QUESTION $1[40]$

How Does Nike$$s Supply Chain Work?

Nike is the world$$s largest seller of running shoes and sportswear. As one of the most recognizable

brands in the world, the American multinational is arguably the most influential player in the modern

textile industry. Behind the hundreds of millions of shoes and other products Nike sells each year lies

a highly complex supply chain. Although there are undoubtedly significant challenges involved in

managing this complexity, Nike$$s proactive approach to supply chain management has been credited

by many as a significant contributor to its phenomenal success.

What is it that makes Nike$$s supply chain so unique and so effective?

The key principles behind Nike$$s supply chain are outsourcing and diversification. Nike contracts $100\%$

of its manufacturing for footwear and apparel out to independent suppliers. It was one of the earliest

multinationals to adopt this approach. Thanks to effective management, Nike$$s supply chain team

quickly learned to handle the additional logistical complexity involved in this outsourcing and has seen

significant cost savings over the years as a result. Outsourcing is inherently a risky approach, but by

extensively diversifying its supplier base, Nike successfully mitigated this risk from the beginning. In

$2019,$ Nike$$s footwear components were supplied by $112$ different factories in $12$ countries, with no

factory accounting for more than $9\%$ of branded footwear. Not being overly reliant on any one site

means Nike is less vulnerable to unpredictable occurrences, such as accidents and extreme weather

events.

However, this distributed approach has its downside. Sourcing components from so many different

facilities presents a real challenge for quality control. To ensure its high$-$quality standards are met at

every step of production, Nike maintains continual communication with its suppliers, providing support

through tools and training to initiate suppliers in its $$Lean Management$$ framework and Total Quality

Management $($TQM$)$ approach. Challenges to this approach have also come from outside the supply

chain. In the early stages of its pioneering approach to outsourcing manufacturing, Nike chose not to

engage in centrally monitoring supplier practice. However, due to increasing consumer demand and

changes in the market, Nike took a look at its sourcing approach and ultimately adapted a new

strategy.

Questions:

$1\mathrm{.}1$ Discuss Nike's inventory management and demand forecasting practices. How do these processes

help the company meet customer demands while minimizing excess stock and costs? $(20)$