Nike has transformed its supply chain strategy over the past two years or so to support an equally transformed go-to-market strategy.
At its heart is the shift from a more traditional linear supply chain to a more responsive one. This means increased use of regional manufacturing strategies instead of an Asia-centric strategy, and it now appears to start with moving production from Asia to Latin America and ultimately to American soil itself. – movements dependent on a high degree of manufacturing automation.
As with most brands and retailers, Nike’s Asian production strategies create a very long supply chain, with orders to contract manufacturers often issued six months ahead of shipments.
This obviously means that Nike relies heavily on the accuracy of its forecast several months in advance to come up with its inventory strategy, and as with virtually all businesses, it’s a risky proposition, leading to shortages of what turns out to be market hits and markdowns on styles. that miss the consumer target.
With its new production strategy, Nike hopes to reduce this delay to more than a month.
Eric Sprunk, Nike’s chief operating officer, recently presented at Nike’s Investor Day meeting, and provided new details about the company’s production and its two-year partnership with manufacturer Flex. under contract. Nike, Sprunk told investors. recently moved into a “near-shore shoe factory, purpose-built with Flex, that will ship over 3 million pairs in North America in fiscal year 2018 alone. By 2023, with Flex, we expect to produce tens of millions of pairs close to shore”, that is to say in Latin America.
According to reports from Quartz.com, Sprunk added that more than 25% of these shoes will be made on a “responsive model” with short lead times. This means that Nike will be able to reduce the time from manufacture to market from around 60 days to 10 days or less, thereby meeting consumer demand.
In addition to all the benefits of producing more in line with demand, the nearshoring strategy will also reduce transport costs and import duties.
But this supply chain change comes against the backdrop of major shifts in Nike’s go-to-market plans.
At the same investor meeting, Nike executives detailed the company’s ongoing plans to sell more products digitally and directly to consumers – a dramatic departure from its longstanding model of selling through stores. sporting goods and other traditional retailers.
Nike said it aims to grow digital sales from 15% of its revenue to 30% over the next five years, a figure that includes both direct sales and sales through e-commerce partners such as ‘Amazon.
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Additionally, Nike said it will drastically reduce the number of retailers it focuses on, down to just about 40 globally, including online distribution partners. This will likely send shockwaves to other retailers not on the shortlist.
Although Nike has said it won’t eliminate the thousands of other retail accounts it currently manages, the brand’s president Trevor Edwards said that “undifferentiated, mediocre retail will not survive”.
At the CSCMP annual conference in September 2016, Nike Marc Trusley said Nike also wants increased real-time inventory visibility across its retail partner networks — not just for itself, but for its customers. So a consumer could go to the Nike website and see what inventory was available right now, not just from Nike but from all of their retail partners, which would be a real paradigm shift indeed.
What do you think of Nike’s new go-to-market and supply chain strategies? Let us know your thoughts in the Comments section below.