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MS2511 Operations Management At Nike Company

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MS2511 Operations Management At Nike Company

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Course Code: MS2511
University: University Of Aberdeen

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Country: United Kingdom

Questions:
1. a) How does the transformation process in Nike look like?  
   b) Which process(es) take(s) place? Explain your answer. 
   c) How would you position Nike in terms of the 4 V’s? Explain your answer. 
2. How would you characterize Nike in terms of costs, dependability, flexibility, quality and speed? 
3. a) Describe 2 macro-economic variables (from the DESTEP analysis) that are considered as order winning factors 
   b) Describe 2 macro-economic variables (from the DESTEP analysis) that are considered as ‘qualifying’ factors .
 
4. a) What process type is Nike using? Explain your answer. 
   b) What layout type are the manufactures of Nike using? Explain your answer. 
   c) Explain for Nike the production to demand ratio. 
 
5. a) What model(s) of capacity management are applicable for Nike? Explain your answer. 
   b) What type of inventory profile/ model is Nike using? Explain your answer. 
 
6. a) Analyze Nike’s supply chain and outsourcing strategy and forecasting method in comparison with their ERP implementation strategy (based on single instance strategy). To what extent are these strategies coherent?
b) To what extent are these strategies not coherent?
c) What activities in the supply chain will change when Nike decides to further outsource their business? Explain your answer. 
7) What would be your advice to a company who is about to implement an IT system in the industry and on the scale of Nike? 
8) Make a comparison of the advantages and disadvantages of customized system solutions. 
9) Read the strategic and tactical critical success factors related to successful ERP implementation on page 485 of the text book (Operations Management, Nigel Slack 8th edition). Evaluate them for Nike and motivate your answers. 
Answer:

