Low-cost, time-efficient manufacturing of goods is a key feature of a successful production company in today’s competitive global economy. Operations management, often abbreviated in the business world as OM, is defined as “… the set of activities that creates value in the form of goods and services by transforming inputs into outputs (Heizer and Render, p. 4). ” Every day, factories take in raw materials and use the labor hours and skills of their employees to transform those same materials into a variety of consumer products, as quickly as is possible to turn out a high-quality product.
One of the leading firms in the high-performance athletic wear business is the industry giant Nike, Inc. , a longstanding member of the Dow Jones U. S. Footwear Index. Brilliantly successful in all three functions that organizations perform in operations management to produce goods (and services)–marketing, production, and financing, Nike, Inc. (who also owns brands Converse, Hurley, Umbro International, and Cole Haan) has consistently outperformed its competitors both in the stock market and in consumer products.
As they seek to fulfill their mission statement: “To bring inspiration and innovation to every athlete in the world (Nike. com). ” Global Environment and Operations Strategy Today’s market is a global one, and every country’s success depends on how well it interacts with other countries with which it does business, creating a global interdependence. The ability to be flexible in sources of supply and export/import duties, which is essential to operate internationally, is something in which Nike excels. Founded in Oregon in 1968, today Nike has become hugely successful both nationally and internationally, with 16 non-U.
S. distribution centers that helped account for the 57% of total revenues during the 2011 fiscal year that came from international sales (Nike 2011 Annual Report, p. 4). One of the main reasons Nike (and many other companies) expanded to international operations was to reduce costs, mainly in the manufacturing department. Combined, factories in Vietnam, China, Indonesia, and India produced approximately 98% of one of Nike’s biggest products, footwear (Nike 2011 Annual Report, p. 5), and most of the apparel is produced outside the United States as well.
Something that is very important in today’s economy is the sustainable operation of a business, using resources in the most efficient way possible. As the largest seller of athletic apparel and footwear in the world, Nike is extremely competitive in their overcrowded industry and use the advantages provided by their global position successfully. In order to get somewhere, you have to have a destination in mind. The same holds true for operations management–without a goal or a mission to accomplish, a company has no direction. Written mission statements put into words the company’s mission, which is the “… urpose or… rationale for an organization’s existence (Heizer and Render, p. 34). ” Nike’s mission statement is rather abstract but passionate: “To bring inspiration and innovation to every athlete in the world (Nike. com). ” In order to achieve its missions and goals, an organization has to have a strategy. An organizational strategy embodies the mission statement and sets down concrete, factual plans in order to complete that mission, by capitalizing on the firm’s strengths and opportunities and working to avoid threats and weaknesses.
Nike sets itself apart from other companies by using a differentiation strategy, which focuses on adding perceived value as compared to other company’s products through uniqueness and quality and exploiting Nike’s continued excellent innovation for their apparel and footwear. Consequently, their consumers thrive on the innovative new designs and products that they provide. Nike’s current CEO, Mark Parker, says, “Innovation is how great companies sustain growth and build competitive separation (NikeInc. com). The company also believes that the “… future will demand closed-loop business models that move closer to achieving zero waste by completely reusing, recycling, or composting all materials (Nike. com). ” The importance of being “green” or friendly to the environment is continually increasing as resources continue to dwindle and realization increases across the globe, emphasizing the importance of following a product (and therefore the raw materials used to make it) throughout its lifecycle to reduce waste and improper disposal.
Nike’s management understands how important a relevant strategy is in the global environment, as Don Blair, Nike’s CFO, stated “… we are refocusing our efforts, increasing our investments in innovation, using our voice for stronger advocacy and looking at how we incubate new, scalable business models that enable us to thrive in a sustainable economy. ” Forecasting Demand Forecasting demand is the art and science of predicting future demand.
There are several different techniques that can be employed alone or in combination with each other, depending upon the firm’s particular situation and the point in the product’s life cycle, and they are further classified as to the time horizon they represent. Forecasts are generally quantitative (relying on historical data) or qualitative (such as variable personal experiences). Demand is basically how much of a product consumers want and is a direct translation to how much the company should produce if it wants to satisfy them.
Without having an estimation of demand, operations managers would have no information with which to work on planning. Short-term operations planning focuses more on day-to-day operations and plans with time horizons of less than one year, and Nike concentrates on reducing administrative and product costs, cutting production and delivery times of current operations, and managing current funds in order to deliver maximum shareholder value. The company places a strong emphasis on increasing return on individual shares, investment capital, and cash flows (Nike 2011 Annual Report, p. 17).
Nike tends to focus on using economic forecasts when calculating their futures and advance order amounts, using forecasts of exchange and inflation rates (Nike 2011 Annual Report, p. 5). When deciding whether to upgrade a factory by purchasing new equipment, Nike’s process and capacity design operations manager might get information from a technological forecast that predicts technology development progress. Some demand forecast techniques use previous historical data; for example, in the first quarter of Nike’s 2013 fiscal year, high demand pushed the quarterly revenues to record-breaking levels (NikeInc. om). This data will be incorporated into future demand forecasts, likely giving an increased expectation of future demand. Since consumer products are directly linked to trends in consumer preferences, Nike keeps an eye on shifts on those preferences to help predict demand for existing products and possible demand for concept products. Products A goods-based company is only as good as the products it manufactures.
