ICMR Case Collection

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ICFAI Center for Management Research

OPER 049

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SCM and ERP Software Implementation at Nike

From Failure to Success

This case was written by Ruchi N. Chaturvedi, under the direction of Vivek Gupta, ICFAI Center for
Management Research (ICMR). It was compiled from published sources, and is intended to be used as a
basis for class discussion rather than to illustrate either effective or ineffective handling of a management
situation.

2005, ICFAI Center for Management Research. All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means- electronic or mechanical, without permission.
To order copies, call 0091-40-2343-0462/63/64 or write to ICFAI Center for Management Research, Plot # 49,
Nagarjuna Hills, Hyderabad 500 082, India or email icmr@icfai.org. Website: www.icmrindia.org

OPER/049

SCM AND ERP SOFTWARE IMPLEMENTATION AT NIKE FROM

FAILURE TO SUCCESS
We became a poster child for failed implementations.1
-

Roland Wolfram, Vice-president - Global Operations, Nike Corporation,

commenting on the i2 software implementation failure in 2000.

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The lesson of Nikes failure and subsequent rebound lies in the fact that it had a sound business
plan that was widely understood and accepted at every level of the company. Given that resiliency
it afforded the company, in the end the i2 failure turned out to be just a speed bump.2
- Christopher Koch, Executive Editor, CIO Magazine in 2004.

INTRODUCTION

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The US-based Nike Corporation announced that it had generated profits of $97.4 million, around
$48 million below its earlier forecast for the third quarter ended February 28, 2001. The company
said that the failure in the supply chain software installation by i2 Technologies3 was the cause of
this revenue shortfall. This admission of failure also affected the companys reputation as an
innovative user of technology. The supply chain software implementation was the first part of a
huge project to install an integrated ERP system from SAP, and customer relationship management
(CRM) software from Siebel Systems.

For over a year, Nike reeled as a result of this failure. i2 and Nike blamed each other in public, for
the failure and this led to a further downslide in the share price of both the companies. Analysts
pointed to lapses in project management, too much customization and an over reliance on demand
forecasting software. Nike insiders raised doubts about the Single Instance Strategy4 being
followed by Nike. However, the company remained firm and relentlessly pursued its Single
Instance Strategy for SAP implementation. The guiding instruction as put across by Gordon Steele
(Steele), CIO of Nike was that the Single Instance was a decision not a discussion.
By 2004, the company had successfully implemented its Nike Supply Chain (NSC) project,
indicating that its centralized planning, production and delivery processes were right for the Single
Instance Strategy. With this success, Nikes Single Instance Strategy became the desired approach
1

Christopher Koch, Nike Rebounds, CIO Magazine, June 15, 2004.

Christopher Koch, Nike Rebounds, CIO Magazine, June 15, 2004.

i2 technologies is a leading provider of demand-driven supply chain solutions designed to enable business
agility. In 2004, the company reported revenues of $389 million and losses of $3 million.

Single Instance Strategy refers to one ERP application with one data store that serves the entire company.
Everything a company needs from financials, order entry, supply chain to CRM comes from a single
vendor. There is one giant database and one application processes everything.

SCM and ERP Software Implementation at Nike

for many companies implementing ERP software. Nike used SAP for 95% of its global business.
An AMR Research5 survey of 110 companies of annual revenues of $500 million or more using
ERP revealed that only 23% had adopted a single instance strategy while 36% were planning to
put it in place, while another 17% were trying to get the instances down to one per major global
region and were investing considerable funds to achieve this. Analysts acknowledged that Nike
had indeed taken a bold step when it adopted the single instance strategy with its first ERP rollout.
During the late 1990s, most companies avoided it due to its huge costs and bandwidth problems.
Christopher Koch, Executive Editor, CIO Magazine, remarked, If it was easy, everyone would
just do it.6

NIKES SUPPLY CHAIN

Founded in 1957 by Philip Knight (Knight), Nike manufactures high quality athletic shoes for a
variety of sports including baseball, athletics, golf, tennis, volleyball and wrestling. In addition to
footwear, Nike also manufactures fitness equipments, apparels and accessory products. The
companys products are sold in over 140 countries around the world.

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All product development factory contracting and marketing activities were carried out at the
companys headquarters in Beaverton, Oregon in the US. Nikes global operations were broadly
divided into five geographic regions United States; Europe, Middle East and Africa (EMEA);
Asia Pacific and Americas (includes Canada, Mexico and other Latin American countries of Chile,
Brazil and Argentina).

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Since the mid-1970s, Nike has outsourced its manufacturing activities. The companys products
were manufactured in factories owned and operated by its business partners commonly known as
contractors around the globe. In 1975, Nike introduced the Futures program to manage the market
for its footwear products. Under this program, Nikes retailers placed orders with the company six
months before the required delivery date with the guarantee that 90 percent of their orders would
be delivered within a set time period at a fixed price. These orders were then forwarded to the
manufacturing units around the world.

The system worked well in the initial years. Retailers were assured of sales even on 6-month
advance orders as customers were not very demanding. Runners just wanted a steady supply of
quality shoes irrespective of style. However, as Nike became more and more global, it felt its
supply chain management was inadequate to cater effectively to the rapid changes in consumer
demands. The increasing product sophistication also made the manufacturing process more
complex. For instance, some of the popular models of Nike like Air Jordan sneakers required over
130 individual steps to manufacture.
Nike had been modifying its demand management system periodically to make adjustments to
accommodate busier manufacturing schedules, tighter shipping dates and growth in customer lists.
However, these constant adjustments made the system more complicated and susceptible to
breakdown. In the light of these developments, Nike decided to optimize its global supply chain
and overhaul its business processes in 1997.
In 1998, Nikes profits dropped by 50% from $795 million to $399 million, despite a revenue
increase of 4%, as compared to the previous year. In a bid to cut costs, the company laid off
around 1600 employees. Nike figured out that its inventory forecasting along with the existing
supply chain management system problems had contributed to the decline in profits. To remedy
5

Headquartered at Boston, USA, AMR Research provides industry information and advice on how
businesses could adopt technology.

