful ERP projects by selecting the right software for the company. Give the right training to employees. For implementing the ERP we have to manage each approach and utilize the best practices for implementing ERP software. (Starinsky, 2001)

I found some important realities about ERP are that there is no perfect ERP system exists. We cannot say that any ERP implementation is ever perfect. If two companies have the same ERP software but the implementation cannot be the same because every company has its own style of implementation. (Leon , 2008)

SUPPLY CHAIN MANAGEMENT

Supply Chain Management is a network that is involved buying, making, moving, selling and distribution. (Hugos, 2006)

“A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of materials into intermediate and finished products and the distribution of these finished products to customers”. (Hugos, 2006)

Buying

Making

Moving

Ware

housing

Selling

Selling

Buying

Making

Movin

Ware

housing

Figure Supply Chain (Supplychain, 2010)

2 Nike’s Supply Chain

Nike’s supply chain theme is centralization. All products designs, making and delivery is centralized from Beaverton, Oregon in the US. Nike operations were divided into five regions USA, Middle East, Africa, Asia and America which included Canada, Mexico and Latin and American countries. In 1975, Nike launched one program which is known as future program for managing its footwear products. In this program Nike’s retailers placed their orders before six months. Then these orders moved manufacturing units around the globe. The supply chain worked nicely at that time. Nike Company became spreading more and more globally. Nike felt that its supply chain needed rapid changes. The manufacturing process also became very complex because some models like Air Jordan Sneakers required 130 steps to manufacturing. In 1998 Nike’s profit dropped down by 50% also shown in figure 5. Nike mentioned that they had problems with the existing supply chain systems. To overcome this problem Nike launched one project known as NSC (Nike Supply Chain) project. (Koch, 2004)

Figure : Profit dropped down by 50% (investment, 2010)

This was a massive project in which the global operations were operated centralization to implement ERP, supply chain and customer relationship management on a single SAP system as shown in Table 1. Many changes were made various times to fix the supply chain and these changes created serious problems and in the result Nike had to move a whole new system. (Royal, 2001)

Table : ENTERPRISE APPLICATION IMPLEMENTATION AT NIKE (CGT, 2010)

Company

Solution

SAP

ERP

i2

Planning

Siebel

CRM

PeopleSoft

Human Capital Management (HR Systems)

PTC

Product Data Management, Product Life Cycle management

See Beyond

Application Integration

Marc Globe

Warehouse Management Systems

HP

Unix Serves Supporting all supply chain systems

IBM

Systems integrators & other professional services

2.1 i2’s Software Implementation

2.1.1 Background

Nike’s supply chain theme is centralization. All products designs, making and delivery is centralized from Beaverton, Ore. The problem was that the supply chain was built for six month’s cycle which is also called future program. This future program was developed in 1975. At that time Nike made its market space because people at that time did not much care about the style or looks. Their attention was that they need technically advanced shoes which were steady and fit. (Koah, 2004)

2.1.2 Need the i2 software for better supply chain

Nike got the global demand and its supply chain broken down because of the high demand from all over the globe. By 1998, Nike had 27 order management systems all over the globe which were poorly linked with Beaverton. Another problem with these systems was that these were highly customized. At that point Nike needed the ERP system which can handle the manufacturing cycle for up to six months. Nike also decided that the needed the systems which were centralized. For that reason the ERP software like SAP’s R/3 software were better for the Nike’s supply chain strategy. The software was included with i2 supply, demand and collaboration planner software applications. In the beginning of 1999 Nike decided to implement i2 software. I2 software implementation was the first part of NSC project. The cost of this project was US $40 million. (Koch, 2004)

Table i2 SCM Proposed Benefits (Industrial Supply Chain management Solution -i2-Planning, 2010)

