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Virtual Supply Chains
A Look at Nike
Presenters:
Owen Tucker
Eric Stutzman
Michael Kempton
Randy Fernando
Nick Smith
Virtual Supply Chain
Defined
“Any chain (or network) connected through electronic
links can be considered virtual. However, a virtual
supply chain often encompasses much more than
electronic links. It represents an organizational structure
that facilitates efficient and effective flows of both
physical goods and information in a seamless fashion.”
(Chandrashekar & Schary)
Virtual Supply Chain
Virtual Supply Chain
Nike
• Nike was created in 1971
A brief history
• Began outsourcing in the mid 1970’s
• In 1975, Nike introduces the “Futures” program
• Nike’s patented AIR-SOLE technology is placed in Nike shoes for the
first time in 1979
• In 1980, Nike begins negotiations with China to manufacture shoes
there
• “Just Do It” slogan is introduced in 1988. It becomes one the most
successful advertising slogans ever
• In 2001, Nike and i2 blame each other over lost revenues to Nike
• In an industry first Nike reveals their list of over 700 suppliers from all
over the world
Virtual Supply Chain
Benefits
Costs
• Outsource non-core activities
• Allows Nike to focus on their core competencies of:
 Product Design
 Marketing
 AIR SOLE Technology
Virtual Supply Chain
Benefits
Costs
• Having a virtual relationship with suppliers and the
companies who assemble Nike products allows them to:
 Reduce administrative costs
 Payroll costs
 Switch to companies that provide low labor costs
and a quality product
Virtual Supply Chain
Benefits
Speed
•
Having a virtual supply chain, Nike can increase the
speed their product flows through the supply chain
1.
2.
3.
•
Send new designs to suppliers who produce shoe parts
Suppliers send these shoe parts to the assembly companies
Ship the finished products to distributors worldwide
This allows them cut down on the amount of time
required from the initial design, to production and then
distribution
Virtual Supply Chain
Benefits
•
•
•
•
Diversity of suppliers
A VSC allows a company to search for and use
a wider range of suppliers
Although geography may separate them they
can still communicate electronically
Having multiple suppliers that you can trust
allows you to avoid emergencies in your supply
chain
With more suppliers available a company is
more flexible
Virtual Supply Chain
Disadvantages
• Very costly to implement technical components
of a VSC
• Integration with suppliers is complex and timely
• Building relationships with certain suppliers can
be difficult because of geography
• Control can be lost
• Small glitches could equal huge losses
• Effects of miscalculations can take years to
reverse
• Trust issues can cause delay in processes
• Trend predictions
Virtual Supply Chain
Disadvantages
Nike and i2 Technologies
Five lessons to learn
•
•
•
•
•
Be patient
Define a business goal
Understand process limitations
Don’t be discouraged by failures
Do not lose focus on goals
Virtual Supply Chain
Technology
• Electronic Data Interchange (EDI)
– The transfer of data between different companies
using networks, such as Vans' or the Internet
• Value Added Network (VAN)
– Private network provider that leases communication
lines to its subscribers
• Enterprise Resource Planning (ERP)
– A business management system that integrates all
facets of the business, including planning,
manufacturing, sales, and marketing
Virtual Supply Chain
Technology
• Radio Frequency Identification (RFID)
– Earlier Presentation
• Internet
– Plays the role of backbone for VSC
– Links companies to their suppliers and vice
versa
• Web portals
– Lucent's supplier web portal
– Also used to connect with customers
• Nike’s home page
Virtual Supply Chain
Virtual vs. Hollow
• Virtual chains focus on core competencies
– Nike
• Hollow chains are ones that all internal
processes have been outsourced
essentially identifying that the company
has no core competencies
– RCA
Nike's Worldwide Supply-Chain Project
Nike is using HP servers, software, and consulting services
to run their new supply-chain project.
Nike chose to work with HP for several reasons such as
HP’s single platform capable of running both UNIX and
Microsoft Windows NT systems and HP’s clear
understanding of what Nike needs to run a successful
business.
Nike's Worldwide Supply-Chain Project
• The goals of the project included:
• Enhancing Nike's ability to respond to changing
conditions.
• Reducing inventory and capital investment risk.
• Improving service to meet customer/consumer needs.
• Improving process, information, and product quality.
• Providing an efficient global supply chain with local
implementation.
Nike's Worldwide Supply-Chain Project
Adding value for the customer
• Nike now provides customized shoes for customers.
• A company called Planar has installed touch-screen
systems in Nike Stores to allow customers to build their
own shoes.
• Nike also allows customers to order customized shoes
online through their company website.
By combining technology with customized service Nike
has created an instant ordering system while providing
more services for their customers.
Conclusions
• Benefits of a virtual supply chain can be huge
• Technological orientated
• Often very expensive
Managerial Implications
• When deciding to move towards a VSC you
must examine your companies core
competencies first
• Research any partners and their history before
entering into a relationship with them
• Fully understand the complexities of a VSC
before you begin implementation of components
Sources
Miller, Allan N. “The Virtual Corporation.” APICS- The Performance Advantage. September 2001. Volume 11, No. 9.
www.apics.org
“Toward the Virtual Supply Chain: The Convergence of IT and Organization” by Ashok Chandrashekar and Philip B.
Schary
www.nike.com
http://www.webpronews.com/enterprise/crmanderp/wpn-1520050722TheVirtualSupplyChaintheultimateSupplyChainManagementStrategy.html
https://scportal.lucent.com/servlet/page?_pageid=90,354,340&_dad=portal30&_schema=PORTAL30
http://www.cio.com/archive/061504/nike.html
http://www.computerworld.com/softwaretopics/erp/story/0,10801,86908,00.html?nas=ERP-86908
“Virtual e-Chain (VeC) model for supply chain collaboration” by Vicky Manthou, Maro Vlachopoulou and Dimitris Folinas
http://www.rand.org/scitech/stpi/ourfuture/manufacturing/sec_8reshaping.html
Johnson, Cliff and Luthi, Dr. Ernst. “The Virtually Integrated enterprise case Study Improving Customer Service through
Logistical Change Management – Driving Urgency from supplier to customer; and integrated Approach.”
Agribusiness Perspectives Papers. Paper 25, 1999. The University of Melbourne.
http://www.eweek.com/article2/0,1759,1241082,00.asp?kc=EWNKT0209KTX1K0100440
http://www.webopedia.com
http://www.findarticles.com/p/articles/mi_zdbln/is_200311/ai_ziff111573
http://www.businessweek.com/magazine/content/04_38/b3900001_mz001.htm
www.nikebiz.com