Christopher Koch, Nike Rebounds, CIO Magazine, June 15, 2004.

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SCM and ERP Software Implementation at Nike

the problems at hand, the company launched the NSC project. The idea was the initiative of
Shelley Dewey, (Dewey) Vice President, Supply Chain and Steele and was approved by Knight
when he was convinced of the potential of the project. The project thereafter had the full backing
of Knight. Nike aspired to turn its Supply Chain System into a system par excellence. It was a
massive global operations centralization initiative to implement its ERP, supply chain and CRM
software onto a single SAP platform (Refer Table I for details of the implementation). The task
was very challenging as it involved 350 manufacturing plants and a global distribution network
with around 27 decentralized order management systems. Commenting on its complexity and the
number of modifications made in the supply chain systems, one former employee of Nike said,
Its been modified thousands and thousands of times. These little arcane changes had to create
serious problems as Nike moved to a whole new system.7

TABLE I
ENTERPRISE APPLICATION IMPLEMENTATION AT NIKE
Solution

SAP
i2
Siebel
PeopleSoft
PTC
See Beyond
Marc Global
HP
IBM

ERP
Planning
CRM
Human Capital Management (HR Systems)
Product Data Management, Product Life Cycle management
Application integration
Warehouse Management Systems
Unix Serves Supporting all supply chain systems
Systems integrators & other professional services

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Source: www.consumergoods.com.

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Company

Through the NSC project, Nike aimed at achieving greater flexibility in planning, execution and
delivery processes and looked for better forecasting and more profitable order fulfillment. It
wanted to have a detailed real time view of all the constraints like access to raw materials or
components, production capacity, logistics, and financials. Nike expected this information would
enable it to identify the impact of changes in the market and help it deal with suppliers and
customers in a better way (Refer Table II for the Implementation Strategy).

TABLE II

NIKE SUPPLY CHAIN INITIATIVE: IMPLEMENTATION STRATEGY

Strategy
Discovery
Design

Direction
Delivery

Implementation
Gain a clear understanding of current business issues
Establish strategic vision & goals, and redesigning business processes as follows:
Focus on customer needs
Improve cash flow through reduced inventory
Integrate supply chain management into existing enterprise system
Lead the industry for manufacturing and order lead times
Create a foundation for future growth
Develop project scope and implementation plans
Execute three linked initiatives, as follows:
Program management: coordinating and overseeing resources, deadlines, and
deliverables
Project management: configuring the supply chain system and testing.
Transition management: preparation of employees and business partners for transition.

Source: www.nike.com.
7

Weld Royal, Putting Out Supply Chain Fires, Industry Week, May 21, 2001.
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SCM and ERP Software Implementation at Nike

The main objective was to integrate business processes ranging from forecasts to product delivery
across the globe. The new supply chain system was expected to reduce order-to delivery time by
about 50 percent. The entire project was to take five years to complete and was estimated to cost
$400 million. The specific goals set for the project were:

enhancing the companys ability to respond to changing conditions;

reducing inventory and capital investment risk;
improving service to meet customer needs;
improving process, information and product quality;
providing an efficient global supply chain with local implementation.

THE i2 DEBACLE

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In March 1999, Nike decided to implement the first part of its supply chain strategy; the demand
and supply chain planning application software from i2 technologies. This software was intended
to help the company match its supply with demand by mapping out the manufacturing of specific
products (Refer Exhibit I for details of i2 TradeMatrix Plan Solution). This module had to be
linked with other ERP and back-end systems as well. The i2 project replaced an earlier
implementation by Manugistics8. The project was supposed to reduce the amount of rubber; canvas
and other materials that Nike needed to produce for its wide range of footwear products with a
variety of sizes and styles. Nike also wanted to make sure that it built more shoes that fulfilled
customers demand. The cost of the i2 project was estimated to be around $40 million.

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Nike went ahead with the deployment using its legacy systems rather than implementing it as part
of its SAP ERP project. The company had 1,20,000 different varieties of products (SKUs) and a
wide variety of information sources. Commenting on supply chain complexity, Dewey said, If
you just take a pair of shoes, we offer them in thousands of styles and hundreds of colors and there
are about 13 sizes on an average. Add apparel and equipment to the mix, and it gets quite complex.
Increasing commercialization intensity makes it harder still. We have four seasons a year where
almost all categories turn over.9 The product life cycle was too short for most products lasting
only three months, although it went up to two years for a few products.

According to Bob Ferrari, Senior Research Analyst, supply chain practice at AMR Research,10
When you look across the retail supply chain as well as Nikes supply chain deployment, which is
international from where the shoes originate in the Far East all the way to the retail channel, it was
a task that would involve a lot of people and complex data.11 i2 had also realized that it was a
challenging project. According to Katrina Roche (Roche), Chief Marketing Officer at i2, We
knew it was going to be a difficult implementation when we took on the project because Nike had
tried several other solutions in the supply chain space that werent successful.12
8

Manugistics is a provider of SCM software and was a competitor of i2 technologies. It had revenues of
243 million and losses of 103.8 million for the year 2004.

Dan Sussman, There is no Finish Line, MSI mag.com, May 2004.

