Operations Management – Strategic Analysis
As a globally competitive corporation, Nike has
implemented the concept of operations management in its operating process. It
has facilitated the concept of the Lean Six Sigma, which helps focus on
lead-time reduction to increase customer satisfaction and market share. In its manufacturing
operations, Nike has gained competitive advantages from Kaizen breakthrough,
with the layout redesign for lean, just-in-time (JIT) system, total productive
maintenance and six sigma management.
Companies might vary
their business procedures in accordance with their alternatives and solutions to
counter problems. Therefore, certain measurement criteria is made which reflect
the most successful solutions.
Nike specializes in a
very labor intensive area i.e manufacturing of sports shoes which requires many
detailed measurements in production, evaluation and performance of the product.
The increasing strictness in quality control management and along with customer
demand for affordable goods has suddenly put Nike in a precarious situation. The
question arises that, “how high quality products can be produced under many measurements
at a price that customers are willing to pay for?” This can be accomplished by
application of transformation procedure, which converts batch manufacturing to
lean manufacturing at a strategic level.
Nike concerns and care
for what its target customers look for and plan on producing results that
exceed customer expectations and regulatory requirements by increasing productivity
for a better process.
Nike is known for its technologically advanced products and processes. Nike
has continuously improved its processes throughout the years by cross-functional
cooperation. In 1985, inventories had fallen significantly to less than 10
million pairs of shoes from a peak of 22 million in late 1983. Profit margins
rose in the second fiscal quarter from 25% to 33% a year earlier. During that
period, costs as a percentage of revenue fell for the company, marking its significant
Nike consumers are willing to pay premiums for perceived values, but value
can go beyond plain price and quality. The successful image of Nike becomes the
ultimate high-volume, low cost manufacturing. In the past, Nike had been
challenged by boycotting of goods, due to accusations that Nike has outsourced
and exploited developing nations and their workforce. However, Nike has currently
leveraged their low cost manufacturing environment and implemented operations
management strategies to its manufacturing systems to keep their strategic
position in the market.
Volume measurement can be a relevant allocator for determining types of
physical processes, machinery and equipment that goes in the production floor.
Volume can show how far equipments and machinery requirements for the operating
procedures have been utilized. This allocation makes it easier to cope with
process changeovers at Nike.
The location of the production facility is impacted on treatment
facilities, which often happen in areas where air pollution might not be a
problem. However, the environment limitation also determines the quantity at
which a facility can produce, and become independent of capacity or demand.
These problems impact on production, which will happen long after manufacturing
facilities are established and put into operation.
Supply Chain Management
Nike is executing a long-term sourcing strategy and is streamlining its overall
supply chain operations. Nike’s supply chain flow is shown in figure (a) below:
Figure (a): Nike’s Supply Chain
In 2007, Nike began to assess the
contract manufacturing base and undertaking a long term strategy in order to:
· Streamline supply chain to
focus on a number of contractors for manufacturing
· Build a strong and
sustainable sourcing base for greater operational efficiencies and future growth
· Identify subcontractors
that are able to deliver standard deliverables with the best performance rate
· Align subcontractors in
terms with Nike’s corporate responsibility principles.
Manufacturing Index (MI)
Nike has shifted from a risk-reduction focus to a time intensive strategy
which gives attention to strengthening supply chain relationships with
factories operating at optimal performance levels.
A manufacturing index (MI) was implemented in 2012 which integrates scores
from key performance areas into a single scoreboard rating which rates
factories according to Gold, Silver, Bronze, Yellow or Red. Contract manufacturers
that are able to consistently exceed Nike requirements in the weighted areas of
costs, quality, delivery and sustainability showing steady performance
leadership in the industry will achieve a silver rating in the MI. Contract manufacturers
that go beyond industry and demonstrate innovation and optimal performance
within the broader manufacturing landscape get the gold rating.
Minimally, Bronze rating is expected to be achieved and sustained, indicating
that factories can meet their baseline standards and can self-govern with their
incentives and sanctions to the contract manufacturers based on these MI