Nike has been transforming its supply chain strategy over the past roughly two years to support an equally transformed go-to-market strategy.
Supply Chain Digest Says... |
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| Nike said it is going to significantly reduce the number of retailers it focuses on, down to only about 40 worldwide, including on-line channel partners. That will likely send shockwaves through other retailers that don't make the short list. |
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At the core is moving from a more traditional linear supply chain to a more responsive one. That means increased use of regional manufacturing strategies instead of an Asia-centered one, and it now appears starting with moving production from Asia to Latin America and eventually US soil itself – moves dependent on a high degree of manufacturing automation.
As with most brand companies and retailers, Nike's Asian-based production strategies make for a very long supply chain – with orders to contract manufacturers often issued six months in advance of shipments.
That obviously means Nike is hugely dependent on its forecast accuracy many months in advance to get its inventory strategy right, and as with virtually all companies that is a risky proposition, resulting in shortages of what turn out to be market hits, and markdowns on styles that miss the consumer mark.
With its new production strategy, Nike hopes to get that lead time down to more like one 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 old partnership with Flex, a contract manufacturer. Nike, Sprunk told investors. has recently moved into a "near-shore, purpose-built footwear factory with Flex that will deliver over 3 million pairs to North America in fiscal year 2018 alone. By 2023, together with Flex, we plan to produce tens of millions of pairs near shore," meaning in Latin America.
According to reports from Quartz.com, Sprunk added that more 25% of those shoes will be made on a "responsive model" with short lead times. That means Nike will be able to reduce the time from manufacturing to market from about 60 days to 10 days or less, responding to consumer demand.
In addition to all the benefits of producing more in tune with demand, the nearshoring strategy will also reduce shipping expenses and import duties.
But this supply chain move comes in the context of major changes in Nike go-to-market plans.
At the same investor meeting, Nike executives detailed the company's on-going plans to sell more goods digitally and directly to consumers – quite a change from its longstanding model of selling through sporting-goods stores and other traditional retailers.
Nike said it aims to grow digital sales from 15% of revenue to 30% over the next five years, a figure that includes both direct and sales through ecommerce partners such as Amazon.
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 What's more, Nike said it is going to significantly reduce the number of retailers it focuses on, down to only about 40 worldwide, including on-line channel partners. That will likely send shockwaves through other retailers that don't make the short list.
While Nike said it wouldn't eliminate the thousands of other retail accounts that it currently manages, brand president Trevor Edwards said "undifferentiated, mediocre retail won't survive."
At the CSCMP annual conference in September of 2016, Nike's Mark Trusley said Nike also wants increased real-time inventory visibility across its retail partner networks - not only for itself, but for its customers. So, a consumer could go to the Nike web site and see what inventory was available right now not only from Nike but from all of its retail partners, in what would be quite a paradigm shift indeed.
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