10

Headquartered at Boston, USA, AMR Research provides industry information and advice on how
businesses could adopt technology.

11

Jim Ericson, i2 Hurt by Nike Shortfall, Line56, February 27, 2001.

12

Jim Ericson, i2 Hurt by Nike Shortfall, Line56, February 27, 2001.

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SCM and ERP Software Implementation at Nike

Nike felt that the standard supply chain software of i2 did not offer all the required functionalities
and therefore it insisted on a high level of customization because it was simultaneously deploying
a private marketplace strategy.13 (Refer Exhibit II for details of the capabilities of i2 software)
Nike and i2 worked together to incorporate the desired changes. However, i2s inexperience in the
footwear industry coupled with Nikes demand of a high degree of customization created
problems. The market place was also changing very fast and this put pressure on Nike to rush up
the implementation. The company began to input data for its forthcoming Spring 2001 line when
the system was still to stabilize, resulting in building up of backlog inventories midway through
the project. Commenting on the problems faced in demand forecasting, Roche said, Our system
wasnt in a position to help them adjust the way they should have adjusted to those changing
market conditions. We were working nine months in advance, and the situation looked very
different in July.14 Nike could not identify the trends of weakening of the US footwear market
when the data inputs were given.

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By June 2000, the forecast planning software system had become operational but it failed to
communicate with the existing systems and could not analyze large amounts of product
information accurately. The demand application and its planner stored data in varied formats
which created problems in their smooth integration. Due to heavy customization, the software
became very slow and took as much as a full minute to record a single entry. Besides, the huge
number of products strained the system further and the software became vulnerable to crashes. The
company kept sending inaccurate orders to manufacturers and was unable to discover the errors
quickly. However, once the problem came to light, Nike made rapid efforts to solve it.
Programmers downloaded data from the demand software and manually reloaded into the supply
chain planner to enable the sharing of data. Outside consultants were also hired to build databases
to bypass some parts of the i2 application and construct custom bridges to enable sharing between
the demand and supply parts of the software.

Nike was able to fix the problems by November 2000, but meanwhile the damage had already
been done. The company had ended up ordering $90 million worth of shoes, such as the Air
Garnett II, that did not sell well. Sales were also below expectations on popular models, such as
Air Force One by around $80-100 million. Later, Nike had to sell these shoes at bargain-basement
prices and bring the good selling ones by air shipment at around $6 a pair as compared with the
usual cost of 75 cents a pair on delivery by sea shipment.

WAS IT AVOIDABLE?

IT experts were surprised by the fact that Nike did not hire a third-party integrator since the
company was replacing an already troublesome older application with a new supply chain
planning application. The company claimed that i2 software had failed to deliver on the promised
functionality as it delivered erroneous forecasts. However, officials at i2 denied this allegation and
charged Nike of a faulty implementation, which ignored i2 recommendations of minimizing
customization to 10-15% of the software and stage-wise deployment (Refer Exhibit III for details
of the implementation methodology used by i2).
Other observers also felt that Nike tried to do too much too fast. The company did not stick to the
usual level of customization of breaking down the forecasts up till the style level. It broke them
down further to have separate forecast for each color and within each color a separate forecast for
each size. The system could not handle thousands of variables to generate forecasts. Commenting
13

A private marketplace is a B2B hub that a company deploys to support internal and external integration
and private collaborative processes.

14

Jim Ericson, i2 Hurt by Nike Shortfall, Line56, February 27, 2001.

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SCM and ERP Software Implementation at Nike

on what went wrong, Rob McClellan, senior project manager at Adidas said, Nikes problem was
that they drilled down to an extraordinary level of detail for the forecasting model by requesting
too much history and trying to forecast too far out ahead.15 Supporting this argument, Kevin
Omarah, analyst at AMR Research commented, Many projects go wrong when vendor and client
fail to recognize what is achievable and what is too ambitious.16
Analysts stressed the fact that Nike failed to realize the risk in customizing packaged software and
hoping that it would work without requiring a pilot test. Most felt the company was under a false
impression that i2 application was smaller and therefore was much easier to implement. As
Wolfram puts it, This felt like something we could do a little easier since it wasnt changing
everything else in the business but it turned out it was very complicated.17

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Analysts raised questions about the adequacy of information supplied by Nike to i2 for forecasting.
Brent Thill, analyst, Credit Suisse First Boston commented, If you dont fuel i2 with the right
information, its not going to have the right information for you.18 Nike insiders themselves
claimed that this had been a major problem area. The NSC project had become more complicated
as Nike was installing both ERP and CRM software along with the i2 installation. However, some
others felt that data adjustments were common due to constraints on data availability. Wilson
Rothschild (Rothschild) analyst at Meta Group said, It is not unusual to make tradeoffs in the data
used when some is not available. Its just that in the pressure to go live, Nike may have used data
that didnt reflect the business as well as the company had thought.19

THE LESSONS LEARNED

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Analysts also pointed out that the success of such project largely depended upon the sense of
ownership and the level of co-operation between the vendor and the company. Reportedly, Nikes
executives did not even hold review meetings to discuss the computerized forecasts that turned out
to be erroneous.

After the debacle, Nike realized that implementing supply-chain management software cannot be
taken lightly. The company felt that a third-party perspective from an integrators point of view
could have exposed the flaws in the implementation. Experts felt that Nike and i2 should have set
realistic goals since SCM deployments had yet to be proved across all verticals. Commenting on
this, Karen Peterson, analyst at Gartner Research said, Were in a hype cycle, a lot of people are
claiming a lot of things, but functional maturity of the applications has not caught up. So we have
immaturity of processes and technology.20 Experts also quoted Larry Ellisons views to explain
how to check over-ambitious customized implementations. Referring to standard packages, Ellison
had said, If it fits 70% of your companys needs, it would be better than spending the time and
effort on striving for that 100% fit.21 In hindsight, i2 also realized it could have been more
forceful in directing the implementation to keep the customization goals realistic.
15

Craig Schneider, How Not to Spend $400 Million, CFO.com, March 05, 2001

16

John Sterlicchi, Just Do It? But Not like Nike, www.ccnmag.com, July 2001.

