Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community for help and clear up your study doubts
Discover the best universities in your country according to Docsity users
Free resources
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
The companies of focus are: Nike, Li Ning, and Adidas, which are based in the US, China, and Europe, respectively. The objective of this report is to look at ...
Typology: Lecture notes
1 / 17
This page cannot be seen from the preview
Don't miss anything!
Operations Innovation The importance of supply chain innovation to stay competitive in the athletic footwear industry in the US, China, and Europe Caroline Wimbleton, Vincenzo Barbaro, and Shihao Wang Lingnan (University) College Global operations & Supply Chain Management March 2018
Executive Summary This report focuses its research and analysis on three major competitors in the athletic footwear industry across three countries. The companies of focus are: Nike, Li Ning, and Adidas, which are based in the US, China, and Europe, respectively. The objective of this report is to look at how the supply chain for each of these major firms has changed in relation to operational innovation, in an effort to stay competitive. Exhibit A below outlines some key comparisons and contrasts between the firms. One main conclusion from this analysis is that supply chain innovation is different from traditional supply chain goals. Instead of trying to just deliver the right quantity and quality of goods at the lowest cost, modern supply chain management with an emphasis on operational innovation looks to increase sales and profits for firms. This is achieved primarily through automation that reduces lead times and delivers customized goods to market at a fast rate. The future of retail is mass customization, omni-channel presence, and an ability to work within the “digital revolution” (ISPO Munich, 2018). EXHIBIT A: COMPANY COMPARISON CATEGORY INFORMATION ADIDAS NIKE LI NING FOUNDING When 1924 1965 1990 Where Herzogenaurach, Germany Eugene, OR, USA Sanshui, Guangdong Who Adolf “Adi”^ Dassler^ Phil Knight^ & Bill Boweman Li Ning PERFORMANCE Market Position #2 worldwide, #1 Europe #1 worldwide #2 China Net Income € 347 million (US$55 million) $ 4.24 billion ¥ 643 million OPERATIONS Major Subsidiaries Reebok, Runtastic, TaylorMade Converse, Air Jordan, Umbro, Hurley Internationa l Lotto, Kason Supply Chain Strategy Outsourcing, supply chain 4.0--RFID identification chips, “click and collect” solution, “endless aisle” technology Outsourcing, lean production, vertical integration, eletrcoadhesion technology, Outsourcing Suppliers The Americas: 26% Asia: 64% EMEA: 10% The Americas: 20% EMEA: 10% Asia: 7 0 % China Target Consumers 14 - 19 - year-olds, male and female Women, young athletes, runners people born in the 90s male and female MANAGEMENT Current CEO Kasper Rorsted Mark Parker Li Ning
switch from one major brand to another. This is offset, partially, by the small size of individual consumers, which helps to minimize the switching cost impact on a firm. These factors contribute to a recommendation that major athletic footwear companies need to keep the purchasing power and consumer perception and behavior journey at the forefront of operation management and innovative change.
3. Bargaining power of suppliers: Weak Objective: this element tackles suppliers’ influence on firms and the industry environment. Characteristics: high overall supply, large population of suppliers, and the moderate size of individual suppliers. The large number of suppliers, as well as the large population of suppliers, minimizes the effects of individual suppliers’ actions on large firms competing in the athletic footwear market. Despite this, large companies can easily find new suppliers, and switching is relatively low cost; as a result, suppliers have very little bargaining power and individual suppliers factor into the supply chains of these firms in only small ways. 4. Threat of substitutes or substitution: Moderate Objective: this element identifies the force of substitution on the business and the industry environment. Characteristics: moderate availability of substitutes, moderate performance per price of substitutes, and low switching costs. The moderate availability of substitutes imposes a moderate force against major athletic footwear brands, as customers have considerable alternatives to the products. Similarly, customers have a moderate likelihood of considering substitutes because of the moderate performance of substitutes. The low switching costs contribute to this sentiment even more; however, the threat is not high, due to the successful implications of aggressive marketing efforts on the behalf of major companies such as Nike and Adidas. 5. Threat of new entrants or new entry: Weak Objective: this element identifies the extent of new entrants’ influence on firms in this market. Characteristics: high cost of brand development, high economies of scale, and a moderate cost of doing business. The high cost of brand developments poses a challenge to firms trying to enter the market, since they must compete with large, dominant firms such as Nike. The high economies
of scales provide major firms a competitive advantage against new entrants, considering their global production and distribution network for athletic shoes and other products. The moderate cost of doing business also limits new entrants’ ability to disrupt the industry environment. Company Introduction: Adidas Adidas was created in 1924, when Adolf “Adi” Dassler and his brother opened a shoe factory in Herzogenaurach, a Bavarian town in Germany (Adidas, 2018). The original company, Dassler Brothers Shoe Factory, became Adidas when the two brothers parted ways in 1948 (Flippo, 2017); Adolf formed Adidas, a shortening of his own name, and his brother formed the rival athletic brand known as Puma (SuccessStory, 2018). Adi Dassler created an original design for a spiked track and field shoe, which led to the company’s worldwide exposure at the 1936 Berlin Olympics (Flippo, 2017). In 1992, the company suffered is largest net loss after changes in leadership and poor strategic decision-making (Adidas Group, 2018). Despite this, a motivated CEO—Robert Louis-Dreyfus—changed the company from sales-driven to marketing-driven and got the