nike and I2 just didnt do it

University Degree Business and Administrative studies

Contents

Pages

Executive Summary 3
Introduction 4
Core Function 5
Supply Chain Management 6 to 20

Company Background 6
Old System’s 6-7
Why Change? 7
Nike’s Opportunity 8 & 9
Problems with the Implementation 9 & 10
Consequences of the Breakdown 10
Typology of Operations 11 to 13
5 Performance Objectives 13 to 17
Process Design 17 to 20

Conclusion 21 & 22
Bibliography, References and Sources 23
Appendices 24, etc…

Executive Summary

This report briefly describes the Nike’s Corporation, one of America’s leading sport shoe and clothing manufacturing companies. It discusses Nike’s partnership with I2 Ltd, a leading worldwide provider of visual investigative analysis software. 6

To truly evaluate and analyse this relationship we go through Nike’s background to its handling of issues related with the new supply. The document describes Nike’s economic condition before and after i2 software, Nike’s core function, reasons behind the implementation and the consequences, why face restructuring issues, goes over the software overcapacity problem and some issues related with OSP- operations, systems and people.

Introduction

In 1999 Nike implemented I2’s demand and supply planner software. This system would handle all Nikes’ supply chain and sales order process and the company wanted to have the software up and running before the next year (2000).

However once online, the I2 software started having huge problems: deleted customer’s orders created duplicate orders and even deleted manufacturing request to Asian factories. So what was the problem? The system was not designed to handle the large amount of products that Nike sells and many of the previous systems where still in use so the supply chain software had to be customized to communicate will all of them, causing large delays and crashes.

Nikes’ infamous, painful and expensive episode with i2’s demand- planning software teached other companies some lessons. For any company using or considering demand-planning and forecasting software, this report will help in understanding the limitations.

Core Function5

Nike sells more than 40 millions pairs of running shoes, yet does not manufacture any of them:

Nike uses a worldwide network of outsources for its manufacturing.

Nike refers to those companies that have been its long-time suppliers of its most expensive products as ‘Developed partners’:

Knowledge;
Technology;
Expertise to produce those products.

Nikes production network is not static, and its head office is constantly redefining its supplier system.
Many of its Developed Partners are created from companies that Nike has gradually upgraded by assigning experienced technicians to train semi-skilled workers.
Nike’s relationship with its suppliers is usually credited as the source of its competitive advantage- they truly are partners and not contractors.

Supply Chain Management

Company Background

Nike was created in 1971

In 1975, Nike introduces the “Futures” program

NIKE, Inc. (Nike) has grown to be the world's largest marketer of athletic footwear and apparel.

In the U.S. Nike sold through 20,000 retail accounts

Nike is best known for the shoes used by NBA teams

Nike products are sold in 110 countries.

Both domestically and overseas Nike operates retail stores, including Nike Towns and factory outlets
In 2001, Nike and i2 blame each other over lost revenues to Nike

Old system’s

Built in the mid-1980s.

Nike had tremendously increased the number of its manufacturing units around the world.
The demand management system was designed and implemented by over one hundred information specialists ...

This is a preview of the whole essay

In the U.S. Nike sold through 20,000 retail accounts

Nike is best known for the shoes used by NBA teams

Nike products are sold in 110 countries.

Both domestically and overseas Nike operates retail stores, including Nike Towns and factory outlets
In 2001, Nike and i2 blame each other over lost revenues to Nike

Old system’s

Built in the mid-1980s.

Nike had tremendously increased the number of its manufacturing units around the world.
The demand management system was designed and implemented by over one hundred information specialists within the company.

Under this system:

Nike's retail partners placed orders-six months before the required delivery date.
Orders were then forwarded to the manufacturing units around the world.

Nike manufacturing facilities are located in developing Asian countries: Taiwan and Korea.

The company had a complicated supply chain system where orders were placed by retailers six months ahead of delivery dates.

Nike had a manufacturing cycle of nine months.10
The retailers used to place orders six months ahead of delivery.10

Why Change?

In implementing new software the purpose of the application is to modernize its supply chain and manufacturing processes.

The new system is designed to help Nike managing the inventory more effectively.

Furthermore :

Nike’s Opportunity1

By being able to better match supply with demand, the company thought it could avoid getting stuck with warehouses full of shoes that had gone out of style, while boosting sales of the cool pairs that everyone wanted.

Nike as any other company is always looking for ways to improve weather it’s an operational or strategic planning there is always room for improvement.

