Question

Delivery precision is important for a multi-product and multi-jurisdictional company like Nike. It improves margins, lowers inventories, minimizes price markdowns, and makes sure that the customer receives the right product on time. Nike’s manufacturing network has over 525 factories in 40 countries. Products move from several distribution centers across a network of thousands of retail accounts.

Nike owns no factories for manufacturing its footwear and apparel. The company’s footwear and apparel make up about 96% of Nike’s branded revenues. Instead, Nike outsources its manufacturing to third parties. It’s a huge cost advantage. Nike’s supply chain sources most of its raw materials in the manufacturing host country by independent contractors. The strategies of Under Armour, VF Corporation, Lululemon Athletica, and Adidas also include overseas manufacturers.

Nike is one of the pioneers of the manufacturing outsourcing strategy. It optimizes the manufacturing and production processes. Plus, continued innovation and product quality are keys to success. The company’s lean manufacturing improves efficiency, optimizes production, and lowers waste. Also, it drives quality and productivity. Material consolidation, manufacturing innovation, and modernization support the manufacturing process.

Nike has license agreements that permit unaffiliated parties to manufacture and sell Nike-owned trademarks, apparel, digital devices and applications, and other equipment for sports activities.

Nike has six primary distribution centers in the US. Notably, four are located in Memphis, Tennessee. Among those four, two are owned and two are leased. The company had 67 distribution centers outside the US at the end of the fiscal year 2019.

Keeping a tight grip on costs is important for any company’s profitability and for shareholder returns. Nike’s gross profit margin is lower than some of its competitors, including VF Corporation and Lululemon. However, Nike, through its Consumer Direct Offense strategy, is growing its digital business. The digital business will speed up revenue growth and supports margin expansion. Plus, the channel mix shift (direct-to-consumer) will support the margins of athletic footwear and apparel companies.

NIKE enjoys large pricing power in the marketplace. This is due to its ability to innovate and provide a different product. Also, the company plans to expand its top line.

Nike’s also been investing a lot in expanding its Nike Direct operations. This includes Nike-owned retail stores and digital platforms. Currently, revenues through Nike Direct operations make up about 32% of the sales mix. Nike Direct sales have high margins. Additionally, growth in the ratio of Nike Direct sales could positively impact Nike’s gross margin.

Nike’s manufacturing operations are concentrated in lower-cost countries such as China, Vietnam, and Indonesia. Since Nike’s manufacturing strategy is based on outsourcing and contract manufacturing, growing protectionist actions could hit its supply-chain process.

Question 1: Operations strategy and the five performance objectives (35 marks, 300 words)

Discuss the operations strategy and any five of the performance objectives at Nike.

Answer 1

Nike's operations strategy helps the company to make decisions helping in managing the operations and productivity such that they help in attaining the business objectives and goals. The operations strategy can include areas of product development, talent management and quality management. Nike has been very particular about the design of the products it sells. As its products are purely for an athletic segment of customers, the design confirms the preferences of their target customers. They form strategies to base designs on advanced technology aligning it with organisational capabilities.

They never compromise on quality which has helped them form a brand image such that the customer buying their product will be rest assured to get the best quality product. The operations management maintains high-quality standards with the implementation of TQM in the production of the company's products. They ensure streamlining the production processes to gain efficiency and making the production goals meet the company goals. The operations management also oversees the location strategy where the facilities are located near to the significant markets and location costs are optimized. The job design and workflow design in the facilities are also managed efficiently by operations management to ensure optimized outcomes.

The five performance objectives of Nike are quality, speed, flexibility, dependability and cost. It focuses on manufacturing low cost, high-quality sportswear delivering it at high speed and depending on it on market trends. Quality is their priority in the performance objectives as they gain customer satisfaction and customer loyalty from the consistency in the quality of the products they sell. They integrate different technological features in the products to update their quality standards. Nike has worked and keeps working on quick demand fulfilment of customers with efficient and speedy logistics and distribution network. Nike follows a customer-oriented approach and designs its product and strategies based on the needs and preferences of the customers. It also has felxibility in its processes and prodcut lines to gain customer satisfaction and loyalty. It can follow the above mentioned preformance objectives only if it keeps a low cost staryegy intact. Thus it closely works on the cost efficient staregies such that quality products are manufactured at lowest cost and delivere to the customer at the highest speed.