company back on track for global success. Once the most popular athletic shoe in the world, Adidas now falls into second place behind NIKE, Inc. (Flippo, 2017). Despite its beginnings, Adidas is no longer a German family business; after acquiring French sporting brand Salomon in 1997, it is now a global corporation under the name Adidas- Salomon AG (FundingUniverse, 2018). It currently designs and manufactures athletic shoes, apparel, and accessories, and is represented by an iconic three-stripe logo. Its major subsidiaries include: Reebok, Runtastic, and TaylorMade, amongst others (Adidas, 2018). Company Introduction: Lining In 1990, Lining (a famous gymnast) started a sportswear company in Sanshui, Guangdong. During the company’s almost 30 years of history, Lining Co has gradually become a leading brand in China, and even in international markets (Lining Annual Report, 2016). Currently, Lining Co owns its own brand marketing, R&D, design, manufacturing, distribution, and retail capabilities. Its products mainly include sports and leisure footwear, clothing, and accessories produced by the Lining brand; notably, Lining Co also adopts a strategy of multi- brand business development. Its outsourced manufacturing partners and franchise distributors have established a huge system of supply chain management and retail network in China. By the end of 2011, the total number of Lining stores in China reached 8255, and the company
quality control and ethical sourcing, the company competed adapted its operational strategy under CEO Herbert Hainer (Adidas, 2018). Traditional supply chain operations: Lining Since 2005, Lining Co has cooperated with a third party for logistics and distribution. Lining Co also largely withdrew from the manufacturing sector, in order to maximize the efficiency of its supply chain. The management of its supply chain is actually the management of consumer demand (Wu, 2007). This means Lining Co’s business model is like making futures: once the product is designed, Lining will open purchasing meetings for dealers to place the order. After this is completed, Lining sends the orders to the factories, the factories will calculate the cost, and then factories will send the quoted cost to the material suppliers. The overall cycle can take more than 50 days. The overall cycle can take more than 50 days; thus, delivery pressure is immense, and (Gu, 2013). EXHIBIT B: AVERAGE TIME SPENT ON SUPPLY CHAIN LINKS PROCEDURES TIME Lining makes the samples for new design. 30 - 40 days Footwear manufacturers to produce small quantities of products. 3 - 8 days Order-placing meeting 10 - 15 days Shipping to the logistics base or the distributor 8 - 10 days Some less developed processes and departments contribute to operational “waste”—or inefficiency. Large-scale expansion by using traditional wholesale ordering has resulted in a large number of inventories, which occupy the cash flow of all stakeholders; this results in an overall decrease in inventory turnover and liquidity (Wu, 2007). At the same time, inventory will continue to depreciate over time at a higher speed, especially in the current market environment. Excessive inventory has become an important factor that hinders Lining's development on an international level (Wu, 2007). Whether Lining Co can deal with inventory problems and get rid of this vicious circle of inventory pressure is becoming the key to the future development of the company. Traditional supply chain operations: Nike Since the production of its first shoes in 1971, Nike differentiated itself by a high level of innovation, which allowed the company to satisfy increasing demand in its domestic market. It
then stabilized its production overseas, and this outsourcing strategy increased the cash savings due to lower wages and a lower cost of production in Asia than in the United States. However, in 1991, Nike had to defend itself from reports about poor working conditions at factories in Asia (Business Insider, 2015). Furthermore, Nike had to face the increased complexity of its supply chain due to the rapid expansion of the firm across various global markets. So, at the beginning of the 21st^ century, Nike decided to adopt a supply chain management known as i2 to reduce the lead time from nine months to six months (Koch Christopher, 2004). Cutting out that three months, Nike could match the manufacturing cycle with the retailers’ ordering schedule. This would mean producing to meet demand, rather than producing three months in advance, reducing inventory surplus. In essence, the supply chain should have moved from a made-to-sell process to made-to-order process. Despite these efforts, the integration was a total failure and the system recorded a loss of $100 million in sales for the 3rd^ quarter of 2001 (Mai Cuong, 2014). The i system was expected to be able to respond to the customization (style, color, size, etc.) of the market quickly, and the software was implemented to design a “crystal ball” demand which didn’t fit with Nike’s business model (The Business Scholar, 2014). As a result, Nike decided to move toward a SAP ERP system based more on orders and invoices than on predictive algorithms of the demand (Mai Cuong,2014). Current supply chain operations and innovations: Adidas In a reaction to increased demand fluctuations from consumers resulting in an increased diversity of orders and smaller order sized, Adidas has transitioned from a made-to-stock manufacturing system to a made-to-order system. As a result, is has been able to minimize the risk of forecasting, which in turn helps to eliminate distribution stock outs and surplus. A further benefit specific to the athletic footwear industry is also the ability to decreases the fashion risk, or risk of holding stock that cannot been sold in the next season due to changes in popular fashion and consumer trends. In terms of operational innovation, IT integration is essential for success. As such, Adidas has successfully upgraded its IT systems to include the IBM iSeries and iBOLT integration suite (Tewathia, 2010). Notably, the iBOLT technology allows the company to create visual maps of its supply chain and other business processes, as well as execute flows in service-oriented architecture (SOA). All of this leads to better management, and thus efficiency, of the supply chain.
