The Manufacturing Process of Nike Shoes

This choice can concern the working of the organization or else its strategy. In this case, we are interested in Nike Inc. and so we are going to examine some operational aspects of Planning and Control of Nike production.

Nike, Inc. is the market’s leading supplier of athletic shoes and apparel and a leading manufacturer of sports equipments; it’s located in Oregon, United States. It was founded by William J. “Bill” Bower man and Philip H. Knight in 1964 as Blue Ribbon Sports and later in 1978 it officially became Nike Inc. Nike has global presence and sells Athletic shoes, Apparels, Sports equipments and Accessories. Nike Inc. products are sold under the following brand names: Nike, Nike Golf, Nike Pro, Nike +, Air Jordon, Nike Skateboarding and subsidiaries includes Cole Haan, Hurley international, Umbro and Converse. Nike currently sells shoes, shorts, jerseys etc. for Athletics, baseball, cricket, ice hockey, football and lacrosse.

2) Manufacturing Process of Nike Shoes:

Nike follows vertically integrated model for the manufacture of its footwear. The process takes place in two stages. In the primary stage, the various inputs for the production process of Nike shoes such as organic cotton, recycled polyester, leather, environmentally preferred rubber, PVC and phthalates are extracted and sourced from various places that are close to factories.

The second stage involves the transformation process in which the extracted raw materials are sent to factories for manufacturing. The transformation process of Nike shoe is listed below,

• The Machine tramples and cuts the shoe shapes just like cookie cutters.
• The mid-portion of the shoe and inside hold of the shoe is developed with the help of cutting machine and it is attached to the lower part of the shoe.
• Mid-sole and the lower portion of the shoe is attached with the upper insole and again heated in a plastic mold.
• The output of the Manufacturing process will be the finished goods, recyclable wastes and non recyclable waste. Nike retreats all reusable waste from the production process and uses it in the next production cycle.

The company is headquartered in Beaverton, Oregon, US. Nike never has a practice of manufacturing its products but it outsources the manufacturing process to the suppliers, who are called the “contractors”. These products are manufactured in 600 contract factories with a workforce of more than 800,000 employees all over the world in 46 countries. Bulk of the total production is represented by the Asian developing countries like China, Indonesia and Vietnam. The main product lines of Nike include footwear, apparel and equipment.

The planning process of any company starts generally by establishing objectives. The objective of Nike is “To bring inspiration and innovation to every athlete in the world”. The next step is to determine an activity that helps in achieving the objective of the firm. Nike’s main objective focuses on providing quality sportswear and equipments to people around different part of the world. In order to achieve this they have to effectively co-ordinate and control the manufacturing and marketing process.

The principal stages in operations planning and Control:

a) Tasks involved in planning and control of Nike’s manufacturing process:

The various stages in the operations planning and control such as Demand estimation or measurement, Aggregate capacity planning, Master operations schedule, Rough-cut capacity planning, short term re-scheduling and prioritizing and control with respect to Nike encompasses various tasks such as,

• Planning the capacity requirements and availability to meet the market demand
• Planning the arrival of materials on right time in right quantities for shoe production
• Ensuring appropriate utilization of capital, equipments and facilities
• Maintaining needed quantities of inventories, work in progress and finished goods in all the contracted locations
• Scheduling the production activities to ensure that the process is proceeding in accordance with the plan.
• Tracking material, employees, customers’ orders, equipments and other resources in all the factories.
• Communicating with customers and suppliers on specific issues and long-term relationships.
• Meeting customer requirements in dynamic unpredictable environment.
• Providing information to other functions like the marketing on the physical and final implications of manufacturing activities.

b) Planning and control activities in Nike:

The four major activities of the planning and control – scheduling, loading, sequencing, monitoring and control are accomplished in Nike by the implementation of an effective Supply chain management system and an Enterprise Resource Planning (ERP) system.

The manufacturing planning and control systems of Nike is concerned with all facets of manufacturing of shoes including managing materials, scheduling machines and machines, coordinating with the contracted factories and key customers. The manufacturing planning and control system and the manufacturing process of Nike are designed in such a way to meet the demands of the market and in accordance with the overall strategy of the company. The planning and control system of Nike provides it a significant competitive advantage with its ability to determine, transmit, revise and coordinate requirements through its global supply chain system which is very competitive in nature. Nike’s supply chain has a consistent and mature public policy thereby making it efficient in the business and the industry.

The supply chain covers a variety of functions ranging from the raw materials procurement to the manufacturing to the shipping to the consumers via retail. Emphasis is made on cost-effective, safe and secure delivery of goods through an efficient transport system throughout the supply chain. The supply chain operates in such a manner that people doesn’t need to participate at each step of the way of the production. To achieve this, Nike has partnered with various bodies like national governments, industry associations and NGOs.

