What Supply Chain Challenges Keep Nike Awake at Night?

My generation typically thinks of two unrelated images when we hear the name "Nike": Michael Jordan and sweatshops. The company famously got behind probably the greatest athlete of the last century while simultaneously making some early mistakes, shall we say, on the global sourcing and production front by indirectly employing children and such. Yet today, Nike has a far more diversified set of product lines and a far more complex web of global supply and manufacturing relationships than ever before. And hopefully they've fixed the child labor and sweatshop problems for good. Yet what keeps Nike up at night? The following article does a good job capturing four key procurement and global sourcing challenges, none of which are specific on a high level to the apparel and sporting markets.

In the above-linked piece quoting Nike Global Replenishment Director Maithili Shenoy, we learn Nike's challenges aren't all that different from an industrial manufacturer or even a CPG or process company working on a global basis. To wit, Nike must keep track of "constantly changing regulation" in global markets and the challenges that the "role that tariffs play in the decision to choose outsourcing over local sourcing." Moreover, as many of us have learned the hard way -- from delayed shipments of literally choking in emerging market traffic jams -- the infrastructure in many global developing markets "isn't developed and can lead to potential supply chain problems." Nike overcomes infrastructure challenges in part by punting on the issue and working with 3PL providers that "understand the marketplace and know how to move product better than an outside source."

Another of Nike's challenges is truly fundamental to the general global sourcing equation: balancing cost and flexibility. This is especially true when comparing the cost of local versus global sourcing. In this regard, according to the Nike executive, the company found that it "can pay as much as 13% more in price from local sourcing and still be as well-off as we would be if we sourced from offshore manufacturers." It's one thing to produce and sell a basketball, a pair of athletic sneakers or a t-shirt where costs and cost models are relatively transparent and straightforward. But when it comes to more complicated goods and items with complex bills of material and where multi-tier supplier management is critical (and in some cases, where multi-tier sourcing is also essential to reduce and manage costs), I'd argue the 13% figure that Nike cites could very well climb above 20% or more.

Jason Busch

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