One of Nike’s downfalls, before i2 technology was even thought of, were intervals between order and delivery time.
Nike’s 6 months gap was identified as a money loosing (stage 1) and needed some new system to take care of the delay. After consideration Nike decided to give a project to i2 technologies. I2 supposed to develop a system (stage 2) tailored to Nike based on the software they already have in place. The aim of the system was to shorten a wait time and increase stock availability.
As well as that the new technology supposed asses design lines in terms of their popularity (stage 3).
The whole process in theory supposed to dramatically increase Nike’s competitive advantage and shake up the entire supply chain industry (stage 4). Judging by what actually happened the whole experiment failed spectacularly.

System was never designed to handle such a high volume of orders, on the other hand Nike’s demands to tailor make it didn’t help matters.

Although Nike had a good concept they have demanded a lot of customizations from i2 technologies and never did and testing of tailor made software.

The combination of the above had a strong influence on failure.

Problems with the Implementation

In 1999 Nike implemented I2’s demand and supply planner software.
Once online, the I2 software started having huge problems:

deleted customer’s orders;
created duplicate orders;
Deleted manufacturing request to Asian factories.

What caused the problem?

Not designed to handle the large amount of products.
The previous system was still in use causing large delays and crashes-Lack of communication.
This system would handle all Nikes’ supply chain and sales order process and the company wanted to have the software up and running before the next year (2000).
The system was not designed to handle the large amount of products that Nike sells and many of the previous systems where still in use so the supply chain software had to be customized to communicate will all of them, causing large delays and crashes.
Balancing speed-to-market vs. customization.

I2 have an extremely low tolerance for customization, however Nike pursued strenuous customization.

I2 did not go through the process system development completely.
Nike did not monitor and check the data outputs, in order to ensure usable documents.
Nike rushed into execution and cut over to the new system without proper verification and without doing any dry runs of the software.

Consequences of the Breakdown

Caused havoc among the manufacturers.
Not being able to supply to the market demands:

Nike's reputation suffered
Lost considerable market share to rivals like New Balance and Reebok.

Whose fault?

Nike’s View:

Demand and supply planning module caused serious inventory problem
Nike implemented i2 at the cost of $400M-waste of money

I2’s View:

Nike failed to follow the vendor’s implementation methodology

4 V’s1- TYPOLOGY OF OPERATIONS

VOLUME

Volume has a significant effect for the way Nike Inc.’s supply-chain software organises its operations. Nike has a high volume in output and therefore there is a high repeatability of tasks. The frequent repetition of tasks requires Nike to specialize by assigning employees specific tasks such as assembling the shoes, creating the design, etc. The batch production process of Nike is a standard procedure which is set down in a manual with instructions on how each task should be carried out, therefore it is systemized. The high volume of output for Nike helps the produce its products at low unit costs.

However, if the volume was low and there is no frequent repetition or systemization the units costs for Nike would be remarkably high. When Nike implemented I2’s new supply chain software the volume continued to remain high.
The shortage of stock and the excess of unnecessary stock caused by the problems the I2 software increased cost for Nike as they had to resort to air shipment of the products to meet their customers’ demands on time.

VARIETY

Nike had a low variety of output when it was using its old supply chain software as well as I2’s software. Their production process was standardised therefore minimising the costs.

When I2’s software duplicated wrong orders of the customers and sent it to the manufacturers in Asia- creating an excess of unnecessary stock and shortage of stock that was in demand. Although on the 4V’s model, variety is about Nike’s shoes so, it is low because in the end they are just shoes.
However, Nike was forced to rectify the error by reproducing the products to meet its customers’ demands on time. This sudden change and disruption caused due to the incapability of the software increased the costs for Nike.

VARIATION

When Nike was using the old software its variation in demand was low, as the operation process was stable and predictable. Nike utilises their resources efficiently to lower unit costs their manufacturers are located in developing Asian countries such as Taiwan and they boat shipped their products which is an economic mode of transportation. The retailers were aware of the routine procedure of ordering the necessary stock 6 months in advance.

However, with I2’s software the operation process was chaotic and created shortages of stock. This led to an unpredictable increase in demand from customers’ that needed to be satisfied promptly. Nonetheless, Nike was flexible and resorted to air ship its products from the manufacturers in Asia to the retailers to meet demands of anticipating customers.
Hence, Nike endured high unit costs as a result of I2’s incompetence. Therefore, after Nike implemented I2’s software the variation in demand was high.

VISIBILITY

When Nike was using their old supply chain software their visibility was low, this was because the process was standardized. The retailers were aware that in order to receive the necessary stock on time they had to place the order with Nike 6 months in advance. Therefore, they were able to meet to the customer demands on time.

