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Portfolio Milestone

OPS 510 – Operations Management

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Portfolio Milestone

Nike’s operational management will be analyzed in this paper. Nike’s business, marketing

strategies, operations management, forecasting, operations, designing of goods and materials will

be analyzed. Also, some background on Nike, operations management, forecasting, business

model, goods produced, and changes they have made to their business model over the years to

stay profitable and maintain a good reputation as a company.

Background

Nike was founded back in 1964 as Blue-Ribbon Sports by Bill Bowerman, a track-and-

field coach at the University of Oregon, and his former student Phil started the company before it

was renamed. They started out by distributing shoes for Asics a Japanese shoemaker before the

Nike brand shoe came out in 1972 (The Editors of Encyclopedia Britannica, 2019). After the

company was founded, Knight initially sold shoes out of his car, and it became clear that a

demand existed for his shoes. The company was rebranded as Nike in 1978 and is headquartered

in Beaverton, Oregon. Nike maintained a strong and steady growth culminating in its IPO and

has only grown since then. Nike now has outlets, stores, and distributors in more than 180

countries throughout the world and sells sports accessories to portable heart-rate monitors. Nike

sponsors many high-profile athletes around the world and employs about 75,000 workers as of

2020 according to Sabanoglu T (2021).

Subject Organization

Nike works with several goods and services organizations, but their revenues come from

selling products and merchandise making it a product-based organization. Nike sells their

products across the world as 60% of its sales are outside the US, and North America accounting

for 40% of the revenue according to Vault 2019. Footwear is the company’s leading product

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offering as it brings in about 60% of the sales and rest of them come from apparel and protective

equipment. The success of an organization’s structure depends largely on its leadership and its

culture. Nike follows a matrix organizational structure which is a combination of horizontal and

vertical structures including multiple reporting lines and responsibilities for employees.

Employees report to supervisors which can be tough in a production environment, but it has

worked in Nike’s favor as the organization follows a standardized operational process. Nike’s

hierarchy structure can be broken down into three key segments which include Global

headquarters, regional headquarters, and its subsidiaries. Nike’s revenue has been consistently

growing over the past few years and its strategy is to achieve long-term revenue growth by

creating innovative products and growing its direct connections with consumers.

Operations Management

Operations management is utilizing the best business practices to achieve the highest

level of efficiency possible and maximize profits as mentioned by Hayes A (2021). They also

focus on creating products using environmentally friendly materials. Six sigma is a method that

provides organizational tools to improve an organization’s capabilities, improve performance,

and decrease process variation. Nike has adopted many Lean principles for its operations to

reduce wasted materials, time, resources and improving lead as well as production times led by

managers. To ensure everyone is performing at the company’s standards, Nike developed a

scoring system for their factories and ranking them from gold, silver, bronze and yellow based on

performance.

To ensure success, Nike’s managers must examine and improve strategies and approaches

used in decision areas of operations management. Nike’s strategic decisions include optimizing

workflow, using the latest technology, and meeting the inventory requirements. Minimizing

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inventory costs, the cost of labor, and maximizing efficiency as well as effectiveness. Nike has

long faced controversy over their labor practices, working environment as the company was

founded on the principle of finding cheap labor and followed it unfailingly. Initially, Nike’s

factories were in Japan, but then they were moved to South Korea, China, and Taiwan due to

cheaper labor as mentioned by Meyer J (2019). There are multiple measures applied by Nike to

increase productivity levels including Retail sources, suppliers, and inventory personal as stated

by Ferguson E (2017).

Operations Management Forecasting

According to Heizer, forecasting is the ability to predicting future events. Management

makes an educated guess and manufactures enough products to meet the demand. Forecasting is

very crucial to ensure enough inventory, and supply is ordered to meet the customer’s demand. In

an organization, the operational manager is responsible to complete a number of tasks on a daily

basis which includes forecasting and ensuring the forecasts are accurate. Steps in forecasting

include using data available, incorporating them, other factors that might affect the demand, and

using that to forecast future sales. Forecasting is very crucial to ensure enough inventory, and

supply is ordered to meet the customer’s demand. The operation’s objective for Nike is to line

their product design using the latest technology and ensure business goals are reached. There are

several factors that contribute to making a forecast which can include sales from previous years,

recent trends, seasons, and using those factors to predict future events. Forecasting is used by

almost all product-based companies and Nike uses customer data and predictive analytics to

forecast the production of their products. They use their quarterly, annual sales revenue, and use

linear regression to forecast demand based on past sales using confidence intervals, exponential

smoothing, and the compatibility tests. Nike’s scheduling approach relates to corporate

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operations, coordination of supply chain with distribution and retail in an effort to maximize

resource utilization, efficiency and increase profits. By monitoring forecast error, Nike can

calculate to determine if past predictions were correct or incorrect. Nike has an internet portal for

e-commerce through which data is completed with information from social media platforms

which is used by managers to make the right decision.