The first step in the supply chain management of Nike was implementation of i2 software. The cost of this project was above $ 40 million. The implementation of the i2 software was focused on reducing the amount of raw material and as well as matching the supply chain demand. The benefit Nike seeks from i2 software includes a strategic planning with long term profitability in mind, improved customer service by effective management of demand, developing global visibility and coordination, fast reaction to changes, reduced inventory and improvement in on time performance and deliver.

The implementation of i2 software was not as successful as expected. This was due to factors like lack of experience, third- party integration, customization, lack of pilot test and training, changing market conditions, lack of adequate information, lack of proper integration of the software with the existing systems and forecast that are too far out ahead. This has lead to the implementation of SAP ERP as the information system to gain control over its production planning. Various modules of SAP like Financial & Control (FICO), Sales & Distribution (SD), Material Management (MM) and Production Planning (PP) are implemented at Nike. These modules interface fully with Nike’s i2 demand-planning and Siebel CRM software. This helped Nike in planning its production in accordance with supply and demand. The SAP® Apparel and footwear solution is basic system for supply chain management of Nike. The SAP AFS is a complete and integrated system that deals with particular need of the industry. It helps Nike in achieving full control over its supply chain, right from the purchase of raw materials till the delivery of the final goods to the customers. This helps Nike achieve its global strategies because it integrates the global sources, in house manufacturing, off shore manufacturing, outsourcing and shipment process to direct customers.

The reason for the need of an improved information system for Nike is that it was very critical in its role of supply chain management (SCM).  Networked supply chains craft unblemished paths of communication among partners, suppliers, manufactures, retailers, and customers.  This enhances the communication among all the stakeholders and the augmented communication enables building of strong extranets that give real-time information to all critical links in the supply chain.  The supply chain management systems of Nike are advanced, and in integrating them effectively, it helps in minimizing waste and thereby reduces the system costs dramatically. The various tasks involved in scheduling, loading and sequencing of the supply chain management system of Nike reduces the time of engineering to production cycle and thereby increases the market share. The supply chain management system, with its better forecasting facilities, made the company to shift its focus from ‘make to stock’ policy to ‘make to order’ policy. As the inventories are better managed with proper planning and control throughout the system enabling a faster turnover across the production chain, the inventory carrying costs and the overall product cost is significantly reduced, enabling maximization of overall profit.

According to Roland Wolfram, vice- president, Global operations and technology at Nike Inc, “the implementation of SAP ERP will enable Nike to put into operation updated systems which helps them in streamlining practices and creating high level of efficiency for both the company and for the customers”. “Also the implementation of SAP ERP will enable Nike to reduce its lead times, improve the performance of their supply chain and present a more reliable look to their customers”.

The successful implementation of SAP FAS benefited Nike by integrating over 350 plants across different part of the world and by generating nearly 20% returns of investment capital. It also helped them in their go-to market strategy by providing better match between the supply and inventory. Stable relationships with the retail customers are achieved with this and further the visibility and tractability of the inbound logistics are increased. Over 12000 stock keeping units around 25 different countries with 600 and more users are currently beneficiating with SAP FAS implementation.

Even though Nike is one of the few largest sportswear and apparel manufacture in the world, they still concentrate on innovation in competing with their competitor. Nike always evaluates the demand of the consumer and continues it as part of their planning process. Nike continuously interacts with its customers through its web portal. This enables the company to achieve a greater degree of customization of its products. As a result of their constant evaluation of consumer, In 2007, Nike collaborated with Apple Inc. and sold their products along with Apple’s product as bundle pack. Nike and Apple plan to continue their relationship in order to maximize the Nike’s and Apple’s experience.

The crucial purpose of production plans and control, as with all other manufacturing controls, is to optimize the profits of the company. Like that of inventory management and control, this is achieved by keeping the customers satisfied by promptly delivering the products. The main objectives of production planning and control are to set up routes and schedules to work; which will guarantee the optimum utilisation of materials, workers, and machines and to provide the way for ensuring the operation of the plant in accordance with these plans. Outsourcing to separate independent countries like China, Japan, Thailand and Indonesia is a part of Nikes planning and control strategy. Thus a well placed production planning and control helps Nike in controlling the production cost and thereby maximizing profits.

References:

Nike, Inc. Environmentally Preferred Materials – Retrieved on February 2, 2010. Available from http://www.nikebiz.com/crreport/content/environment/4-2-2-environmentally-preferred-materials.php?cat=product-design

Burgess, E. How does Nike make their running shoes? Retrieved on February 2, 2010. Available from http://www.ehow.com/how-does_5003359_nike-their-running-shoes.html

Graves, S.C. (1999). Manufacturing planning and control. Retrieved on February 2, 2010. Available from http://web.mit.edu/sgraves/www/ProdPlanCh.PDF

Nike’s SAP project completes the first stage of its global implementation. World Textile Publications Ltd. Retrieved on February 10, 2010. Available from http://www.inteletex.com/FeatureDetail.asp?PubId=&NewsId=1105