Section B: Case Study

Purchasing and business strategy

This case illustrates the strategic role of purchasing and supply management to Nike and how it is developing supplier strategies to support the company's overall product, market and business strategies.

There has, in the past, been much comment in the press about Nike and its decision to outsource its manufacturing overseas. 'The consumer today expects a premium experience, with innovative product and services delivered faster and more personally,' said Mark Parker, Chairman, President and CEO of NIKE, Inc. 'Fueled by a transformation of our business, we are attacking growth opportunities through innovation, speed and digital to accelerate long-term, sustainable and profitable growth.' ("Nike Investor Relations", 2017)

Nike like many companies was driven by the desire to assemble products at a fraction of the cost of producing them in the domestic US market. In 2002 the Harvard Business Review reported that 'Nike's company line on the issue was clear and stubborn: without an in-house manufacturing facility, the company simply could not be held responsible for the actions of independent contractors,' (Spar, 2000)

While much has changed since 2002, sports footwear is still technically complicated and fashion intensive. This means that production needs to be flexible and responsive both in terms of the preproduction research and development, as well as the post production activities of marketing distribution and sales channels.

So how has Nike's strategy evolved? As of August 2017, Nike has 567 factories in 42 countries. The company estimated that there are over 1 million people engaged in the production of Nike brands including Converse, Hurley, Jordan Brand and Nike Golf in China, Indonesia, Vietnam, the Philippines Taiwan and South Korea. (Nike Manufacturing Map, 2017)

'Every supplier factory in our supply chain is subject to a rigorous set of compliance standards, which starts with Nike's Code of Conduct - the minimum standard we expect each factory or facility to meet. In addition, we evaluate supplier factory performance across sustainability - including labour and environmental practices - on a par with cost, quality and on-time delivery.' (Nike Manufacturing, 2017)

This evaluation encourages factory performance improvement and drives more business to those factories with the best performance.

But this is not the only innovation in the business transformation of its supply chain. Up until recently, the only element that was manufactured within the US were technical core components of Nike Air system. There is one substantial difference and that is the way in which Nike coordinates its overseas suppliers. (Nike Manufacturing Map, 2017)

In August 2017 Bloomberg reported, 'The most labour intensive part of putting together a pair of Nikes is assembling the 'upper', the flexible part of the shoe that sits on top of your foot. On many sneakers, uppers look like a single piece of material with no visible stitching, but they can actually be made of as many as 40 pieces that are stacked up just so and then heated so they fuse.' 'In the past month, Grabit has begun providing facilities that make Nikes with a handful of upper-assembling machines that can work at 20 times the pace of human workers. By the end of the year, about a dozen of these 'Flyknit machines' will be operating in China and Mexico' (Brustein, 2017).

The company has also set up an Advanced Product Creation Centre at its headquarters in Oregon to explore other automated production methods, including 3D printing, announced in October 2015.

Some commentators have suggested that this could be a step forward in Nike's attempt to change the economics of shoemaking so it can relocate manufacturing closer to the big consumer markets in the U.S. and Europe. Recently the company has acquired existing apparel suppliers in North and Central America. 'Automation factors heavily into Nike's plan to move factories closer to the U.S. There are already 49 factories making Nike products here. On average, each facility employs about 130 people - the average Nike-making factory in China has about 1,300 - and they specialize in things like high-tech air bubbles, not finished shoes.' (Brustein, 2017)

'The sportswear giant has teamed with Apollo Global Management to improve Nike's supply chain in the Americas. The partnership is designed to build domestic manufacturing infrastructure (most Nike products are made in Southeast Asia) and help Nike get products to customers quicker, including customized merchandise.' (Kish, 2016)

The investment in the home market, driven by the economics of getting products to customers quickly, would be a radical transformation for a company that did not own any manufacturing facilities in 2014.

Question 41(10 points)

Nike is one example of a company using innovation and advanced manufacturing to transform its supply chain. Conduct your own research into the competitor Adidas and how it is adapting its own supply chain. Compare and contrast the key strategic factors used by Adidias and Nike.

Question 42(20 points)

Consider the impact of 'insourcing', bringing manufacturing back home, on supply chain management for a company such as Nike.

Question 43(20 points)

Suppliers have a business-critical position in their customers' value chains and they are a source of competitive advantage in terms of innovation and new product development. What supply chain innovation might Nike be looking towards next?