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

Nike A brief history Nike was created in 1971 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 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. Send new designs to suppliers who produce shoe parts 2. Suppliers send these shoe parts to the assembly companies 3. 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 portalLucent'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

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