17

Christopher Koch, Nike Rebounds, CIO Magazine, June 15, 2004.

18

Tiffany Kary, Nike software glitch pushes i2 shares lower, CNET News.com, February 27, 2001.

19

Craig Schneider, How Not to Spend $400 Million, CFO.com, March 05, 2001.

20

Adam Lincoln, Supply Chains: In the Nick of Time, CFO Asia, May 01, 2001.

21

Joshua Greenbaum, Implementing Oracle? Fire Your Integrator!, www.managingautomation.com,

April 2001.

SCM and ERP Software Implementation at Nike

Industry experts also warned against the risks of rushing supply chain software implementation.
They commented that the efforts to reduce the time taken on such projects would generally
boomerang. They added that stiff deadlines could severely reduce the quality of results beyond a
certain point. Another important issue was the understanding that the supply chain software was
just decision support software and should serve only as a means of achieving business goals.
In the light of Nikes failure, experts raised questions about the validity of use of demand planning
software (Refer Exhibit IV for more information on Demand Planning: Myth vs. Reality). They
said that before starting such projects, companies should ensure that they have the right business
model to make forecasting useful. Under the Futures Program22, Nike used to commit orders from
retailers in advance for its sneaker shoes and therefore it did not make much sense to use demand
planning in this case. Even supply chain experts at i2 admitted that trying to forecast demand was a
futile exercise for many businesses because they do not have enough visibility in their supply
chain.

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Most observers felt that Nikes case illustrated why forecasting should involve executives to
analyze forecasts in-depth and see how they compared with inputs from sales and marketing
department. Forecasting analysts explained that statistical models like regression analysis23 used in
demand forecasting system required clean data, and a potential relationship among the variables,
but most of these variables were only an estimate of what actually happened. For example, one
forecasted what consumers would buy, based on what the company itself sold to the retailers. They
added that computer-generated forecasts used historical data to make assumptions about what
would happen in the future. The basic flaw with all forecasting models was that they ran on the
fundamental assumption that what was true yesterday would be true tomorrow. They usually failed
when the future did not resemble the past.

Nike learned important lessons after the i2 debacle. The company made sure it did not repeat these
mistakes when it began the deployment of its totally integrated SAP ERP software. It was fully
aware of how improper integration, insufficient training and inadequate testing could disrupt a
project. Nike stopped using i2s demand planner for its sneaker model (although it used the i2
package for its apparel unit) and moved it on to the SAPs ERP in 2001, which was based on
orders and invoices, and not on forecasts.
The company used computer models where the products involved had a proven track record and
gave more importance to the planners intuition when the product was new or an inconsistent
performer. It also considered inputs given by the retailers as more valuable than the computer
model. Supporting Nikes move, Bill Swanton, Vice-president at AMR Research remarked,
Companies are trying to do consensus planning rather than demand planning; moving away from
the crystal ball and toward sharing information with customers, retailers, distributors and
manufacturers. If you can share information faster and more accurately, you see trends a lot sooner
and thats the true value of supply chain projects.24
22

In 2001, 86% of US footwear shipments were made under this program.

23

The regression model was conceived of by Ronald Fisher, a British mathematician. Regression takes
multiple variables, makes inferences about the relationships between them, and ultimately charts the result
as a curve showing upward or downward trends. The curve can be extended to predict future results. This
model is used in 90 percent of demand planning software.

24

Christopher Koch, Nike Rebounds, CIO Magazine, June 15, 2004.

SCM and ERP Software Implementation at Nike

While implementing SAPs ERP package, Nike super users25 trained its customer service
representatives and did not allow them to access the system till they underwent the 180 hours
mandatory training. These super users provided more credibility as they were insiders through their
understanding of the business, and they also ensured that Nike was able to retain all of their newly
acquired systems knowledge about the implementation rather than letting it go out with the
external vendor or consultant when the project ended.

IMPLEMENTING SAP APPAREL AND FOOTWEAR SOLUTION (AFS)

As part of the SAP ERP project, Nike had decided to implement the SAP AFS26 solution which
was a variant of the SAP R/3 software developed specifically for the apparel and footwear
industry. In conformity with the Single Instance Strategy, Nike used the SAP AFS application
across all geographies, and also chose to implement other SAP applications including Supply
Chain management (SCM) and Business Information Warehouse (B/W) (Refer Exhibit V for
details). It was also considering pilot testing of the SAP NetWeaver platform in the near future.

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The company expected that Single Instance Strategy would result in better integration and provide
a competitive edge by enabling holistic view of its business. In addition, a Single Instance Strategy
would reduce the total cost of ownership as there would be no need to have specific support
groups, user training and hardware, which otherwise required best-of-breed solutions. To ensure
the success of Single Instance Strategy, Nike had to work towards a difficult goal of adopting a
fairly common business process across all divisions. Nike was aware of the risk and complexity of
the decision. It was betting its future on a single vendor.

