Apr 24, 2010

Nike Doesn’t Make Sneakers!

One of the “right” things Nike is doing is pinpointing the need, then researching, strategically selecting and then keeping efficient relationships with outsourcing companies around the world. The manufacturing of the products sells is outsourced by Nike. Sneakers, jerseys and every other sporting equipment are manufactured outside of Nike’s company. In a 2005 corporate responsibility report, Nike disclosed seven hundred and four contracts of factories around the world who manufacture Nike products (Rafter, Michelle, 2005). Mexico, Vietnam, Bangladesh and China are all part of Nike’s outsourcing countries. It has been reported that since the Nike began outsourcing its manufacturing, they have used three criteria to choose their contractors: production quality, speed and price. In 2004, they added a fourth criterion: how well they align themselves to Nike’s values and code of conduct (Rafter, 2005). As many consumer online stores, Nike outsource its inventory and return management, as well as its delivery procedures in order to handle bulk orders in a timely fashion while keeping shipping costs low.

Holding the #158 company spot in FORTUNE 500 list, Nike knows exactly what its competitive advantages are: marketing, management, foot wear design and consumer research. Among its core competences, is not included actually making the sneakers! The company knows that producing the products itself mean money and resources spent in knowledge, logistics and management that they can find elsewhere – in a more cost-effective manner. This way, they can then dedicate substantial amounts of money and resources in their already mentioned strengths. As mentioned before, outsourcing allow companies an opportunity to have contracts for a set of period of time and then have the option to find more cost efficient relationships. An example of this benefit is when Nike, back in 2002, didn’t renew the contract established with its design and manufacturing company for its Nike Golf division. Instead, it contracted California-based Menlo Worldwide Logistics, whose partnership actually included two contracts: one to design and handle inventory of custom golf clubs and the second one to manage a distribution facility in Memphis, Tennessee (Cottrill, 2002). In a different supplier/vendor story, this time "gone bad," is one that got a lot of media attention back in 2001. Once Nike reported earning cuts in Q3, the company was quick to "blame" its supply chain software at that time, i2. Needles to say, the bad publicity and accusation substantially hurt i2's shares and reputation. In addition to Nike's shares hitting hard, its criticism to one of its supplier wasn't well received in the investors’ world (Mason, 2001).

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