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Abstract
In 2020, global companies and their supply chains were disrupted due to the rapid spread of COVID-19. Closed borders and lockdowns severely impacted supply chains’ logistics, changed products’ demand, and forced businesses to search for new management approaches. Nike was chosen as the multinational corporation in which supply chain management required significant updates due to the pandemic-related issues. This study includes the literature review related to supply chain management strategies, the COVID-19 spread, and the operational strategies of Nike. The quantitative research methodology was applied with the Nike documentation exploration to discover issues and solutions. This paper discusses how multinational corporations like Nike can manage their supply chain and solve transportation and distribution issues. It offers solutions based on the research and provides specific recommendations for the United Arab Emirates industries.
Introduction
Nike Inc. is one of the global companies that produces sportswear, footwear, and equipment for the athletes. It was founded by Phil Knight and Bill Bowerman as Blue Ribbon Sports in 1964 in Beaverton, US, and relaunched as Nike in 1972 (Childs & Jin, 2018). By the end of the twentieth century, Nike became a multinational corporation with offices in Europe, Asia, and the US. The company includes diverse categories of goods, such as football, running, Nike Sportswear, and Jordan. At the beginning of the company’s history, Phil Knight had to order shoes from Japanese manufacturers, and then expand the production to several countries. Moreover, shoes were produced after a customer’s order, therefore the whole process of delivering the product was customer-oriented. These factors revealed the importance of building a well-managed supply chain for Nike even before it became an essential part of large companies’ business strategies.
Today, Nike is the leading supplier of sports apparel and equipment: in 2020, the company got $37,403 million of revenue, and it is one of the world’s largest supply chains (Nike, Inc., 2020b). The part of its management strategy is the absence of its own production facilities as they have contractors in different regions, most of which are located in Asia. The production part of Nike’s supply chain contains more than 500 factories in 40 countries (Nike, Inc., 2020a). Shoes and apparel make more than 90% of Nike’s revenue, and the company has a significant cost advantage due to working with third parties instead of keeping its own factories (O’Connell, 2020b). This approach allows the corporation to focus more on the product quality and customer experience.
Nike supply chain contains operations with contractors on the material management level as manufacturing is operated in countries with lower rubber and fabric costs, such as China or Indonesia. The production part is located in Vietnam, Malaysia, Thailand, and the Philippines. Trading policies of the countries where the Nike-related facilities are located might change and severely affect the supply chain management of the company. The variety of places where the product is created helps Nike to keep a balanced supply even in case of tariff changes. Inbound logistics deliver products from factories to distribution centers, then, the goods are sent to stores where the end customers reach them. Nike has over 1000 retail stores worldwide, its footwear, apparel, and equipment are in high demand as famous athletes and sports teams promote the brand (O’Connell, 2020a). However, the year 2020 and its challenges require to change supply chain management approaches related to transportation and trading through stores.
The infection spread and lockdowns severely affected the company’s operations and forced changes for its structure. Most of the Nike’s retail stores were closed at least for two months of 2020, therefore the brand reported that its sales dropped 38% in the latest quarter of fiscal year (Nike, Inc., 2020b). Moreover, the countries’ borders, starting from China, were closed for any transportations. Both factors are crucial for Nike’s supply chain performance and management. The research question is as following: how did Nike conduct its supply chain strategy with the new conditions that appeared due to the COVID-19 pandemic? It assesses the hypothesis that Nike faced transportation issues and yet was able to revise and update the operations with minimum costs. The research aims to examine Nike’s supply chain management to identify issues related to transportation and distribution. The objectives of the research are to study Nike’s inbound and outbound logistics supply chain management issues and to confirm the importance of the supply chain’s capability to update. Nike supply chain faced transporting and distribution challenges in 2020 and overcame them by finding new approaches in delivering their products to customers.
Literature Review
Nike has a long company history, and its business plans, supply chain management strategies, and past issues are reviewed and examined by many peer-reviewed kinds of research and academic sources. However, the new approaches and business challenges that occurred due to the COVID-19 pandemic in 2020 are not well studied yet. Multiple sources have been checked and reviewed for this research paper to define terms and concepts, explore Nike’s business strategies, past supply chain management issues, and to examine the infection spread influence on global companies.