focus of the company strategy. Part of this adjustment included de-stocking, as well as a renewed emphasis on research and development (Lining annual report, 2015). In 2012, Lining Co began to recover large-scale channels and accelerate inventory liquidation. At first, Lining Co helped the distributors with their inventory structure and healthy cash flow, and also provided more new product combinations for future development. At the same time, Lining Co also strengthened its channel management, especially channels to enhance clearance capabilities (for example, self-operated factory stores, general discount stores, temporary special stores, e-commerce and system outside channels). Different suppliers use the same planning tool, which can respond rapidly according to demand changes; this significantly improves the efficiency of Lining management. Lining also consolidated the segmented production and segment delivery functions, which helps to effectively reduce inventory risk for real-time sales demand. The implementation of a lean production line is well-suited to the retail model for small batch, high frequency, and short period product demand, while providing a quick response to orders. Centralized warehousing brings its supply chain closer to the end consumer and reduces the overall order time. Lining can deliver goods to its regional sorting centers in advance to ensure rapid replenishment and uses a standard information system throughout China. Lining Co invested heavily in its core suppliers to optimize supply base layout, control supply resources, avoid labor shortage, save costs, and supplement physical fitness. Lining Co also strengthened its cooperation with leading suppliers of ODM mode, both at home and abroad, to improve production efficiency. Li-Ning’s revenue income and the number of stores also show the trend and supply chain strategies’ influence. EXHIBIT C: LINING OPERATIONS Data source: Li- Ning Annual Report 2015 474 727 969 1333 415
0 2000 4000 6000 8000 10000 12000 2007 2008 2009 2010 2011 2012 2013 2014 2015
Revenue（million RMB） Income（million RMB） Number
Current supply chain operations and innovations: Nike Today, Nike has more than 900 contract factories and more than 1 million factory workers and more than 500,000 different products (Leland Maggie,2014). Nike is now trying to elevate its product excellence and innovation at the manufacturing level, with the purpose of integrating sustainability into production and manufacturing. Nike was able to overcome its PR crisis related to poor factory working conditions by implementing strict inspections, increasing the requirements for its suppliers, establishing a global database for its supply chain, and introducing corporate responsibility and transparency into its public reports each year since 2005 (Tobah Bushra, 2017). This allowed Nike to become one of the world leaders in Corporate Social Responsibility (CSR) (Newell Andrea,2015). Therefore, Nike continues to outsource its production, since Asian countries provide a lower cost of labor and reduced shipping costs due to free trade agreements (McDaniel, Robin,2017). Because of outsourcing to cheaper countries, Nike became more efficient and more competitive, focusing on their core competencies of designing, innovating, and marketing. In fact, Nike currently outsources up to 75% of its processes. (Thomas business News, 2015.) This is possible due to the creation of long-term, trust-based, and transparent relationships with suppliers, as well as vertical integration of the supply chain. Collaboration gives suppliers opportunities to grow and helps to predict the potential fluctuations in demand through working closely with retailers. In fact, Nike is following a make-to-order strategy implemented by a just-in-time (JIT) approach to facilitate production, shipment, and inventory reduction. As a result, Nike is trying to manage demand by requiring retailers to order up to 80% of their inventory six months in advance. To support this strategy, Nike introduced lean manufacturing that, since 2002, brought many advantages such as (Itani Ihab, 2015): 10%-20% increase in productivity; 40% lead times reduced; and 30% time reduced to introduce a new model. At the end of 2011, lean manufacturing was used for produce 80% of footwear, 57% of apparel, and 11% of equipment (Itani Ihab,2015). The implementation of such a supply chain strategy required Nike to be more sustainable, basing its organizational structure on a matrix. On one side, the managers’ report to multiple departments; on the other side, employees define their strategies within their multidisciplinary responsibilities. Although Nike is successful, we believe there are drawbacks within the current supply chain which leaves room for improvement. Some of these drawbacks include: A lack of control of inventory because of the large number of
