Executive Summary
The report studies the case of Nike’s
logistical situation in Europe. The footwear and apparel giant after leading
the scene in USA, expanded into the European market. Being nationalistic in
focus and having an informal outlook towards management, the company soon ran
into trouble with various inefficiencies creeping into its logistic operations
across Europe.
Although the company owned its distribution
channel, operations for the various countries were the responsibility of their
particular management. Added to this lack of communication, co-ordination and
an unreliable vendor network lead to a poor customer service quality and losses
to the brand.
The researcher by way of this report has
attempted to understand and remodel the logistical process and provide a
solution to the crisis. It has been highlighted that centralising operation and
establishing communication networks to share information across the
organisation is imperative to grow business in the European market. A detailed
analysis has been provided in the sections to follow.
Introduction
The researcher in this report attempts to
analyse the logistics strategy of Nike in Europe. Established in 1963, Nike
started as a ‘laundry room’ operation by Phil Knight; by 1992 it grew into a
$4.5billion company leading the shoe and apparel industry in the USA. Riding
the growth wave the company soon expanded into foreign markets – important
among these markets was that of Europe. The company was making $1 billion from
the European market alone, this was reason enough for the management to
concentrate on organising this market its distribution and operations
efficiently in order to maximise and secure future profits.
The specific problem studied in this report
is concerned with the difficulties faced by Nike in organising its distribution
and operation in Europe. Initially Nike focussed on owning its distribution
channel however, the operations were still being run by individual countries;
this lead to multiplication of resources and their underutilisation, and a lack
of co-ordination between various operations under the company leading to
increased cost and loss of market. How the management at Nike overcame this
problem is the discussed in the following sections.
Supply chain/ Process Map
At that particular point in time, Nike
followed a pretty complex logistics plan in Europe. The entire process map is
enumerated below:
1.
The procurement of shoes was
done from the Far East.
2.
Apparels were procured majorly
from European countries itself; however, there were no permanent vendors and
suppliers were chosen on the basis lowest cost quoted.
3.
Now the country operation would
collect orders from the distributors and retailers in the country and pass the
order note to the office in Hilversum (which functioned as the head office for
operations).
4.
The office in Hilversum would
then pass these orders to an office in Hong Kong.
5.
The Hong Kong office’s function
was to consolidate orders according to country and then ascertain the total
demand.
6.
The office then initiated
procurement.
7.
The goods, as they arrived were
dispatched to each country according to the order note.
8.
In each country especially the
ones on the “Hot Banana” curve, the received inventory was stored in more than
one facility and often the facilities for shoes and apparel were different.
Situation Analysis
1.
Supply Chain Structures
a)
Physical Flow of Goods
The footwear supply comes in from the
suppliers in the Far East while the apparels are sourced from units in Europe.
Stock is dispatched to countries according to their order and is stored in
warehouses in each country from where the goods are dispatched to retail
outlets.
b)
Information Management
Orders from various country operations are
received by the office in Hilversum from where information is passed on to the
office in Hong Kong. The Hong Kong office groups orders received according to
country and makes requisitions to the suppliers.
c)
Organisational Structures
The distribution channel is owned by Nike
however the country operations are run individually by the assigned management.
The office at Hilversum does a job of a mere middleman of receiving orders and
passing them on to the office in Hong Kong.
2.
Supply chain performance
The supply chain was a chaotic mess; There
was no coordination between countries on the inventory available, lead times
were delayed, vendors were unreliable, and even the value added services were
not consistent. All this only lead to losing customers and the system also did
not enable keeping record of the reasons that lead to this.
3.
Business Context
Nike’s European market was fast growing. It
was predicted that the sales would double in a matter of years given that the
economy was even going to face a recessionary trend. The brand had already been
challenged by Reebok in the amercian market hence, the management was in no
mood to lose the opportunity in Europe hence, wanted to cut down on the
inefficiencies built into the system, prevent customer loss and position itself
as a brand that produced quality products which were technologically update.
Identification of main issues and problems
The situation analysis of Nike Europe’s
logistics has lead to the identification of the following issues:
1.
