Every wonder how companies like Amazon, Walmart and Nike; it has to do with a strong supply chain. What is a supply chain? A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request.
The supply chain includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers, and even customers themselves. When you put all these departments together the consumer has a seamless transactional process and has no idea of what happens on the backend.
This allows for a great customer experience, which in turn drives sales for the company. For example, Amazon offering Prime customers the opportunity to ship their packages in 2 days. We will discuss the supply chains impact on companies throughout the years and what has changed.
Over the years the supply chain has evolved into something more than important functionality of the company. The different departments really didn’t communicate with one another because they just knew their own independent role.
The management group such as the Chief Operating Officer (COO) didn’t really worry didn’t have the pulse on logistics. This would mean there is only one distribution center open to ship the product from. Well, what do you do if that particular center closes down. The customer is not able to receive their order.
If you speak with that same company I am sure they will tell you things have changed to where the purchasing department and production now have a better communication with the distribution areas to include more locations.
In the future, there will be a tremendous shift in the movement and consumption of goods, all of which will require even better management of the associated supply chain processes.
Nike is said to one of the leaders in sports product market because of the use of the supply chain system. Its manufacturing network consists of over 700 factories in 42 countries. Each product moves from 57 distribution centers across a network of 18,500 accounts and 140,000 retail doors (2014).
They pretty much have done what most companies have and clear out the extra links within the chain. For instance they are not in the business to putting their own products in a “Nike Warehouse” they are doing my whomever is manufacturing the product.
Nike has been able to keep almost perfect completion of orders its customers merchandise. Even during these tough times Nike is still able to meet the demand of the customer with their online ordering system with a four delay from their typical shipping times.
For full transparency, Nike has given full access to how its factories are contracted, which gives you information not only on their products but Converse as well. This allows Nike to deliver its goods more efficiently to pass the costs savings on to the consumer. Of course, this is all done with the advancement in technology.
Think about how many people it took to make a shoe and now with machines how that has been reduced, which also leads to more logistical information being supported. This technology allows Nike the ability to forecast accurate to its customers so they know how much to make and when.
This allows for proper money management, which will not over crowd the shelves and of under stock.
When you speak with anyone that works at Nike now, which I have had the opportunity to do at their local stores. They will tell you that the digital age has allowed them to understand their retail market as well by removing the customer friction.
What does that mean? Well, someone can order a product from their mobile device or computer at home and instead of waiting for it the store can have it pulled from the stock or have it shipped to store to avoid “porch pirates”.
These innovations have also lead to a high use of customer data to know what inventory may be needed at each store because you never know if someone wants to add something on to their order.
Nike’s main three supply chain decision phases have to do with strategy, planning and operations. To make sure the company is running effectively and efficiently they have make sure the strategy is how can we get a great product at a low price to our consumers.
The planning phase talks multi-distribution centers which reduces cost for international shipping and cost from states to state. The great thinking of Nike again keeps the cost of rushed shipments to stores because with the centers being close they can get to the stores quicker and cheaper.
The operations phase allowed for the company to find ways to not keep inventory held over and using the right suppliers the consumer has more ways to get the product they need faster.
The way the company did this is by knowing their consumers wants and needs. Because of the low cost (‘free’) shipping it has allowed them to get it our faster and still stay within the customers budget. B
y knowing what the customer wants and how to get it to them within a timely manner and given them options allows the profits to continue to rise because the word of mouth and reviews will help drive more business.
“In essence it means that we have an excess demand that we can’t cover due to insufficient capacity in our manufacturing plants,” said Kasper Rorsted, Adidas’s chief executive, on the earnings call, according to a FactSet transcript.”
Being able to come up with a good supply chain system can help a company grow. Nike, being able to cut the cost for their logistics and communicate with all their departments was able to beat out their competitor Adidas as previously stated.
This of course helps generate revenue for the company. Nike shares have rallied 17% in 2019 so far, while the SPDR S&P Retail ETF XRT, +0.53% is up 8%, and the Dow Jones Industrial Average DJIA, +0.11% has gained 10.4% for the period. Nike is a Dow component. This just means the company pays attention to what works and what does not.