The main terms of this paper were identified while learning the study course and using the textbooks included. A supply chain is a dynamic model that contains from multiple parties that are determined to fulfill customer’s request and has continuing flows of money, information, and products between its stages (Chopra & Meindl, 2016). Transportation and distribution are the vast parts of the supply chain management model. Rehman and Yu (2019) define transportation as “a linear programming technique that determines the least-cost allocation of shipping goods from plants to warehouses or from warehouses to customers” (p. 35). The research defines transportation as the moving products from factories to assignment centers, while distribution relates to further delivery to retail stores and customers. One of the significant issues of supply chain management is to deliver the right product to the customer most satisfyingly and less expensively. The pandemic significantly influenced the delivering part; therefore, even the most sustainable approaches had to be revised.
The COVID-19 spread changed the way many businesses operate, and multinational corporations like Nike discovered that the old strategies could not be performed anymore. The impact mainly occurred since most companies with large supply chains have their manufacturing and production centers in China, the first country to face the pandemics (Esper, 2020). Nike has many raw material distributors and product factories in China, and, as none of them is directly acquired by the company, they had to deal with the pandemic-related conditions stated by the Chinese government. To define the issues of a particular supply chain model, the pandemic propagation in the countries of a company’s material management must be considered among the demand decline, distribution restrictions, and market disruption (Ivanov & Das, 2020). Scholars also discovered the severe consequences for transporting systems developed in pre-pandemic conditions. Kumar et al. (2020) state that “the COVID-19 pandemic has broken the most of transportation links and distribution mechanisms between suppliers, production facilities, and customers” (p. 2). Logistics requires significant changes to consider the demand for the product and the possibility of lockdowns in the occupied countries.
The scope of peer-reviewed literature about Nike includes multiple case studies of its business strategies. Nike continuously expands the variety of products and implements innovative production technics for their bestsellers to stay in high demand and be competitive (Aniyruddh & Kumar, 2018). The articles describe the company’s history, examine its supply chain management, make forecasts, and create recommendations to increase its revenues or improve further development.
The literature related to supply chain management tends to research the topic from several perspectives. It searches for ways and methods to study the processes, develops solutions to the existing issues, and measures the outcomes of strategies applied by global companies. The reviewed scholars’ articles recommend revising the transportation and distribution approaches considering the demand in products that changed due to the pandemics. Strategies and management techniques applied by Nike throughout its history were examined in peer-reviewed articles to develop recommendations and forecast behaviors of global corporations. There are gaps in knowledge of the research topic mostly related to the lack of results and outcomes of new approaches and measures applied by the companies. The research conclusions might provide new insights to assist in developing better strategies for solving transporting and distribution issues of supply chains. The management techniques Nike utilizes, combined with the research recommendations, can lead to generating new ideas for further studies.
Methodology
The method chosen to study Nike’s supply chain management issues is quantitative research to collect the secondary data about the company’s activities during 2020, compare its financial rates in different periods, and observe the pandemic consequences. The correlation between the lockdown in 5 countries where the most of the Nike’s factories located and the company’s income review, was examined to find relations between the pandemic and supply chain issues. The lockdown data also showed if the countries’ borders were closed and how it influenced Nike’s managing strategies for logistics. The data about Nike’s revenues and the number of manufactures by countries were collected from the company’s official documentation. The solutions Nike applied to deal with the supply chain transportation and distribution issues were also found in Nike’s reports. In order to analyze the results, the tables were compared, and Nike’s official documentation was examined to find out new approaches and connect them to the research data.
Results
The research provided statistical insights about Nike factories’ operations and transportation issues due to the COVID-19 pandemic. Table 1 shows that Nike’s transportation system’s issues began in January 2020 and still appear to exist. Moreover, Table 2 reveals that Nike revenues keep growing despite the issues and sales drops compared to the two last fiscal year’s quarters. The results helped to evaluate how relevant Nike’s approaches were in discovering the solution to transportation and distribution issues of its supply chain.
Table 1. Nike Manufacturers and Lockdowns, Sorted by Country.
Table 2. Nike Revenue Comparison of Fiscal Years 2019 and 2020, in Millions of the US Dollars.
Nike applied several changes to its supply chain management, most of them were related to the transportation and distribution of products (Nike, Inc., 2020a). Firstly, the transportation system reached the third-parties near the storages to provide faster delivery to customers. Secondly, online stores were forced to promote their offers and keep the products in demand (Nike, Inc., 2020b). The logistics switched their focus to the delivery straight to the customer who paid online instead of the retail store. Thus, the distribution structure was updated to optimize the transportations from storage to customers. Thirdly, automotive technologies were quickly set to serve warehouses and factories instead of the human workforce.