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Nike had purchased SAP AFS in 1998 but it did not implement the initial version of AFS. Instead,
Nike worked with SAP to bring out a more stable second version. The new version of SAP AFS
was chosen as the foundation system for the NSC project. The SAP modules implemented at Nike
were Financial & Control (FICO), Sales & Distribution (SD), Material Management (MM) and
Production Planning (PP). These interfaced fully with Nikes i2 demand-planning and Siebel CRM
software. The solutions data structure was designed specifically to meet the unique requirements
of apparel and footwear industry to enable more effective inventory management.

Nike adopted the Big Bang approach for ERP software deployment by installing all SAP
components viz. planning, order entry, financials, treasury, procurement, etc. simultaneously.
Since Nike was not divisionalized, it had a high degree of integration between its apparel and
footwear businesses. Therefore, the company chose to deploy the solution in an entire region or
country at one time, as it would prevent massive business disruption. Nike wanted to have a step
wise geographic implementation but at the same time it did not want to build each rollout so region
specific that it would require specific support for maintaining multiple instances and multiple data
stores requiring multiple support teams.
Both Dewey and Steele ensured that business transition plans, training and testing were in place
right from the beginning. Testing was done at every stage of the deployment. It incorporated string
testing of individual transactions, systems integration testing for checking interdependencies and
coordination between systems and modules. A comprehensive week-in-the-life testing was also
25

Super users are process and systems experts from the business who act as frontline training force.

26

SAP AFS is an integrated solution to address the needs of apparel and footwear industry. It puts apparel
and footwear companies in complete control of their supply chain, from procuring raw materials to
delivering finished styles. The solution integrates global sourcing, in-house & offshore manufacturing,
subcontracting, and direct shipment processes so that global strategies can be implemented with
consistent quality.
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SCM and ERP Software Implementation at Nike

performed. All the data integration tests and data conversions were actually done. In the words of
Steele, Its a minute by-minute, 24-hour, seven to 10-day effort of going through the entire
implementation, ensuring that if it had been the actual go-live, everything would have worked
right.27
Nike ensured a close partnership between its business and IT arms. AFS users were completely
involved in the creation, development and configuration from the very beginning. The
management of the whole project was done from the program office at Beaverton. Commenting on
the project, Rick Neubauer, Partner at IBM Business Consulting Services said, The need for a
single business process drove efforts to reduce the number of regional variations. Key to that was
involving regional resources and expertise from early design through planning, to ensure ongoing
support and regional buy-in.28

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Guided by its Single Instance Strategy, Nike built a global template for SAP processes with
uniform procedures capturing all details. Nike had to harmonize the benefits of a single global
business process with existing regional differences. For example, the design for the US rollout was
tailored to accommodate some features of the EMEA rollout like multiple currency support and
diverse legal restrictions even though these were not required as such for the US business. This
made each rollout quite long and difficult.

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In 2000, Nike Canada became the logical candidate for implementing SAP AFS along with i2
applications and Siebels CRM because its business was similar to the US while being small
enough to be manageable. By leveraging its experience in Canada, Nike successfully deployed
SAP AFS at its North American operations in 2002. The deployment was the largest
implementation of the solution ever and involved around 5,000 users. This was followed by
deployment across Europe, Middle East and Africa (EMEA). The software used multiple HP
Enterprise Servers based on the HP-UX (1) 11 operating environment. The project resulted in a
consolidation of a wide variety of legacy-application subsystems into approximately five core
systems. The system provided a complete enterprise management system including capabilities for
financials, order fulfillment and logistics. The company did not go in for any regional rollouts in
2003 to allow for a SAP R/3 upgrade. The systems at Japan and four other Asia Pacific countries
went live in 2004. (Refer Exhibit VI for details of the implementation plan). Nike had chosen a
multi-disciplinary team of consulting resources from SAP and companies such as Bristlecone29 and
HP. HP was chosen as a technology partner for the NSC project due to its experience in SAP and
i2 environment. Nike also used HP consulting services for infrastructure, project management and
training. The company planned to deploy the solution for the Asia Pacific and Latin American
regions by 2006.

THE BENEFITS
Nike spent six years and $500 million on the NSC project. By 2004, the project was 80%
complete. The company reaped several benefits from the project. While inventory levels witnessed
a declining trend, the project also made design and manufacturing quicker and resulted in
increased gross margins of 42.9% in 2004, up from 39.9% five years ago. The company also saw
its highest cash flows from operations in eight years. Earlier, Nike purchased products from
manufacturers about 9 to 10 months in advance while Nikes retailers ordered only six months in
advance.
27

Dan Sussman, There is no Finish Line, MSI mag.com, May 2004.

28

Dan Sussman, There is no Finish Line, MSI mag.com, May 2004.

29

Bristlecone Inc. is a business process and technology consulting firm based in San Jose, California.
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SCM and ERP Software Implementation at Nike

Nike claimed that as a result of greater information and better collaboration with factories in the
Far East, the percentage of shoes it made without a firm order from a retailer (blind buys) had
fallen from 30% to just 3%. The project enabled Nike to shorten its lead time for building footwear
from nine months to six months. The company claimed that better visibility into customer order
transactions had enabled a saving of $5 million annually. Commenting on the benefits derived
from the project, Steele said, NSC has allowed us to create a build-to-order supply chain where
we now buy from partner factories based on actual customer demand rather than forecasts alone.30
The direct benefits of the project were better financial management, improved revenue forecasting,
and the ability to take advantage of shifting exchange rates. Moreover, the companys enhanced
capabilities to plan and track inventory resulted in an ROI of 20 percent in 2004. For fiscal 2004,
Nikes full-year revenues went up to $12.3 billion from $10 billion in 2003 and its net earnings
increased by 27% from $474 million to $945.6 million (Refer Exhibit VII for the financial history
of Nike). It achieved the highest gross margin in its history, at 42.9%. Acknowledging the benefits
of the project, Don Blair, CFO of Nike said, The positive effects of the tighter supply chain and
cleaner inventories drove 75% of the improvement in gross profit margins.31

