Sunday, March 2, 2014

Nike’s Failure in Adopting Supply Chain Information System (2001)

In the 1970s, retailers would have to place orders with Nike 9 months in advance before the delivery date. The company was able to manage to deliver their products on time. However, during the 1980s and 1990s, Nike’s business expanded rapidly, leading to the complexity of its supply chain. In 1999, its profits decreased by 50% because of challenges in managing the supply chain.

Nike decided to adopt a supply chain management system from i2, a major competitor in the field of ERP systems. By 2001, Nike had installed the system, with the cost of $400 million. However, the system failed. Demand forecasting was one of the biggest issues. Demand for a number of products and locations was either overestimated or underestimated. The company reported a loss of $100 million in sales in the 3rd quarter of 2001 due to this problem.

So, what was wrong?

Nike requested i2 to modify the standard software in a rush. The company wanted to forecast demand by style, colour and size, etc. This led to the fact that thousands of forecasts needed to be made very quickly to respond to consumer preferences and the market. Nike needed the customisation of the software to be done soon, so the reprogramming was done in a hurry. The system was able to run but with bugs, causing errors.

Nike used both “pilot approach” and “plunge approach” in the adoption of the system. One the one hand, the company wanted to adopt an i2’s product, instead of using existing SAP solutions, to see if i2 was better. On the other hand, Nike plunge the whole business operation into the new system, instead of step-by-step and part-by part integration. This mixed approach was part of the failure.


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