Inventory Problems at Nike

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Case Details:

Case Code : OPER030
Case Length : 10 Pages
Period : 1991 - 2003
Organization : Nike
Pub Date : 2004
Teaching Note : Available
Countries : USA
Industry : Sports & Apparel

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"There's no way that software is responsible for Nike's earnings problems."

-Greg Brady, president of i2 (Nike's supply chain vendor) in 2001.¹

"Announcements like Nike's will become more frequent as companies fail to understand the realities of supply chain planning implementations. Supply chain planning applications are immature and the supply chain problems of a company like Nike are complex."

-Maria Jimenez, research director at Gartner Research in 2001.²

"Trends are what make this industry so unpredictable. Not having the right shoes in the stores in that short window of opportunity is disastrous".

-John Shanley, an analyst at Wells Fargo Securities in 2003.³

Nike's Profits Fall

In February 2001, Phil Knight (Knight), the co-founder and CEO of Nike Inc (Nike), announced that the company's profits for the third quarter of the fiscal year ending May 2001 would fall short of expectations by almost 24 percent. The reason for the shortfall was a failure in the supply chain software that Nike had implemented in June 2000.

The supply chain software, implemented by i2 Technologies Inc (i2)⁴ had fallen prey to technical glitches that affected the company's inventory systems adversely, leading to a supply chain failure.

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Resultantly, Nike's production facilities around the world ended up manufacturing a far greater number of a less popular shoe model and not enough of those models that were in high demand.

In the finger pointing that followed, Nike's management laid the blame for the problem squarely at the door of i2. During a press meet, Knight complained, "This is what we get for our $400 million huh?"⁵

On the other hand, i2 claimed that the mismatch was a result of Nike's haste in using the incomplete system and its unwillingness to use i2's standard systems and procedures.

Regardless of who was to blame, Nike's reputation in the market took a beating. The company also lost considerable market share to rivals like New Balance⁶ and Reebok.⁷

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1] Steve Konicki, Nike Just Didn't do it, Information Week, March 5, 2001.

2] Arlene Martin Nike flop is first of many, Computer Weekly, March 6, 2001.

3] Larry Barrett, Long Strange Trip: Nike Finally Regains Footing, Baseline magazine, November 1, 2003.

4] Dallas-based i2 was a software company specializing in supply chain applications. It designed software that helped companies squeeze costly inefficiencies out of the process of moving products from assembly lines to customers.

5] Larry Barrett, "Long Strange Trip: Nike Finally Regains Footing" Baseline magazine, November 1, 2003.

6] Headquartered in Boston, New Balance Athletic Shoe, Inc. manufactured and marketed apparel and footwear for men, women and children.

7] The #2 manufacturer of athletic shoes and sports equipment in the US.