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 2: Nike's supply chain (35 marks, 300 words)

A. Discuss the meaning of supply chain management.

B. As completely as possible, discuss the supply chain for Nike from raw materials to consumer purchase.

Answer 1

A. It refers to the control of the flow of goods and services. The main motive of supply chain management is to cut excess costs and deliver products faster. Also, the scope of this is limited to the transfer of assets; it also consists of management of storage of 1)raw materials, 2) semi-finished products 3) Finished goods. So, we can say that it includes a series of activities required to plan, control, and execute goods' movement. Furthermore, supply chain management helps in creating many utilities like Time utility, Place utility.

B. Supply chain of Nike from raw material to consumer purchase is as follows:

The major suppliers of raw material for Nike are:

Pou Chen, PT Pan Brothers, Fulgent Sun International, Delta Galil, and Eagle Nice.

Moreover, most of its factories are in countries like China, Vietnam, Thailand, and India, where the cost of resources used in production is less compared to other countries.

As a result, the company successfully decreases the manufacturing cost because of the cheaper allocation of resources.

Nike also relies upon independent contractors to get the raw materials for its shoes from the countries in which they got produced.

It enables Nike to strengthen its average costs by restricting the number of vendors with whom it must intervene in contracts.

Nike's footwear division entreats the services of independent contract manufacturers placed in fourteen countries around the world.

Nike's lean supply chain reclaims the company $0.15 per unit differed from a traditional distribution model. These redemptions dose to a serious competitive edge.

Once the shoes have got manufactured, they get shipped to 57 distribution centers.

The sales-to-wholesalers comprise the vast majority of Nike's revenue.

The company is making a serious effort to expand its presence, primarily through direct-to-consumer (DTC) sales.

DTC sales enable Nike to communicate directly with consumers, provide superior customer service, and get a better sense of the population wants.