Solution

Objective

Challenge

Capability

Benefit

Strategic

Planning

Maximize profitability by optimally allocating resources

Unclear parameters

Optimization

Long term profitability

Demand management

Anticipate and influence demand

Accurate demand estimation is difficult

Demand planning, channel collaboration

Improved customer service

Supply planning

Determine what to make and when and how to profitably distribute supply

Size and complexity of problem

Collaboration, optimization,

Speed

Global visibility and coordination , fast reaction to changes

Production

Determine what to produce and when

Managing material & capacity tradeoffs is complex

Fast finite material & capacity planning & scheduling

Reduced inventory,

Improved due date performance

2.1.3 Reasons of i2 software failure

There were many reasons for i2 failure. Nike did not show patience during the implementation of the first part of its NSC (Nike Supply Chain) project. Nike decided to install its i2 software while Nike was using its legacy systems. The legacy systems were highly customized. The i2 software also needed to be highly customized because they have to be operated by Nike’s Legacy systems. Even one entry took too much time to be recorded by the i2 software. This problem was the unexpected setback. The main fault was that the system ignored some orders and made duplicate the other orders. The ordered data was also deleted after six to eight weeks when it was entered. It was impossible for the company to recall the order had asked to produce. The complications of NSC project are also one of the reasons of the failure. The i2 software failed in demand forecast as shown in the figure 6. In some places Nike has excess inventory and in shortage of inventory in other places. Because of i2 software failure Nike’s profit dropped down by 50% from USD $798 million to US $399 million. (Koah, 2004)

Figure i2 software failure (Koah, 2004)

2.2 IMPLEMENTING SAP APPAREL AND FOOTWEAR SOLUTION (AFS)

Nike had decided to implement the SAP Apparel and footwear solution. AFS is a part of SAP ERP project. This software is based on SAP r/3 and especially for footwear industry. Nike chose to implement other SAP applications like SCM and (B/W) Business information warehouse. Nike is also considering the SAP Net weaver platform in near future. Figure 7 shows the sample structure of SAP Net Weaver Implementation. (Koah, 2004)

Figure SAP Net Weaver Implementation (Koah, 2004)

Nike did not implement the first version of AFS although Nike had purchased SAP AFS in 1998. This new version of SAP AFS was the base of NSC Project. The SAP module implementations at Nikes were Financial & Control (FICO), Sales & Distribution (SD), Material Management (MM) and Production Planning (PP). These interfaced fully with Nike’s i2 demand-planning and Siebel CRM software. (Koah, 2004)

2.2.1 Strategy for implementing ERP system

Nike adopted the “Big Bang” approach for implementing ERP software by installing all SAP components like planning order entry financials etc. all at once. This task had a high degree of integration between its footwear and apparel sectors. Because of SAP (AFS) the company took full control on both area footwear and apparel of supply chain from raw material until delivery. (Sussman, May 2004)

In 2000, Nike Canada became a company which implemented SAP (AFS) along i2 applications and Siebel CRM. The software was used multiple HP enterprise servers because on HP-UC (1) 11 operating environment. HP was chosen because it had experience in SAP and i2 applications. (Sussman, May 2004)

2.2.2 Benefits

NSC Project allowed the company to make build-to-order supply chain. Before implementing NSC project Nike purchased products from manufacturers about 9 to 10 months before and on the other hand Nike’s retailer’s ordered for only 6 months. The project enabled Nike to shorten the time for footwear products from nine to six months because of implementing this NSC project. Now Nike can buy from partner factories on the base of actual requirements rather than forecast alone. Another benefit of this project was that it had directly benefited on the financial management. This project gave better integration between departments. (Barrett, 2003)

According to Shelley Dewey, Vice president, Nike Supply Checain, “The transition of business team members into IT savvy individuals and IT team members into business process experts was an unexpected bonus of the project effort. We are a much stronger team for having done this work.” (Clark, July 2004)

Recommendations

During late 1990 most companies avoided to implement ERP systems because of the huge cost and the project was time consume. But Nike has invested on ERP system and they proved that although they paid a huge cost for implementing ERP system but it worth a lot. We can also observe the complex of implementing ERP system from that if it was easy to implement ERP system then everybody did it at that time. Nike has implemented the NSC (Nike Supply Chain Project). But for this success Nike has paid a huge amount and time.

Although the company has implemented SAP system but there was still problem that it did not accept direct point of sale (POS) data in integration with retailer’s data. The forecasting function is also less accurate because company knew only about the retailers buying and not have any information that what the customer buying. Nike has invested a lot on this project and now Nike has to make this system perfect because small bugs became a huge problem to fix.

In the beginning of ERP implementation Nike had faced difficulties but now Nike has those approaches that many companies to follow that approach. But Nike has to aware consistently about the problem in ERP sectors and also makes changes its strategy in the future with market environment.