Introduction
Nike Company was founded in 1957 by Philip Knight. The Company mainly deals with designing sports gear and quality athletic shoes for a range of sports. Nike has established its operations globally by offering its products in retail stores located in different countries. The company has also set up production units in different continents reducing costs and inefficiencies of shipping raw material and finished products. With operations worldwide, the company needs a supply chain management system that will ensure all deliverables are made on time. Inventory control is also critical for the Company. Nike Company had to change its strategy in handling operations so as to improve their services in managing the growing consumer demand. Implementing an IT framework that looked to offer a solution to most of their issues worked for the company.
Transformation Processes  
The transformation process in Nike involves creating a finished product from raw materials. The company mainly deals with making sportswear equipment for athletes, their main product being shoes. Raw material is sourced from different regions globally and is manufactured into finished products in different factories located around the world. There is also a transformation process of information among the employees working at Nike Company. Demand, supply and inventory information is exchanged to enable an effective flow of activities within the company.
The processes that take place are; modification of physical characteristics of materials, change in the location of material, change in ownership of goods and transformation of data and information. Raw material used such as leather and canvas is turned into fine products that are used in making the shoes, also the material and finished product (shoes) that is sourced from different regions across the world, is moved from one point to another within the supply chain creating a change in the ownership of the commodity. Information on goods in inventory and orders from retailers is also processed into supply and demand data by the manufacturers and suppliers. The transformation of the information is important to enable efficient distribution of the material to manufactures who will use the information to make goods that are enough to meet the customer demands, also the information is relevant to suppliers who ensure the goods supplied meet the orders as requested by the retailers and manufacturers. 
The Four Vs
When analyzing the four Vs (Volume, variety dimension, variation in demand and visibility) for Nike Company, the volume of products completed by their operations is very large. The company has retailers worldwide who sell their products which has a high demand from athletes globally. Their units of production manufactures many shoes which is easy due to the repetitiveness of operations in making the shoes. In terms of variety dimension, Nike Company has different types of products manufactured through their operations, they make different sizes of shoes which come in different colors and models for each. When looking at demand, their products vary on demand depending on the season and region while the visibility for the company is quite low as customers only get the finished product and have no experience with the manufacturing processes of the product.
Characteristics of Nike in terms of cost, dependability, flexibility and speed
Quality- Nike culture focuses on creativity and innovativeness in providing products that meet customer preferences, this has enable the company to attain its premier position in quality production.
Costs – Nike products are relatively lower compared to other companies. The company is good when it comes to minimizing the cost of manufacturing, this has made them possible ton lower the cost of their products.
Flexibility- the reengineered ‘Nike Max Air unit’ make up classic shoes lighter, highly cushioned and better fit. This makes the athletes to move comfortably and quickly.
Dependability- Nike products are commercially available
Speed- the inventive and explosive moderating system of Nike is designed to enhance speed and dexterity.  
Order Winners from the DESTEP analysis for Nike Company
In terms of cost, the unit cost of manufacturing shoes for Nike Company is low leading to an affordable price for customers, the Company however spent a substantial amount of money to install a new software system to manage their supply chain of material and finished product. Nike Company is also dependable as it ensures that its products are delivered on time to the retailers and the supply of required material to their production units is met. The Company is also quite flexible in its operations as it adjusts its activities to meet the changing customer requirements and meeting product demand which changes with seasons. The Company is also flexible as it creates several different models of shoes and sportswear.  When considering quality, the operations at Nike Company ensure that their products meet the quality demanded by their consumers, they deliver products based on the input and suggestions from their retailers and customers. The speed of their operations in delivering their products is high. The Company manufactures and ships their products globally to their retailers on time. They are also quick in researching and developing a new product.
In terms of demographic aspect, Nike Company has established retail stores worldwide. This allows the company to sell its products globally. The company has maintained a supply chain that ensures all the retailers selling their merchandise have a steady supply of their products.  This ensures that consumer demand is meet. The company has also developed different manufacturing plants across different nations in the world. This eases the running of operations as raw material that is sourced from different regions is processed in the closest production unit. Nike Company minimizes the costs and risks of shipping products between continents. Another order winner for the company is their technological approach in running their activities. The company deployed a Single Instance Strategy to control their supply chain system. The new system ensures the supply of products on time allowing the company to satisfy customer demands. The system which was not familiar in the industry, increased the competitive edge as their counterparts in the sportswear industry are reluctant to embrace it, creating constraints in their supply chain.
Qualifying Factors from the DESTEP analysis for Nike Company
The qualifying factors for Nike Company with regard to economic aspects include; the costs incurred in the unit production of their goods is low, allowing their prices to be affordable to consumers. Nike Company has invested in production units that generate goods at a large volume and at a low cost. This allows their products to sell widely at a low cost in the market. The company is also quick to meet the social norms of its consumers. Nike manufactures sports gear and shoes for different athletes participating in different sports. Research is done into the behaviors and practices of athletes in their field by the designers at the company in order for them to create quality products. This ensures their merchandise appeals their consumers as they fit their role.
Process Types for Nike
Nike Company uses a process (continuous) type to run their operations. The company manufactures their shoes based on the batch produced. Products are created in large volumes with each batch designated to its own line. The production units follow a continuous process from the start of manufacturing a shoe to its end.
The layout used by the manufactures at Nike Company involves assembly lines. Products are manufactured in batches. The assembly lines are designed differently to produce a different product for each line. Workers are dedicated to each line who conduct different roles depending on the model being manufactured on a particular assembly line.
Production to Demand Ratio
The production to demand ratio for Nike Company is 1:1. The company manufactures and distributes their products based on the demands in the market. Goods are produced based on the inventory acquired from their retailers. This allows the company to meet consumer demands and also reduce leftover stock for their retailers. Their supply chain system also allows their consumers to order for their own custom made shoes. The products are therefore manufactured based on the orders made by customers.
Modes of Capacity Management applicable for Nike
Nike could implement an adjustment strategy for capacity management. The adjustment strategy involves increasing or reducing capacity in regulated levels that meet customer demands. Nike Company implements a supply chain that ensures vendors have the required stock and the in season products are sold before the roll out of a new product. An adjustment strategy would work for them to regulate the goods in demand and also ensure sufficient products are available for distribution to their retailers. A lag strategy could also be implemented successfully for the company. The approach refers to increasing capacity only after the company is running at full capacity. Once the products on sale run out of stock, other goods are then produced and added to the market. An increase in demand is what drives manufacture of new goods. This would work for the company in ensuring vendors sell all the products they distribute to them.
Model for Inventory management
Nike implements a fixed-time periods model to manage its inventory. The inventory is checked during review periods and orders are made demanding a supply that is large enough to cover until the next order. This model allows for uncertainty in the market allowing Nike to adjust its production to cover only the required customer demand. Raw material is also regulated through this approach. Nike Company acquires only the material need to design a specific shoe model or sports gear with regard to the season and trends.
Single Instance Strategy
Nike Company operates a supply chain that involves moving raw material from different regions to their manufacturing plants across the world. The company outsources its material and labor plus it also sells its products across the world. This means that Nike Company has global operations in both producing and selling its products. The Single Instance Strategy implemented in managing their operations works together with their global activities. The implementation strategy allows the company to minimize blind buys, which are the products manufactured without an order from retailers, to 3 percent. The amount of time taken to manufacture footwear decreased by three months. The system has boosted the accuracy of forecasting consumer demand and revenue projection.
The single instance strategy does not work for the retailers who prefer to make their order six months prior to the supply. Implementing the single instance strategy is too demanding for  the vendors as the strategy needs retailers to regularly update their inventory and the orders needed in ensuring customer demands are met. Vendors are comfortable with the old system that only needed them to order twice annually for additional products. The single Instance strategy is not compatible with the employees who are not well skilled with computer knowledge limiting the operations of Nike Company.
Changes in Activities arising from Outsourcing for Nike Company
 If Nike decides to further outsource its business, a number of activities will change including; increase in the shipment of raw material and finished products between different regions. More activities in moving products for the company, from raw material to finished goods, will be required with the increase in resources acquired from different countries. The management strategy implemented to regulate the operations for the company will also change. With the increase in staff, activities and products, the company will need to come up with a new managing strategy that will accommodate all the operations involved in Nike Company.
Comparison of Advantages and disadvantages of customized systems
The following table shows the comparison

Advantages

Disadvantages

1. Most of these systems are created using the most recent technologies hence have the latest updates and upgrades making them relevant for emerging issues.
 