Nike prides itself on providing extremely high-quality merchandise to its customers, placing “considerable emphasis on high quality construction and innovation (Nike 2011 Annual Report, p. ). ” The product strategy that Nike has employed is to become competent in customizing and updating an established line or group of products. Nike’s main product is athletic footwear for many types of sports, including basketball, soccer, and track and field. However the company has expanded to produce a multitude of sports and even leisure products, including items such as eyewear, sporting gear such as bats, gloves, and balls, and timepieces designed to function under adverse sporting conditions. Nike also owns other well-known companies such as Hurley, Converse, Umbro International, and Cole Haan.
These companies have a different product focus; for example, their Hurley brand focuses on “youth lifestyle apparel” and Converse, Inc. specializes in “athletic and casual footwear (Nike 2011 Annual Report, p. 1). One of Nike’s greatest strengths lies in the genius in their marketing department. The company will often successfully market and sell apparel and accessories in collections or lines of a similar design, creating a product family. The mix of product sales often has a large variation resultant to demand changes due to the popularity of various sports activities.
At Nike’s core is their dedication to innovation and providing new useful products and improving the design of current products. Nike’s new product opportunities come from really trying to understand the consumer and technological innovation. Their products don’t just look good–they are scientifically designed to move with and enhance the comfort and performance of the athlete, with specializations (especially in footwear) to individual sports. Nike invests heavily in product research and development, employing an impressive research staff including biomechanical scientists, exercise physiologists, and chemists (Nike 2011 Annual Report, p. ) Their “wear-test” contracts that the company makes with various athletes are a marketing specialist’s or design researcher’s dream: not only do the products get rigorously field-tested and pushed to their limits, the company also receives advertising benefits from that individual. Quality Management A differentiation strategy like Nike’s is often quality-based. By consistently meeting and exceeding customer quality expectations, an organization can achieve total quality management, or TQM.
One of TQM’s main points is to continuously improve product, quality, and service, and Nike places a lot of emphasis on this process of continuous improvement. If a company’s products consistently fail to at least meet expectations and prove true to their stated claims, it can badly damage the company’s reputation. Also, producers today are held far more accountable than they were in the past, with many laws in place holding companies liable for faulty products or services that cause injury or otherwise fail to perform as they should.
In this information age, people often perform extensive research on a particular company or product, and these members of the global economy have come to expect consistency and quality. Nike tries to excel in their product quality in order to attract new customers and retain current ones–there are many out there who purchase primarily Nike products because of the consistent quality evidenced in these products over the years. Supply Chain and Inventory Management Out of all of a firm’s assets, one of the most important and costly is its actual product inventory.
Inventory management’s goal is to make sure that there is enough inventory to satisfy customer demands while at the same time minimizing storage and other associated inventory costs. Different types of inventory require different maintenance activities. Nike’s suppliers purchase raw materials in bulk to take advantage of quantity discounts, and every effort is made to purchase these materials as close as possible to where they will be used (Nike 2011 Annual Report, p. 5).
Not only does this practice reduce transportation costs, it also shortens a crucial link in the supply chain. A key duty of operations managers is supply-chain management, which is “the management of activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system (Heizer and Render, p. 420). ” Keeping a good relationship between suppliers and distributors is extremely important, and proper planning can help minimize process, control, and environment risks.
Supply-chain management seeks to maximize value to the ultimate customer, and Nike is superb at getting raw materials (as discussed), transforming them with low-cost labor into quality products, and using an efficient distribution system of retailers and direct-order processes. Globalized supply chains create reliance on other countries that may not have the same human rights standards as the United States, and therefore Nike has disclosed their efforts to eliminate human trafficking and slavery from their supply chain.
The company evaluates potential suppliers to see if they meet audits for human rights, and if a contracted factory is found to be in violation of the company’s code of ethics, they must immediately begin working to improve their performance. If unresolved, the factory is subject to discipline and finally termination if the problem is not resolved (Nike. com). Conclusion Nike, Inc. is a powerful, successful athletic sportswear company that is at the top of the charts for operations management.
From their new product innovation to their stunning marketing strategies, Nike creates a competitive advantage and separates itself from the competition. By creating superb customer value in their efficient transformation of raw inputs into well-made outputs, Nike continues to be successful in attracting new customers and creating lifelong Nike fans. As they pursue their goal of exceeding the expectations of the casual weekend tennis player to the Olympic triathlete, Nike wants us all to remember: “Everyone is an athlete. ”
Heizer, J. H. , & Render, B. (2011). Principles of operations management (8th ed. ). Upper Saddle River, N. J. : Pearson Prentice Hall. NIKE, Inc. – The official corporate website for Nike and its affiliate brands.. (n. d. ). NIKE, Inc. – The official corporate website for Nike and its affiliate brands.. Retrieved November 20, 2012, from http://www. nikeinc. com NIKE, Inc. — Inspiration and Innovation for Every Athlete in the World.. (n. d. ). NIKE, Inc. — Inspiration and Innovation for Every Athlete in the World.. Retrieved November 20, 2012, from http://www. nike. com NIKE, Inc.. NIKE 2011 Annual Report. (2011). Form 10-K, Pages 1-62.