Q4 Case study “Nike: Sourcing Strategy in the integrated Supply Chain”

A sourcing strategy is essential for Nike since the company’s production and logistics strategy is based on outsourcing (see Fig. 2.1).
Since its establishment, Nike has evolved into a global enterprise providing trainers and sports garments to customers worldwide. Now the company has several brands, operates in 170 countries, employs 38,000 staff, and possesses 100 sales and 65 administrative offices across the world. Nike owns 700 retail stores and works with 900 contracted factories, which manufacture a wide variety of products for Nike. Nike’s revenue in 2012 was $24.1 billion, cost of sales was $13.6 billion, and inventory was $3.4 billion.

Nike executes a long-term sourcing consolidation strategy and is streamlining its SC operations. In 2007 Nike began assessing its contract manufacturing base and undertaking a multi-year strategy in order to:

• Streamline the SC to focus on a number of contract manufacturing groups;
• Build a strong and sustainable sourcing base for greater operational efficiencies and future growth;
• Identify sub-contractors able to deliver best performance of products and innovation;
• Align sub-contractors in terms of Nike’s corporate responsibility principles.

Nike has been shifting from a risk-reduction focus—which devotes time and attention to the lowest factory performers—to a strategy that invests time and attention in strengthening relationships with the factories operating at the highest performance levels.

A new manufacturing index (MI) was implemented in 2012. It integrates scores from key performance areas into a single scoreboard rating that groups factories as Gold, Silver, Bronze, Yellow, or Red. Contract factories that are able to consistently exceed Nike’s requirements in the areas, equally weighted, of quality, costs, delivery, and sustainability performance management, and that show consistent performance leadership in the industry will achieve a Silver rating in the MI. Contract factories that go beyond industry and demonstrate innovation and benchmark performance within the broader manufacturing landscape will achieve Gold. At a minimum, factories in Nike’s SC will be expected to achieve and sustain a Bronze rating, indicating that the factory meets baseline standards and can self-govern through integrated systems and a lean approach. The MI creates one overall score for each contract factory, enabling a consistent and comprehensive conversation about Nike’s business with that factory. Nike develops incentives and sanctions based on the MI ratings. For example, Silver and Gold-rated factories will be able to self-audit and calibrate with Nike staff and will have access to a range of Nike’s technical assistance, leadership, and education resources, as well as possible innovation or community co-investment and priority consideration for orders. Nike initiated several schemes to make its SC more sustainable and environmentally friendly. Nike has set up Sustainable Manufacturing & Sourcing-Sustainable— a new organizational structure within the company that has brought together labor compliance, health, safety, and environment,lean manufacturing, human resources management, climate and energy, and waste and water management.

Discussion Questions (5 Marks Each)

1. What advantages and disadvantages do you see in the outsourcing strategy?
2. Select and calculate at least two performance indicators to evaluate the inventory management performance at Nike!

What do you think of the MI at Nike from the position of a contract manufacture?