In the operation management forecasting simulation done previously, the Naive approach

was used as some of the data was missing and last year’s actuals were used as this period’s

forecast, without adjusting them. Weather and oil prices are big factors when trying to make

forecasts for gas supplies and actual demand. I also learned that in summertime more supply is

needed as more travel is expected and winter season the demand was lower. The main goal was

to be as close as forecasted demand and actual demand. Previous experience working at a gas

station served with well with this simulation as I have previous experience in forecasting and

ordering supplies. Short-term planning, Delphi method, and naïve methods were used to ensure

enough information was collected for forecasting which can also be utilized by Nike when their

operations managers are making their forecasts to try to forecast as accurately as possible.

Design of Goods and Services

The Foundation of successful organizations depends on services, and products provided

to the customers. Nike’s mission statement focuses on innovation implemented by new designs

for shoes and uses it in all products they manufacture. As a manufacturing organization, Nike’s

operation management process includes the improvement of productivity for overall outputs of

goods, divided by the inputs needed to maximize production. Product development acts as a

crucial strategy for Nike’s growth which involves the introduction of new products to increase

sales and revenues. Nike spends a lot of time and invests a lot of money into the research and

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design of new products. Fashion trends and customer preferences are always changing, making

product development for sportswear and other apparel very crucial for Nike’s success as they

have a lot of competition now. Nike focus is on their product designs and gives their customers

an advantage over their competition in any sport or activity according to Larson, 2011. Nike also

has strong human resource policies and has developed guidance to improve Human resource

management in their factories. Successful organizations have Human Resource policies that align

directly with their business strategy (Shetty, N. 2011). Previously HR’s role was to be supportive,

but with more issues and problems their role has also expanded to taking care of legal

compliance, transformation activities, representing the business, employee relations, and creating

customer satisfaction. Nike’s human resource department makes various strategic plans that

assist Nike with the decision-making process and help to keep them out of legal issues. Nike has

had to recently make minor changes to their HR policies to ensure complaints from employees

especially female employee’s complaints are taken seriously.

Nike has implemented sophisticated systems by keeping cross-functional corporations

which recently led to the best performance they’ve had historically. Excellent management has

been developed over the years that have enabled their business operations to be efficient as they

maximize their resources and eliminate waste from production. Marketing is also very important

for a product-based company and whenever Nike launches a new product, it’s accompanied by a

wide range of advertisements. Currently, Nike is growing every year due to their skill for

creating value for new products and obtaining more and more resources. Their business strategy

is to invest in the Nike brand through marketing and sports celebrity endorsements, develop

high-quality products, and buy out competing brands. Nike derives most of its revenue from

sales of sports shoes for every category of sports. In order to keep product design consistent with

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their business goals, Nike focuses on using advanced technology, market preference, and uses a

strategy called the closed-loop business model as mentioned by Kumar E (2020). A closed-loop

business is a business model in which some materials are used repeatedly to create new products

and are finished into a consumer product. Nike products contain some sort of recycled textile and

use more recycled polyester in the industry compared to its competition. Different strategies are

used by Nike to ensure maximum profits and keeping the cost as low as possible which has been

their goal from the beginning.

Quality Management

Quality is very important in managing because it involves the company’s reputation,

product liability, and global impact as stated by Heizer, Render, & Munson (2017). It’s the

quality manager’s responsibility to make ensure goods and services are good and ensure the

organization stays out of any legal trouble. The quality manager usually defines the company’s

ideology depending on how good or bad the quality of products is and what they were supposed

to be. Quality managers also create a system using different techniques and strategies to meet

customer demand and satisfaction.

In the forecasting simulation completed previously, quality managers were in charge of a

popular restaurant called Cibare. The operational manager had the responsibility to manage

service staff, chef, servers and ensure a high-quality experience for customers. My initial budget

was $10,000 for running daily operations and ensuring everything was running smoothly. I also

had to invest money to improve customer satisfaction as well as maintaining the restaurant. The

goal was to make wise investments that would benefit the restaurant and increase our profits. I

also was receiving constant feedback from various sources that helped me in making some of

those decisions that would improve customer experience.

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Continuous improvement was the biggest factor behind the decisions made in Forecasting. I used

the Plan-Do-Check model created by Walter Shewhart, which includes an ongoing improvement

process as it constantly checks if the decisions made were good or if there is any more

improvement that can be implemented. Problem identification is the key to be a successful

Quality manager, getting feedback from employees and customers to ensure the plan is effective

and make any changes necessary. An example of this is when customers complained about drinks

getting mixed-up and I made the decision to get servers more training to meet customers’

expectations. Many more investments were made to ensure customer satisfaction and improve

quality. Bench warming, quality management, and problem-solving were three principles used in

this simulation. According to Heizer, Munson & Render (2017), quality managing from supplier

to customer is very important.