However, when I2 software was implemented the visibility of the operation process was high. The shortage of stock that was in demand created chaos and frustration among customers due to the long waiting period- creating bad publicity for both companies. This as a result caused Nike to lose it customers and endure increased costs due to the incompetent performance of I2’s supply chain software.

The 5 performance objectives

All operations have a range of stakeholders- people and groups who may be influenced by, or may influence, the operation’s activities.
Some are:

Internal, for example the operation’s employees;
External, for example customers, society or community groups, and a company’s shareholders. Some have a direct commercial relationship with the organization, for example suppliers and customers; others do not, for example industry regulators.

However, in any kind of organization, it is a responsibility of the operations function to understand the (sometimes conflicting) objectives of its stakeholders and set its objectives accordingly.
Broad stakeholder objectives form the backdrop to operations decision making, but operations requires a more tightly defined set of objectives that relates specifically to its basic task of satisfying customer requirements. These are the five basic ‘performance objectives’ and they apply to all types of operation. Imagine that you are an operations manager in any kind of business- a production manager for a Retailer in this case Nike.

What kinds of things are you likely to want to do in order to satisfy your customers and contribute to competiveness?

Quality:

You would want to do things right; that is, you would not want to make mistakes and would want to satisfy your customers by providing error-free goods and services which are ‘fit for their purpose’. This is giving a quality advantage to your company’s customers.

Nike suffered a quality disadvantage after implementing I2, because it created shortages of popular shoes and excess inventory of wrong shoes.

Speed:

You would want to do things fast, minimizing the time between a customer asking for goods or services and the customer receiving them in full, thus increasing the availability of your goods and services and giving your customers a speed advantage.

The purpose of i2 was minimising the delivery time from 6 months to a matter of weeks. They were unable to execute the objective, which gave the customers a speed disadvantage.
They failed to meet their objectives due to technical error in ordering the correct stock.

Dependability:

You would want to do things on time, so as to keep the delivery promises you have made to your customers. If the operation can do this, it is giving a dependability advantage to its customers.

The shortage of stock caused by the I2 software, created further delay for Nike to deliver the required shoes to the retailers on time, giving a dependability disadvantage to its customers.
The i2 software created a shortage of stock therefore Nike was not able to deliver the necessary shoes to the retailers on time making it a dependability disadvantage to its customers.

Flexibility:

You would want to be able to change what you do; that is, being able to vary or adapt or adapt the operation’s activities to cope with unexpected circumstances o r to give customers individual treatment. Hence the range of goods and services which you produce has to be wide enough to deal with all customer possibilities. Either way, being able to change far enough and fast enough to meet requirements gives a flexibility advantage to your customers.

Nike decided to airship the fast-selling shoes once the shortage discovered, to meet the demand of the customers. It was also able to change far and fast enough giving a flexibility advantage to their customers.
Once the shortage discovered was sorted Nike decided to airship the fast-selling shoes to meet the demand of the customers. It was also able to change far and fast enough giving a flexibility advantage to their customers.

Cost:

You would want to do things cheaply; that is, produce goods and services at a cost which enables them to be priced appropriately for the market while still allowing for a return to the organization whoever is funding the operation. When the organization is managing to do this, it is giving a cost advantage to its customers.

The chaos caused by the blunders of the I2 software increased costs for Nike in every aspect. Nike had to resort to air-shipment which increased their transportation cost from 75 cents to $5-$8 per shoe. The mistake cost Nike $100 in revenue for the third quarter of 2001.
The havoc caused by the blunders of the I2 software increased costs for Nike in every aspect. Nike had to resort to air-shipment which increased their transportation cost from 75 cents to $5-$8 per shoe. The mistake cost Nike $100 in revenue for the third quarter of 2001.

Process Design1

Looking at the way the process should be designed oversights and mistakes can be clearly determined.

In terms of design Nike had a concept of new system which could help them to increase competitive advantage.

From this point Nike without realizing took a down turn approach. They never screen the process which more likely would have picked up on early issues.

In terms of outcome of the new process i2 technologies never had taken into the account the extend of Nikes suppliers and the amount of stock they would have been dealing with. The implementation of the system and what impact it would have had on supply chain.
Partnership with i2 technologies meant to provide a solid system of replenishment and identify the best selling lines as well as best selling SKU’s. I2 Technologies already had software which could potentially handle such an enormous operation however Nike demanded a software to be tailor made to their needs. I2 worked and what they believed developed a software to accommodate all the individual requirements Nike had.
Things from here were not as they should. Neither Nike nor i2 Technologies ever evaluated a process. What should have happened and would probably save the disaster.
Nike’s directors decided to launch the system to run simultaneously with its current supply chain system. As a result what supposed to ease and simplify has created havoc amongst Nike suppliers which resulted in huge pile ups of unwanted stock and shortages of the most popular SKUs.