Discussion
The research findings are important as they reveal how the supply chains depend on external conditions and how the management of operations needs to be adaptable. Moreover, the alternative ways to keep the supply chain sustainable are urgent to be produced now as the world faces unstable economic and health situations. Nike, as one of the most prominent supply chain organizations, used the third-party involving approach to get the most of the local logistics infrastructures at places where the company’s distribution centers are located.
The reviewed literature showed that the severe consequences of the COVID-19 spread were faced by most of the global companies, mostly because their manufacturers were in China. Likewise, Nike had to conduct their supply chain strategies to these conditions as many of its material management facilities are Chinese. The approaches Nike applied to decrease the costs and to improve the distribution in a more direct way to a customer can be implemented by other companies regardless of their sizes or revenues. Further research might take place when the global economic situation becomes more stable, and the outcomes of new approaches or supply chain management strategies can be seen clearly.
Recommendations
Other companies, especially ones with similar supply chains that include third-parties for logistics and contractors for manufacturing, can use the solutions Nike applied to optimize costs and comply with transportation policy changes among manufacturing countries. Nike’s supply chain management is now determined to implement more automotive ways of operating: such approach and capability to update are useful for decreasing the costs and potential risks. However, Nike remains a valuable job provider, and automatization of processes can increase the unemployment in developing countries like Indonesia, Thailand, and Taiwan.
There are four specific recommendations, according to Nike’s example, which can be used for the United Arab Emirates industries to solve issues similar to the examined ones. First, the costs of logistics have to be evaluated, and optimized in the most local-based ways possible. Second, it is necessary to temporarily remove the supply chain segment if its absence will make the delivery of the product to a customer quicker and more satisfying. Third, the supply chain’s information flow has to be up-to-date so that each part is aware of any updates and ready to take measures if needed. Lastly, the robotic technology can be utilized to partially automate the operations and avoid risks of health policy changes that might appear in the future.
Conclusion
Nike faced multiple issues related to its supply chain management due to the world’s pandemic and lockdowns. Numerous factories involved in manufacturing and producing goods were closed, causing severe consequences for Nike’s operations. The borders of countries did not allow to keep the logistics at the same level, and transportation approaches had to be updated by the implementation of alternative shipping. As Nike does not own the facilities, the company had to comply with the government decisions regarding the measures to prevent the COVID-19 worldwide spread. The comparison of the 2019 and 2020 fiscal years’ quarters reveals that Nike did not lose in its revenues even during the pandemic, as the company’s fast management updates helped it to stay on track. The sales dropped as the demand for the goods temporarily decreased, and retail stores closed.
The research showed that the way Nike adapts its supply chain management strategies is an excellent example for other global companies affected by the year 2020’s challenges. As the production stopped, the attention was pointed to warehouses, so, the distribution part of the chain began to move directly to customers based on their distance from storage. Nike overcame the challenges by using the approach of involving third-party logistics providers, and it effectively worked in timely delivering the right products to customers.
References
Aniyruddh, S., & Kumar, K. (2018). Inventory problems faced by Nike.International Journal of Pure and Applied Mathematics, 120(5), 4283-4293. Web.
Childs, M., & Jin, B. (2018). Nike: An innovation journey.Product Innovation in the Global Fashion Industry, 79-111. Web.
Chopra S., & Meindl, P. (2016). Supply chain management: Strategy, planning, and operation. Pearson.
Esper, T. L. (2020). Supply chain management amid the coronavirus pandemic.Journal of Public Policy & Marketing. Web.
Ivanov, D., & Das, A. (2020). Coronavirus (COVID-19/SARS-CoV-2) and supply chain resilience: A research note.International Journal of Integrated Supply Management, 13(1), 90-102. Web.
Kumar, A., Luthra, S., Mangla, S. K., & Kazançoğlu, Y. (2020). COVID-19 impact on sustainable production and operations management.Sustainable Operations and Computers, 1, 1-7. Web.
Nike, Inc. (2020a). Manufacturing disclosure. [PDF document]. Web.
Nike, Inc. (2020b). Reports fiscal 2020 fourth quarter and full year results [PDF document]. Web.
O’Connell, L. (2020b). Total number of Nike retail stores worldwide 2009-2020.Statista. Web.
O’Connell, L. (2020b). Global revenue share of Nike in 2020, by product type. Statista. Web.
Rehman, K., Yu, Z. (2019). Strategic supply chain management. Springer.
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