Supply Chain Operation
JOHNJACK00
Inventorymanagement.docx{Nov 11,2022}
Subject: Nike 2019 vs. 2020 Days on Hand Inventory Analysis
From: {Tala Hassan}
Introduction:
Nike, Inc. is an American multinational corporation engaged in the design, development, manufacturing, and worldwide marketing and sales of footwear, apparel, equipment, accessories, and services. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area. It is one of the world's largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment (Childs & Jin, 2018). The company operates over 1,000 retail stores globally and has employed 79,100 employees, according to company statistics. The popularity and size of Nike are evidenced in its financial strength, which includes vast revenue and profits. For instance, the company generated a revenue of $ 44.54billion in 2021, which has grown to $ 46.71billion in 2022.
Results: Days in Inventory = Inventory / Daily COGS.
|
Company |
Cost of Revenue (Millions) |
Inventory (Millions) |
Daily COGS |
Days of Inventory |
|
Nike 2019 |
$ 21,643 |
$ 5,622 |
59.29 |
94.81 |
|
Nike 2020 |
$ 21,162 |
$ 7,367 |
57.97 |
127.08 |
2019 Days of inventory = Inventory / Daily COGS = $ 5,622/59.29= 94.81
2020 Days of inventory = Inventory / Daily COGS = $7,367/57.97=127.08
Analysis:
The daily sales inventory measure how long a company takes to convert its products into sales. A high number of days of inventory indicates that the company takes longer to sell its inventory. Therefore based on the results of the days of inventory of Nike company it shows that in 2020 the company had more inventory in its warehouse because the demand was low than in 2019. The primary reason for the inventory pile-up in 2020 is the low demand because of the Covid-19 pandemic (Almani & Nobanee,2020). It is worth noting that in 2020 there was a lockdown and reduced sporting activities, which is the primary market of Nike products,
Improvement opportunity
To evaluate the improvement opportunity, you must calculate the following:
New Inventory Level = 2019 Days in Inventory X 2020 daily COGS
=94.81 *57.91
=$ 5,490.45
Reduction in inventory = 2020 Inventory – New Inventory Level calculated above
=$ 7,367-$ 5,490.45
=$ 1,876.55
Annual savings = Inventory reduction calculated above x carrying cost rate (assuming a 25% carrying cost)
= $ 1,876.55* 25%
= $ 469.14
Due to an increase in the level of inventory in 2020 because of reduced demand and sales, Nike incurred $ 469.14 in carrying or holding inventory costs. This means that when there is a low demand for a company's products, the company not only miss the revenues but also incur additional storage or stock carrying cost.
References
Almani, M., & Nobanee, H. (2020). Financial Statement Analysis of NIKE. Available at SSRN 3675026.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3675026
Childs, M., & Jin, B. (2018). Nike: An innovation journey. In Product innovation in the global fashion industry (pp. 79-111). Palgrave Pivot, New York.
https://link.springer.com/chapter/10.1057/978-1-137-52349-5_4