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The non-quantifiable benefits included better integration between different departments like
planning, sales and logistics. Earlier, Nike had operated as a silo-based functional organization.
According to Shelley Dewey, Vice president, Nike Supply Chain, The transition of business team
members into IT savvy individuals and IT team members into business process experts was an
unexpected bonus of the project effort. We are a much stronger team for having done this work.32
This improved the level of decision-making and brought the organization together to better balance
customer service and delivery with inventory and cost reduction. With the success of this
deployment, experts felt that Nike had regained its status of being one of the frontrunners in using
IT effectively. Henning Kagermann, Chief Executive Officer, SAP AG said, Nikes successful
execution of a deployment of this size and scope clearly positions the company among the
vanguard of the industrys most effective users of technology.33

Nike was able to transform its supply chain into an adaptive supply chain network. Adaptive
network technology allowed an Original Equipment manufacturers (OEM) to add new partners as
soon as customers showed demand for new products and services (Refer Exhibit VIII for details on
adaptive supply chain network). Commenting on this, Mike Maguire, Vice-president, Supply
Chain Management, SAP America said, In practice, however, most companies never truly
optimize or integrate the supply chain with the demand chain. Nike was able to connect both
supply and demand to deliver value.34
A few analysts, however, were not happy with the success of NSC project. They pointed out that
the success had come at a huge price, since the project had huge time and cost over runs.
Addressing the future challenges, the analysts mentioned that Nikes SAP system still did not
accept direct point of sale (POS) data in integration with the retailer data, making its forecasts less
accurate as the company only knew how much the retailer was buying and not what the customers
were buying.
30

Tim Clark, Power Users, Consumer Goods Technology Magazine, July 2004.

31

Larry Barrett, Long

November 01, 2003.

32

Tim Clark, Power Users, Consumer Goods Technology Magazine, July 2004.

33

The Strongest Link, Fashion Business International, September 2002.

34

Dan Sussman, There is no Finish Line, MSI mag.com, May 2004.

Strange

Trip:

Nike

Finally

11

Regains

Footing

Baseline

Magazine,

SCM and ERP Software Implementation at Nike

Industry observers also pointed that the market for Sneaker shoes had changed since Nike created
its Futures program 30 years ago. According to them, retailers no more preferred to order products
six months in advance when fashions were changing rapidly. They pointed out that Nikes rivals
were allowing retailers much more flexibility as far as ordering was concerned; threatening the
companys market leadership position in some areas. Company officials, however, felt that Nike
would be able to get its six-month lead time down to three in the near future. But again there were
risks, as pointed out by Steele, It would require significant changes on the part of retail and
supplier partners as well as Nike processes.35

ASSIGNMENT QUESTIONS
The following questions can be given as a class exercise. Students can either submit written
assignments individually or present the answers of these questions after discussing them in groups:

1. Elaborate on the measures that can be taken to overcome demand forecasting problems.
Examine the limitations of Demand Planning software. Do you think they are suitable for
supply chains across varied industries? Justify your answer giving reasons.

op

2. Examine the role of accurate demand forecasting for a business. Suggest strategies that can be
adopted by companies to avoid supply chain problems as faced by Nike.

ot

3. Analyze the various factors which made the difference between success and failure in the two
software implementations at Nike. What lessons can be learnt by other companies from Nikes
initial failures and successes? Explain.

35

Christopher Koch, Nike Rebounds, CIO Magazine, June 15, 2004.

12

SCM and ERP Software Implementation at Nike

EXHIBIT I
i2 TRADEMATRIX PLAN SOLUTION
TradeMatrix provides the ability to dramatically increase the velocity of core business planning
processes. Providing a means to simultaneously consider materials, capacities, transportation,
and demand allows for rapid consideration of different alternatives. This consideration permits
the system to optimize based on all constraints, and then allows planners to manage the
exceptions to make business optimization decisions. The TradeMatrix Plan solution consists of
Strategic planning, Demand management, Supply planning and Production planning and
scheduling.

ot

op

The TradeMatrix Approach

Source: www.i2.com

TradeMatrix Plan Solution

Source: www.i2.com

13

SCM and ERP Software Implementation at Nike

EXHIBIT I
i2 TRADEMATRIX PLAN SOLUTION (CONTD.)

Production

Accurate
demand
estimation
difficult.

Demand planning;
channel
collaboration;
promotion
planning.
Collaboration;
optimization;
speed.

is

The size and

complexity of
the problem is
constraining;
the planning
speed is suboptimal.
Managing
material and
capacity
tradeoffs
is
complex.

Benefit
Long
profitability.

term

Improved
customer
service; reduced markdowns and write-offs;
profitable campaigns.
Global visibility and
coordination;
fast
reaction to changes;
lean asset deployment.

To match available
supply to prioritized
demand.
To determine what to
make and when, and
how
to
profitably
distribute supply.
To determine what to
produce and when.

Capability
Optimization;
simulation;
war
games.

Fast finite material

and
capacity
planning
and
scheduling; rapid
change
propagation.

Significantly reduced
inventory; increased
throughput; improved
due date performance.

ot

Supply
Planning

Challenge
Unclear
parameters
like markets,
products, plant
location etc.

op

Demand
Management

Objective
To design the supply
chain to maximize
profitability
by
optimally
allocating
plant and distribution
centre locations and
capacities.
To
anticipate
and
influence demand.

Solution
Strategic
Planning

Source: www.i2.com.