1. Expensive to design and deploy. A custom system requires capital to do research, come up with solutions and purchase necessary IT infrastructure to support the system. This can be costly especially for smaller companies working on a tight budget.
 

2. The custom built systems are designed to meet the client’s business requirements. If the users of the system are not satisfied with its performance, improvements are made to it in the development stage to meet users’ demands.
 

2. Custom systems are also time consuming. A long period is needed to create the system, the development of a system takes days, months or even years depending on the objectives of creating the system. The more the expectations of the system, the longer it takes to design it. The systems also consume time to remove bugs and errors that arise in creating and installing it

 
3. Custom built systems also have an efficient and reliable support plan. The systems allow users to gain full access to the technical support team that was involved in the installation process of the system in the case of errors arising and difficulties being experienced by employees when using the system.
 

3. Acquiring a custom system also requires a firm to add personnel with technical proficiency to their team. Running a custom system means that administrators are needed to monitor the activities of the system. Due to the complexity and unfamiliarity of the system to the firm, skilled personnel are the only ones who can use it comfortably with minimum challenges being experienced.
 

Strategic and tactical critical success factors with regard to successful ERP implementation
For the implementation of ERP systems to be successful certain strategic factors need to be considered, they include; top management support, this refers to the way top managers and executives assist in the implementation of the systems. For Nike Company, top managers are involved in every step in the deployment of their systems. Executives stand firm with the decisions made on the software and technologies to be used. Another strategic factor is project management, successful ERP systems need to be properly managed during its implementation (Slack, Brandon-Jones, & Johnston, 2015). Nike Company needs to acquire a skilled project team that will create and implement an effective ERP system.  The tactical factors that require one to implement a successful ERP system include; user training and education, users of the system need training to get familiar with the new system and minimize difficulties experienced while using it. Nike Company had to vigorously train particular staff members to ensure they know their way around the ERP system. Another tactical factor is ERP vendor support. The system should accommodate for vendors to add their orders, goods in inventory or sales. Nike Company has implemented an ERP system that allows vendors to control the products they sell and meet consumer demands.
Conclusion
My advice to companies’ looking to implement an IT system would be, they need to first identify the problems within their operations that the new system should address. Establishing the difficulties experienced by an organization when running their activities will guide in creating and installing an IT system that will be effective in addressing major issues. The company should also acquire a team of IT experts to test and implement solutions. The system implemented should be tested and installed gradually by experts, this minimizes errors and resources used while implementing the system. The organization should also plan ahead when the switch to the new system will be implemented. Doing so will enable the smooth transfer of operations from the old to the new system, with minimal problems arising from the switch. The company also needs to calculate the return on investment from implementing the IT system. A good system is one that adds value to the company, this is established by determining  the time and  cost of installing and running the new system and comparing it to the value of the amount and time  saved in conducting operations after implementing the system. The latter should be more than the former, this way the new system saves the expenses and time incurred by the company after it will be implemented. The management of the company should also help their team to adopt to the new system. When implementing an IT system at a wide scale level like Nike, employees need training on the way to handle the system. An IT system will only be effective if the users are able to navigate their way through the system. It is important for companies to teach their staff members how to use the system and in certain instances vigorous training is necessary for particular staff members whose roles are critical in the system and may lead to delay in activities for the entire organization. Ongoing support to the new system should also continue. Once the system has successfully been launched, management needs to ensure regular updates to the system to accommodate emerging issues such as production or consumer demands. A robust system is one that can be effective even in future, this can only be achieved by often upgrading the system and supporting it.
References
Chase, R. B., Aquilano, N. J., & Jacobs, F. R. (2001). Operations management for competitive advantage (Vol. 9). Boston, MA: McGraw-Hill Irwin.
Stevenson, W. J., Hojati, M., & Cao, J. (2007). Operations management (Vol. 8). Boston: McGraw-Hill/Irwin.
Krajewski, L. J., & Ritzman, L. P. (2001). Operations management: strategy and analysis. Pearson College Division.
Chase, R. B., Aquilano, N. J., & Jacobs, F. R. (1998). Production and operations management. Irwin/McGraw-Hill,.
Buffa, E. S. (1973). Modern production management (No. TS155. B8313 1965.). Wiley.
Heizer, J. H., & Render, B. (2008). Operations management(Vol. 1). Pearson Education India.
Jacobs, F. R., Chase, R. B., & Lummus, R. R. (2014). Operations and supply chain management (pp. 533-535). New York, NY: McGraw-Hill/Irwin.
Voss, C. (2010). Case research in operations management. In Researching operations management (pp. 176-209). Routledge.
Slack, N., Brandon-Jones, A., & Johnston, R. (2015). Operations Management eighth edition. In N. Slack, A. Brandon-Jones, & R. Johnston, Operations Management (p. 485). Pearson Education Limited.

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