success. Despite this, the adaptations of major competitors lead to a speculative conclusion that Lining may not be able to innovate fast enough to outcompete in the global marketplace. Innovating within the supply chain for future success: Nike “The challenge [for Nike] has been how to shift old traditional wholesale model to something that better reflects the marketplace now,” as stated by Nike Head of Global Operations Strategy and Innovation, Jason Trusley. To respond to “buy now, wear now” and “fast-fashion” demand from shoppers, Nike has to review its entire supply chain strategy (Su-San Sit, 2017). Specifically, to reduce the lead times from 60 days to 10 days, Nike is redesigning its logistics network, improving contract manufacturing, digitizing, as well as reviewing its outsourcing strategy with potential nearshoring and investing in automation through partnerships (Lopez, 2017). As forecast by Morgan Stanley in 2017, almost 20% of Nike production will be automated by 2030. The automation process started in 2015, through the establishment of a partnerships with the high-tech company Flex, which allows the company to deliver new designs to market more quickly, and with California company Grabit, which uses electro-adhesion and robots to combine materials together with high precision (Bain Marc, 2017 and Financial Times, 2017). Nike is planning to implement 1,200 automated machines at its main Asian supplier’s production sites by the end of 2018 (McKevitt, 2017). Moreover, Nike expects to nearshore part of its production to North America and Europe in order to cut the manufacturing-to-market time and become more responsive. As proof of Nike’s commitment to adapting its operations to the market, the sportswear company created an Advanced Product Creation Centre in Beaverton, Oregon, to analyze new forms of automation as part of industry 4.0. The sportswear industry is clearly starting a process characterized by the implementation of industry 4.0., with a forecasted growth of $65 billion (Garcia, Tonya, 2017). Therefore, Nike is on the right track in adapting its supply chain to a rapidly changing market based on a direct- to-consumer model. Significant investments should be made on IT and big data to improve the transmission of data from the online platform to the distribution centers. This should be implemented on a timeline available to the consumer, so that the consumers can their product at each phase of the supply chain. This strategy allows Nike to offer a similar market- responsiveness service to the one offered by Amazon.
Reference List Adidas Group. (2018). History. Adidas Group. Retrieved on February 26, 2018, from https://web.archive.org/web/20150208215436/http://www.adidas-group.com/en/group/history/ ASQ. (2017). Improvements to Nike and Adidas supply chains could transform footwear industry. LexisNexis. Retrieved February 20, 2018. Balmat, N. (2015). Nike unveiled new initiatives to revolutionize its manufacturing process thank to 3D printing. Futur404. Retrieved February 20, 2018. http://www.businessinsider.com/history-of-nike-facts-about-its-50th-anniversary- 2014 - 11 http://the-business-scholar.blogspot.com/2014/07/operations-management-problems-at-nike.html Chaney, J. (2008). Watch out Nike: China's sports brand coming on fast. Reuters. Retrieved on February 6, 2018. https://www.cio.com/article/2439601/supply-chain-management/nike-rebounds--how--and-why-
https://qz.com/1215851/the-new-ways-youll-use-mobile-payments-include-jewellery-and-qr- codes/ http://www.referenceforbusiness.com/history2/99/NIKE-Inc.html https://www.slideshare.net/IhabItani/supply-chain-managementnike- 50874312 SuccessStory. (2018). Adidas AG SuccessStory. SuccessStory. Retrieved on February 26, 2018. Supply Chain Digest. (2006). The 11 greatest supply chain disasters. Supply Chain Digest. Supply Chain Digest. Retrieved on February 27, 2018. https://www.supplychaindive.com/news/nike-lead-times-innovation-automation- consumer/508606/ http://www.sustainablebrands.com/news_and_views/brand_innovation/sustainable_brands/nike_ forms_strategic_partnership_apparel_manufact Tewathia, S. (2010). Case study on supply chain of Adidas. SlideShare. Retrieved on February 25, 2018. Tobah, B. (2017). Nike's responses a supply chain cries repositioned it as a sustainability leader, and raised the bar for an entire industry. Network for Business Sustainability. Retrieved February 19, 2018. Wiener, A. (2017). Inside Adidas' Robot-powered, on-demand sneaker factory. Wired. Retrieved February 20, 2018. Wu Kaiyao. (2017). Chinese sportswear company’s supply chain management analysis-Taking Lining as an example”, Shanghai Jiaotong University.
The following outlines the contribution of work from each member of this Global Operations & Supply Chain Team. Caroline Wimbleton: company focus on Adidas; research on the market environment; compiled and edited final report. Vincenzo Barbaro: company focus on Nike. Shihao Wang: company focus on Lining.