EXHIBIT II

TRADEMATRIX AND PRIVATE MARKETPLACE

TradeMatrix is an intelligent engine for eBusiness powered by i2 with support from leading vendors such
as Ariba, Aspect and IBM. TradeMatrix provides solutions to create:
Private Marketplaces: Focus on a buyer or seller creating a marketplace to enable key collaborative
business processes with its existing customers, suppliers and other service providers. Transactions from
an end-customer to the supplier flow seamlessly in such a marketplace. Organizations choose this option
when the primary eBusiness opportunity is seen as one of extending an organization's business processes
to include key partners.
Public Marketplaces: Focus on creating a community with multiple buyers and sellers converging to
conduct business on the Internet. These marketplaces rely on acceptance by a critical mass of buyers and
sellers.
TradeMatrix marketplaces are enabled by marketplace-to-marketplace (M2M) connectivity. Within
these marketplaces TradeMatrix provides a number of services such as procurement, commerce,
fulfillment, supply chain planning, product development, customer care and content management.
Source: www.i2.com.

14

SCM and ERP Software Implementation at Nike

EXHIBIT III
IMPLEMENTATION METHODOLOGY
The TradeMatrix Plan Solution is implemented on a business release schedule which guarantees
the quickest time to value. As part of the business release methodology, i2 will help a company:

Focus on business results, not functionality

Design expected completion date and responsibility

Set a completion date for when capability is in place and value capture (results) has begun

Give results quickly and at multiple points in overall project due to its short term, welldefined structure

The business release may include one or more of the following:

Implementation of software functionality

Data changes

Process changes

Policy changes

Performance measurement changes

op

Objectives of The Three Step Business Release: Establish marketplace platform and enable web
sales channel; Link to enterprise resources and identify; and establish new channels to the
marketplace platform.

ot

Source: www.i2.com.

EXHIBIT IV

DEMAND FORECASTING: MYTH VS REALITY

Reality

Myth

There is no need to Inaccurate forecasts can still be useful as long as you treat the result
forecast since forecasts as a guide rather than the gospel. At the very least, having one
forecast for the whole company keeps departments from coming up
are always wrong.
with their own grossly different forecasts.
Forecasting
requires While number crunching is important, what will ultimately make or
statistics
and
math break a forecast is how well you know your customers and the
market. That requires a sales force that can both communicate with
wizards.
customers and honestly share that information with the rest of the
company.
Only the most expensive Contrary to what vendors want you to believe, most forecasting
forecasting
software software is pretty much the same. The algorithms have been around
for so long now that it is unreasonable to expect that one system's
will work.
math is better than another's. The important thing when choosing
demand software is selecting a system that's robust enough to handle
the amount of data that you intend to enter.
Adapted from the article: Future Results Not Guaranteed, www.cio.com.

15

SCM and ERP Software Implementation at Nike

EXHIBIT V
SAP LANDSCAPE AT NIKE

op

SAP R/3:
2 Production Instances running 4.6c and the AFS 3.0 Industry Solution.
Over 7 terabytes of data between both R/3 instances.
B/W: Business Information Warehouse
2 Production Instances running 3.1c and probably upgrading to 3.5 later in 2005.
Will be adding more BW production instances in July 2005.
Over 6 terabytes of data between both BW instances
Supply Chain Management & Supplier Relationship Management
Advanced Planning & Optimization (APO) 3.1 upgrading to 4.1 in July 2005
Event Manager 4.0
Enterprise Buyer Professional
Net Weaver Applications:
Enterprise Portal 6.0 sp2, externally hosted in production and accessible from
www.nikeConnect.com.
Web Application Server 6.40 sp10
Exchange Infrastructure 3.0
Custom Composite Applications

ot

Source: SAP NetWeaver roundtable discussion, www.sap.com.

EXHIBIT VI

NIKE SUPPLY CHAIN INITIATIVE IMPLEMENTATION PLAN

Year

2001

2002

2004-06

Nike footwear product creation engine is managed globally.

Nike Canadaaccounting for 2 percent of Nike revenue served as a pilot project,
which involved 350 end users; 2,000 accounts; one warehouse; one currency; and
two languages.
Nike U.S. accounts for more than 50 percent of Nikes revenue. The implementation
involved 4,000 end users; 18,000 accounts; four warehouses and multiple satellite
facilities; one currency; and one language.
Nike Europe, the Middle East, and Africa
(EMEA) accounts for 29 percent of Nike revenue. The implementation involved 23
countries; 2,000 end users; more than 20,000 accounts; four warehouses;13
currencies; 18 languages for invoicing; and 28 separate price lists.
Remaining areas in America and Asia Pacific
Together, these regions account for 17 percent of Nike revenues. Implementation
will involve 16 countries; eight languages; 10 time zones; more than 20,000
accounts; multiple currencies; and at least five warehouses.
(While regional rollouts proceeded, Nike continued to extend system functionality
for those countries already live. A comprehensive SAP R/3 enterprise system
upgrade was done in fall 2003.)

1999
2000

Implementation

Source: www.nike.com.