I learned a couple of lessons from this simulation, including investments that’ll benefit

the restaurant long-term rather than short-term investments. The importance of Staff training was

another lesson I learned from this simulation and how important staff is for the success of the

restaurant. Messing up the order and wrong orders that were prepared by staff was one of the

reasons for the bad rating and poor reviews. As an operational manager, I had a lot of

responsibilities that had to fulfilled to improve the customer experience and quality of my

restaurant. The lessons learned are applicable to Nike’s quality management because they also

faced similar problems. Not taking the cheap, easy route, and making smart investments are very

crucial for long-term success. Nike also needs to train all their staff and ensure they understand

the importance of quality. Customer feedback is very important, and Nike must take customer’s

concerns seriously and make sure customer trends are followed when manufacturing products.

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Supply Chain Management

Supply chain management is the management of the flow of goods and services,

including all processes that make up the products as mentioned by Fernando J (2021).

Management of supply chain activities to maximize customer value and achieve competitive

advantage. Janvier-James (2012) explains that supply chain management can create opportunities

for improved customer service and reduces unnecessary expenditures. Effective organizations

have operational managers in charge of creating a system that links the production, shipment,

and distribution of products. Companies nowadays pay a high degree of attention to the supply

chain in the context of the financial crisis, proposed economic development needs to change and

refocus on the supply chain. Supply chain management for planning, coordination, operation,

control, and optimization of activities and processes required by customers at the right time and

quality.

In the supply chain management simulation, I had the responsibility to manufacture

25,000 gizmos and keeping the total budget under $1,000,000. There were two parts in this

simulation, SKU1, and SKU2, as each gizmo required one SKU1 and four SKU2 parts. The

supply chain manager was responsible to ensure quarterly deliveries met the schedule and

maintain positive customer morale. Maintaining the quality of the supply chain was the biggest

factor in this simulation and decisions made were to meet customer satisfaction. The manager

had to choose suppliers that provided quality products, delivered on time, and keeping the cost as

low as possible because of the set budget.

The lessons learned from this simulation are applicable to Nike as they deal with similar

issues and problems that I faced in the simulation. The importance of delivery time and meeting

the deadline is very important in ensuring the customer is satisfied and happy with production.

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The simulation also showed the importance of staying informed and maintaining communication

with all parties involved. Keeping up with emails that explained delays and cancellations assisted

with the decision-making process and requesting additional bids when needed to fill in supplies.

Patience is also another key to being a successful supply chain manager because if the supplier

had any delays, instead of canceling those orders were kept and more supplies were ordered from

other suppliers to keep up with the production.

Inventory Management

Operations inventory management is the management of data, demand, forecasting, and

using operational principles to manage the total amount of inventory within the supply chain.

Effective organizations have operational managers in charge of creating a system for ordering,

shipment, storage, and distribution of products. It’s also the manager’s responsibility to manage

inventory costs and ensuring enough orders are purchased to meet the demand and avoiding

running out of stock. Mangers are also responsible for making the supply chain efficient and as

economical as possible. According to Heizer et al. (2017), there are different types of inventories

that can be defined as either raw-material inventory, work-in-process inventory, operating

inventory, and finished goods inventory.

Nike pays a high degree of attention to inventory management in the context of the

financial crisis and any unforeseen events. Inventory management is very important for the

success of an organization as it can make or break an operation and enables the successful cost of

operation and managing the supply chain. Good inventory management strikes a balance

between the amount of inventory ordered and sold. (DSD BS, 2017). Optimizing the process of

overseeing and managing inventory, including real-time information about demand and stock can

be beneficial and assist with forecasting. When a business overstocks or stocks out, it can end up

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hurting the business and can create a deficit in the budget. An efficient inventory management

system focuses on accurately forecasting future demand and place orders accordingly. Meeting

customer’s demands and having enough stock is very crucial to earn profits as more products

sold bring revenue. Inventory helps a company in many ways, by separating the production

process from suppliers, and buying in volume at a discounted price to save money and increase

profits.