Unreliable vendors
One of the major problems faced by Nike was
of delayed supply (long lead times). This was due to first, placement of orders
on short notice and then procuring the materials from far flung destinations;
second, shifting vendors according to cost quotes, leading to appointment of
unreliable suppliers.
2.
Underutilised/inefficient cost
heads
The company was employing more than one
undersutilised cost centre. The most visible was the office in Hilversum; this
facility performed the role which was nothing more than simply receiving orders
from various national operations and then passing on to the Hong Kong office.
Also, more than one warehouse facility was utilised per country this lead to
increased problems of co-ordination and underutilisation in some cases.
3.
Lack of coordination and
communication
Each country had its own computer system;
there was no procedure to co-ordinate inventory centrally and keep information
available to all at once. Adding to this there was also a problem of
co-ordination and communication between the plethoras of warehouses.
The retailers did not wanted to follow
demand forecasts and placed orders as and when the need arised this lead to
delayed supplies, stock building in the off season and loss of customers.
Generation and Evaluation of alternative solutions
Before we proceed on to suggesting probable
solutions to the problem; the management must pay heed to the following (for
any strategy to be successful):
1.
Opting for reliable vendors-
The management must make efforts to appoint vendors who are punctual and
reliable even if this means shelling out a little extra cost.
2.
Improving communication- The
company should work on building a network or a centralised online database in
order to share information with all concerned across the globe. This will
eliminate the problem of co-ordination and help in efficiently managing
inventory.
Mentioned below are two probable solutions
to the problem:
1.
Managing a single distribution
centre for Europe- This requires eliminating all national warehouse systems and
maintaining a single facility for distributing Nike products across Europe.
This will help in cutting down cost and make operations easier to manage and
co-ordinate due to centralisation of all operational procedures relating to
logistics.
2.
Maintaining several
distribution centres across Europe- This strategy also requires terminating the
role of national warehouses but, focuses on maintaining more than one facility
to service the European market. The facilities can be spaced out on the basis
of places with high consumption of the product.
Recommend solution and justification
The researcher, after thorough analysis of
the case would want to suggest the second alternative solution as the better
one (although costs are lower in the first alternative).
The management of Nike Europe should
centralise logistical operations to more than one (around two to three
facilities should be sufficient). Such centres can be based around places of
high consumption of Nike products, such as Germany. Further, a facility can be
dedicated to storage of either footwear or apparel. Also, all such facilities
should not be in close proximity if they are not focusing on storing a
particular category.
The reasons that will justify such a move
are:
1.
Centralising logistical
operations and managing all inventories as one (without the need of dividing it
between nations) will reduce co-ordination problems between the behemoth
numbers of parties involved in the logistical procedures.
2.
Centralising inventories will
reduce the problem of stock outs, delayed supply, and untimely stock building
as stock can be easily allocated between locations (even trans nationally).
3.
Multiple facilities can provide
a backup when one is unable to operate normally in contingent situations.
4.
Facilities which are
geographically spread out can help lower costs in transportation involved (to
distribute goods to the ultimate retailer or area distributor).
Implementation
1.
Resources
Apart from the monetary resources that will
be needed to implement the change process, a lot of reallocation and careful
selection of new resources will also be required. Major among such
reallocations will be to move out from existing distribution facilities and
looking out for new ones which will function as centralised ones. Also,
functions of various human resources will need to be reassigned or redesigned
as the old gives way to the new.
2.
Timing
Timing will be of key importance in such a
change process. Not only the process should be gradual so as not to disrupt the
normal functioning of the operations, it should also be such so as to correct
the time issues that were part of the old system. This means that the new
system will focus on reduced lead times, timely supply and increased stock
turnovers.
3.
Monitoring
As against the old system where monitoring
was done by national operations for their particular country under the new
system monitoring will be done centrally for Europe as a whole. The various
national managements will now need to report and co-ordinate with a central
authority that will look after operations in Europe. In other words this is
like the Nike corporate in the USA directly overseeing the operations in
Europe.
Conclusion
The report has been successful in analysing
Nike’s logistical system and its problem (in the European market). The
researcher has even provided alternative solutions to mitigate the situation.
However, focussing on communication and
reducing the complexities and middlemen in the process is the key to smooth,
streamlined operations.
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