Process Design Mapping3-old system

Above is an illustration of Nike process design they had before i2 Technologies based on Nike supply chain described by Prentice Hall, 2007.

Assumption is that the process begins when retailer places order with Nike then order is being processed and raw materials are being purchased.
Once materials are purchased they are being assembled and stored as finished goods.
Finished goods are then passing trough Nike quality control.
Next step is transport to distributor in individual countries. Distributor then fulfill the orders and delivers them to retailers.
Goods are then being stored in retail outlets.
At Point of Sale/ Delivery to customer retailer takes a payment and order is being placed with Nike for stock.
Two D symbols a potential delay in processing the order as Nike had to receive the order, process it and send correct orders to its suppliers.
Relevant information as to how long individual processes took assumption is that it took 2 months to receive, 2 months to process and 2 months to deliver stock.
In information’s provided the whole process took 6 months.

Process Design Mapping

Above map illustrates what i2 system should have eliminated:

Assumption is that the process begins when retailer places order with Nike then order is being processed and raw materials are being purchased.
Once materials are purchased they are being assembled and stored as finished goods.
Finished goods are then passing trough Nike quality control. Unlike old system, new one eliminates distributors and ships directly to retailers in individual countries.
Goods are then being stored in retail outlets.
At Point of Sale/ Delivery to customer retailer takes a payment and order is being placed directly with suppliers and Nike notified about transaction.
At this point Nike doesn’t have any control of the stock all they have is an idea of what is being sold and how many SKUs.

Conclusions

It is important to:

Appreciate the importance of an effective supply chain system- especially for a manufacturing company operating in a highly competitive and trend- driven industry.
Understand the importance of integrating new systems with legacy systems and processes in the organization for their effective functioning.

Lessons:

Patience is a virtue:

Enterprise software implementations cannot be rushed and they take time to demonstrate benefits.
Nike had the luxury and good sense to avoid being driven by hard external deadlines. This enabled it to learn from the mistakes it had made in its i2 project.7
Rush implementation without verification.

Define a business goal:

Getting software up and running is not a goal; remaking the business is. Nike wanted to take three months out of its sneaker manufacturing cycle.
No pilot/parallel run stage is just brainless.
The clarity of its business case sustained the project when things went south in 2000.7

Reengineer processes:

"Blank sheet" reengineering can lead to unrealistic business process designs that can’t be implemented through enterprise software.
Nike did not explain the manufacturing process clearly to i2.
Nike did not monitor the system development process precisely.

Just do it over:

When poor integration, inadequate training, unstable software and spotty testing derailed Nike’s i2 project, Nike redoubled its efforts in those areas to avoid similar problems when it began rolling out its fully integrated enterprise software platform.7
Probably mismatched solution.

Bibliography and references

Slack, N., Chambers, S. and Johnston, R., (2007). Operations Management (5th Ed). Pitman Publishing. Essex, England.
Nike supply chain
Five Lessons Learned from Nike's i2 Debacle by Chris Koch- June 15, 2004
eSupply Chain: ’News From The Web-Enabled World’ by Peter Buxbaum
T e c h 4 Y o u- Implementing ERP Systems: Case Study on Critical Success Factors
Nike: i2 Software Just Didn't Do It by Tim Wilson - March 01, 2001 (11:40 AM EST):
‘i2-Nike fallout a cautionary tale’ by and
Staff Writers, CNET News (March 9, 2001 4:00 AM)-
O’Brien, JamesA. &Hill, M. (2002), ManagementInformationSystem: managing information technology in the e-business enterprise
Wild, R. (2002), Essentials of operations Management, Thomson Learning
Heizer, J. (1995), Production and operations management, Prentice Hall
Waller, D.L. (1999), Operations Management: a supply chain approach, International Thomson Business

Appendices

nike and I2 just didnt do it

This is a preview of the whole essay

Patience is a virtue:

Enterprise software implementations cannot be rushed and they take time to demonstrate benefits.

Nike had the luxury and good sense to avoid being driven by hard external deadlines. This enabled it to learn from the mistakes it had made in its i2 project.7

Rush implementation without verification.

Define a business goal:

Reengineer processes:

Just do it over:

When poor integration, inadequate training, unstable software and spotty testing derailed Nike’s i2 project, Nike redoubled its efforts in those areas to avoid similar problems when it began rolling out its fully integrated enterprise software platform.7

Probably mismatched solution.

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