This is the latest in a series of stories we’re planning on the state of the global supply chain; in part one, we looked at how serious and widespread the problems are. Today we look at how Nike invested heavily in its supply chain even before the pandemic, and has been able to weather much of the turbulence with little disruption.
Nike’s 2021 first-quarter results contained some bad news for investors and the company. Like many companies last year, the Oregon-based sports apparel and sneaker manufacturer was seeing pent-up demand for its products, but global supply-chain disruptions meant they weren’t getting to customers.
But Nike had an advantage that other companies didn’t: It had been pivoting away from a retail wholesale model to a digital-first, direct-to-consumer model, a key strategic initiative years in the making. So the global supply-chain mess pushed the company to intensify the adoption of its new supply-chain technologies.
“As we accelerate our consumer-led digital transformation, we are developing and refining new capabilities that are transforming our operating model, quickly becoming a competitive advantage for Nike,” the company’s EVP and CFO Matt Friend said during its 2022 Q1 earnings call with investors.
Supply-chain uncertainty is likely to linger well into next year. To maintain a competitive edge, companies are looking to invest in digital supply-chain technology now and in the future. Not every company is going to be able to pivot to a more digital supply chain on the scale that Nike has, but recognizing the need to meet customers where they are will likely drive a lot of the digital shift.
“The vast majority of companies’ supply-chain organizations see technology as a source of competitive advantage, or competitive disadvantage,” said Dwight Klappich, research vice president and Gartner fellow at Gartner’s Logistics and Customer Fulfillment Team.
Clear line of sight. Supply-chain digitization is an integral part of Nike’s “Consumer Direct Acceleration” strategy, which aims to create direct-to-consumer platforms such as websites, apps, and Nike-owned stores to sell directly to customers. The data Nike is collecting from those platforms is then helping the company make supply-chain and logistics decisions based on real-time analysis of consumer demand.
To speed its direct-to-consumer transformation, in 2019 Nike bought Celect, a Boston-based retail predictive-analytics company, to coordinate inventory management with consumer demand. The acquisition allowed Nike to bypass years of building its own internal predictive-analytics system.
On the production side, Nike has introduced a wide range of technologies, including inserting radio frequency identification (RFID) tags into hundreds of millions of products to precisely track inventory, adding robots to distribution centers to speed delivery, and using machine learning and artificial intelligence to predict consumer trends. Nike is also introducing a new enterprise resource planning (ERP) tool to tie together all of these new capabilities.
News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.
“This will give us real-time visibility to inventory across our network, plus dynamic transactional capabilities to optimize consumer demand and inventory productivity,” Friend said in a Q2 earnings call in June.
Like many retailers, Nike was hit hard by factory shutdowns in Asia due to Covid-19; its Vietnam plants provide more than half of Nike’s shoes and 30% of its apparel. This made its digital transformation even more urgent, Friend told investors in June.
“Our wholesale revenue this year was depressed because we had to cut 130 million units of supply because our factories in Vietnam were closed for 12 weeks,” Friend said on the Q4 earnings call. “And so, as you look specifically to ’23, Nike Direct will lead our growth and Nike Digital will be our fastest-growing channel.”
Follow the leader. Many other companies are now looking to follow suit, according to a recent Gartner survey: 98% of supply-chain executives said they had either invested in or were planning to invest in advanced analytics. And 47% said that enhancing and accelerating decision-making was a key driver for making digital supply-chain investments.
These technologies can help organizations solve three key problems with supply chain disruption—visibility, transparency, and traceability—according to Steven Melnyk, Professor of Supply Chain Management at Michigan State University Broad College of Business.
“The promise of these technologies is that when you’re up to your eyeballs they’re helping you identify what you focus on, by means of taking care of the stuff that is routine,” said Melnyk. “The other thing that they’re doing is they’re now providing us with a degree of visibility.”
For both Melnyk and Klappich one of the key strategic advantages to supply-chain digitization is that the technology enables faster, smarter decision-making. “And that’s the place that they’re investing,” Klappich added.
While there are still considerable headwinds in the global supply chain that are still affecting revenues, Nike’s pivot to a direct-to-consumer model, supported by a tech-enabled supply chain is becoming increasingly important to the company’s strategy and bottom line. However, it’s worth noting that much of this success is based on Nike’s domination of the market and the uniquely deep brand loyalty of Nike’s customers that smaller organizations can’t match.
But for now, its supply-chain investments appear to be paying off for Nike. At $10 billion a year, Nike’s direct digital business is now responsible for 24% of the company’s revenue, more than double the pre-pandemic level, according to its Q4 numbers.
“Fiscal ’22 was our largest revenue year ever, even with supply constraints challenging our ability to serve consumer demand,” Friend said in June.—DA