Nike Strikes Gold with Lean

Every company aims for maximizing their profits and the best way to do is by cutting cost. However, in present times when prices and costs are so volatile and dependent on other factors, merely cutting cost will not suffice.  Companies would have to streamline their whole process, reduce waste and at the same time improve quality. Enter Lean, a very simple and practical concept, initially developed and implemented in Japan. Mostly derived from the Toyota Production System, lean manufacturing principles are a more refined version of the earlier efficiency efforts and processes introduced by manufacturing giants like Toyota and Ford. It basically involves designing, manufacturing, delivering and supporting products more efficiently and at lower costs while systematically identifying and eliminating waste all the way through the product life cycle. ‘It uses a just in time system that gives internal and external customers what they want, when they want it, and at the lowest possible cost’. 

 

In 1990's Nike faced issues with their manufacturing supplies. On investigation it was discovered that the situation was very complicated. Nike didn't own any factories and relied on contracted suppliers who were spread throughout SE Asia. The workforce that the suppliers employed was mainly made up of people migrating from the rural farming communities with little to no manufacturing experience. With intense competition from rival firms like Adidas, Reebok and Puma, Nike didn't want to take any chances and so decided to implement Lean manufacturing processes throughout its supply chain. The results were impressive.

According to their FY10/11 Sustainable Business Performance Summary document, Nike, by adopting lean manufacturing throughout its factories, showed tremendous results in eliminating waste, time loss and material loss from its processes. The report highlighted that after introducing Lean methods of manufacturing, factories managed to cut defect rates by 50 percent more than before. It revealed that delivery lead times from lean factories were, on average, 40 per cent quicker. It further mentioned that the productivity increased by 10 to 20 per cent and the time taken to introduce a new model reduced by 30 per cent.

Source:http://www.nikeresponsibility.com/report/content/chapter/manufacturing

Nike has been encouraging and providing resources to contracted factories to support their transition to the lean approach. It has provided training, coaching and technical assistance to the employees hired by those factories and helped them to become skilled workers. 'By the end of FY11, within the NIKE Brand, 80 percent of footwear, 57 percent of apparel and 11 percent of equipment were made using processes meeting the minimum baseline definition of lean'. However there is also a flip side. Lean manufacturing processes may decrease cost in the short term, but there is no denying that by standardizing processes and components they also enforce a trade-off which increase risk. How should Nike or for that matter, any company implementing Lean be prepared to mitigate those risks? In the wake of  problems, recently surfaced in companies like Toyota and Apple, is Lean Manufacturing in crisis?  

References:

1. NIKE, Inc. - Sustainable Business Report. Rep. N.p., 2011. Web. 04 Feb. 2013. <http://www.nikeresponsibility.com/report/content/chapter/manufacturing>.
2. Leach, Adam. "Nike Reduces Lead times through Lean Manufacturing." Purchasing and Supply News, Law, Analysis and Resources. N.p., 12 May 2012. Web. 04 Feb. 2013. <http://www.supplymanagement.com/news/2012/nike-reduces-lead-times-through-lean-manufacturing/>.
3. Jenkins, Maureen. "Boeing Frontiers Online." Boeing Frontiers Online. N.p., n.d. Web. 04 Feb. 2013. <http://www.boeing.com/news/frontiers/archive/2002/august/cover.html>.