In the inventory management simulation, the operational manager was responsible for

tracking inventory, earn enough profits from the sale of Amulets, meeting customer’s as well as

owner’s expectations. The inventory manager is responsible for expertise in the plan, forecast,

and making the correct judgment call on when to order a new shipment from a supplier

according to Singh & Verma, 2018. The initial approach involved ordering Amulets, tracking

sales, and inventory to ensure the order was placed for the next delivery before we ran out of

stock as there was a five-day shipment period that also had to be factored in as express shipping

had extra cost that would’ve affected the budget. The strategy was to place the next order when

inventory fell below 300 Amulets as that was just about enough to get through before the next

order was delivered. Cost reduction, correct forecasting, and meeting demand are very crucial for

increasing profits. There were some challenges that were overcome using inventory management

methods which will be discussed in detail. Three methods including perpetual inventory,

reordering point calculation, and minimizing costs were used to ensure successful completion.

The importance of staying informed and paying close attention to detail is very important for

inventory management.

Nike has had similar problems with their inventory management and using the EQQ

method can be very useful for them as it’ll allow them to correctly calculate the forecast and cut

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costs of production. Nike’s mission is to keep the cost low and profits as high as possible and by

paying attention to small details, flexibility, and staying up to date with their information is very

crucial for Nike to stay competitive and profitable.

Aggregate Planning

Aggregate planning is a process utilized to figure out the strategies needed to meet the

expected demand. As stated by Heizer, Render, & Munson (2017), the purpose of aggregate

planning is to combine demand and supply using a combination of employment and sourcing in a

method that is cost-effective for the organization. Managing S&OP’s and plan accordingly is

very important for an organization, and Nike managers their S&OP’s by ensuring everything is

planned ahead of time to meet customer demand. They also fully utilize the equipment, recycle

products, and facilities to ensure no resources are wasted.

Material resource planning is the technique of using a master production schedule,

inventory and purchase records, the material used, and production time for each item (Heizer,

Render, & Munson 2017). As mentioned by Kenton W (2021), materials requirement planning is

production planning used for scheduling, and inventory control components to manage the

manufacturing process, and a common database is used to record and maintain information.

Previously Nike used a software system called i2 to assist with their material resources, and

requirements, and supply chain demand. Nike had some issues with the software and claimed it

was fixable but ultimately due to integration problems, Nike gave up on the software in the

spring of 2001 as mentioned by Koch, C (2004). Nike successfully implemented the Nike

Supply Chain project, which is centralized on planning, making progress, manufacturing, and has

been using NSC ever since 2004.

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Lean Operations

Lean operations are the continuous improvement and enhancement of quality provided to

the customer in a timely and efficient manner (Heizer, Render, & Munson 2017). Nike had been

accused of using sweatshops for the production of its sneakers and activewear since the 1970s,

but it was only in 1991, when activist Jeff Bellinger published a report detailing the poor

working conditions and the low wages in Nike’s factories as stated by Robertson, L. (2020). Nike

was initially slow to respond, but due to pressure Nike eventually made some changes by

improving its monitoring efforts, raising the minimum wage, and increasing factory audits. Nike

also set a standard for worker well-being and established their supply chain by developing a

strict set of compliances in-order to reduce risks during production. Though Nike had

successfully improved its reputation, many of its practices are still problematic. In 2017, Nike

took a step backward, as the International Labor Rights Forum reported that the company had

turned its back on the commitment to Worker Rights Consortium which blocks labor rights

experts from monitoring Nike’s supplier factories.

Information Technology

As stated by Heizer, Render, & Munson (2017), information technology is the structured

use of systems used to process data in order to yield information. Nike uses data and information

technology to maximize their sales globally. By compiling sales data and knowledge, Nike turns

simple sales data into information by interpreting data and knowledge in the decision-making

process. Nike is using their app to develop a good relationship with its customers as it provides

access to exclusive offers. For years Nike has operated with a retail-first customer-focused

model, where the majority of their revenue comes from wholesale which hasn’t changed to this

day (Barseghian, A. 2019). Nike has said that it’s going to accelerate the technology enablement

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of its operating model to serve consumers from offline to online services, digital marketing,

personalization, digital supply, and demand management.

Conclusion

Nike is a multibillion-dollar company that manufactures high-quality sports shoes, and

apparel that is subject to domestic and international competition. Nike’s strategic decisions

include optimizing workflow, using the latest technology, and meeting the inventory

requirements. Minimizing inventory costs, the cost of labor, and maximizing efficiency as well

as effectiveness. They use different models and quality management to ensure customer

satisfaction. Customer feedback is very important, and Nike must take customer’s concerns

seriously and make sure customer trends are followed when manufacturing products. Nike also

needs to train all their staff and ensure they understand the importance of quality. Nike also fully

utilizes the equipment, recycles products, and facilities to ensure no resources are wasted which

is very important for them to stay profitable and maximize their resources. Management has to

use different strategies and policies to ensure Nike stays competitive and profitable.

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References

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Robertson, L. (2020). How ethical is Nike? Retrieved from

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