16

SCM and ERP Software Implementation at Nike

EXHIBIT VII
FINANCIAL HISTORY OF NIKE
(In $ millions, except per share data and financial ratios)
2001

2002

2003

2004

8,776.9
3,283.4
37.4%
45.1
451.4
-

8,995.1
3,591.3
39.9%
(2.5)
579.1
-

9,488.1
3,703.9
39.0%
0.1
589.7
-

9,893.0
3,888.3
39.3%
668.3
5.0

10,697.0
4,383.4
41.0%
740.1
266.1

12,253.1
5,251.7
42.9%
945.6
-

451.4

579.1

589.7

663.3

474.0

945.6

1.59
-

2.10
-

2.18
-

2.50
0.02

2.80
1.01

3.59
-

1.59

2.10

2.18

2.48

1.79

3.59

1.57
283.3

2.07
275.7

2.16
270.0

2.46
267.7

2.77
264.5

3.51
263.2

op

288.3

279.4

273.3

272.2

267.6

269.7

0.48

0.48

0.48

0.48

0.54

0.7

941.4

699.6

656.5

1,081.5

922

1,514.4

64.125
26.563

59.438
35.158

63.99
40.81

57.85
38.53

78.56
49.60

$198.1
1,170.6
1,818.0
5,247.7
386.1
0.3
3,334.6
60.938
17,202

$254.3
1,446.0
1,456.4
5,856.9
470.3
0.3
3,136.0
42.875
11,559

$304.0
1,424.1
1,838.6
5,819.6
435.9
0.3
3,494.5
41.100
11,039.5

$575.5
1.373.8
2,321.5
6,440.0
625.9
0.3
3,839.0
53.750
14,302.5

$634.4
1,514.9
2,766.5
6,821.1
551.6
0.3
3,990.7
55.990
14,758.8

$828.0
400.8
1,633.6
3,503.0
7,891.6
682.4
0.3
4,781.7
71.15
18,724.2

13.7%
8.5%
4.3
2.3
38.8

17.9%
10.4%
4.1
1.7
20.7

17.8%
10.1%
4.0
2.0
19.0

18.2%
10.9%
4.3
2.3
21.8

18.9%
11.2%
4.4
2.4
20.2

21.6%
12.9%
4.4
2.7
20.3

65.500
31.750

2000

Revenues
Gross Margin
Gross Margin %
Restructuring Charge, net
Income before accounting change
Cumulative effect of change in
accounting principle
Net Income
Basic Earnings Per Common Share
Income before accounting change
Cumulative effect of change in
accounting principle
Net Income
Diluted Earning Per Common Share
Income before accounting change
Average
Common
Shares
Outstanding
Diluted Average Common Shares
Outstanding
Cash Dividends Declared Per
Common Share
Cash Flow From Operations
Price Range of Common Stock
High
Low
At May, 31
Cash and Equivalents
Short-term Investments
Inventories
Working Capital
Total Assets
Long-term Debt
Redeemable Preferred Stock
Shareholders Equity
Year-end Stock Price
Market Capitalization
Financial Ratios:
Return on Equity
Return on Assets
Inventory Turnover
Current Ratio at May 31
Price/Earnings Ratio at May 31

1999

ot

Particulars (Year Ended May 31)

Source: Nike Annual Report, 2004.

17

SCM and ERP Software Implementation at Nike

EXHIBIT VIII
TRADITIONAL SUPPLY CHAIN VS ADAPTIVE SUPPLY CHAIN NETWORKS
Characteristic

Traditional Supply Chain

Adaptive Supply Chain Network

Information
Propagation

Sequential and Slow

Parallel and dynamic

Planning Horizon

Days/Weeks

Planning
Characteristics

Batch

Dynamic

Days/hours

Hours/minutes

Historical

Real time

Cost/delivery

Network capability

Centralized

Distributed

Control
Exception Management
Integration

Centralized/manual

Distributed/automated

Stand-alone point solution

Intra- and inter-enterprise

Propriety

Open

ot

Standards

Supplier Characteristics

op

Analytics

Response Reaction

Hours/days

Source: Dan Sussman, There is no Finish Line, MSI mag.com, May 2004.

18

SCM and ERP Software Implementation at Nike

ADDITIONAL READINGS & REFERENCES

14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.

op

11.
12.
13.

10.

ot

8.
9.

7.

5.
6.

Moving Forward with Nike, http://www.oficina.net, April 1997.

Robert J. Bowman, Global Logistics and Supply Chain Strategies, September 1998.
Hal Plotkin, ERPs: How to make them work, Harvard Management Update, 1999.
Charles Trepper, ERP Project Management Is Key To A Successful Implementation,
August 01, 1999.
Barry Calogero, Who is to blame for ERP failure? Sun Server Archive, June 2000.
Bill Jeffery and Jim Morrison , ERP-One Letter at a Time, CIO Magazine,
September 01, 2000.
Kim S. Nash, Companies Don't Learn From Previous IT Snafus, Computerworld
September 30, 2000.
Ann Sulvian, Nike Says i2 fouled its profits, http://www.nwfusion.com, January 03, 2001.
Tiffany Kary, Nike software glitch pushes i2 shares lower, CNET News.com, February
27, 2001.
Marc L. Songini, Nike blames financial snag on supply-chain project, Computerworld,
February 27, 2001.
Mike Trigg, Nike Blames i2 for Software Mishap, February 28, 2001.
Steve Konicki, Nike Just Didnt do it, Information Week, March 05, 2001.
Mel Duvall, Nikes Supply Woes Could Signal Broader Trend, www.eweek.com,
March 05, 2001.
Richard Karpinski, Dont Get Nike-ed, Internet Week, March 07, 2001.
Tim Wilson, Nikes Pain Shows How Hard B2B Can Be, Internet Week, March 07, 2001.
Eric Young, Mark Roberti, Jennifer Couzin, The Swoosh Stumbles, The Industry Standard,
March 12, 2001.
David Loshin, The Cost of Poor Data Quality, DMReview.com, June 2001.
Scott Berinato, The Secret to Software Success, CIO Magazine, August 10, 2001.
Sarah Jane Johnston, ERP: Payoffs and Pitfalls, HBS Working Knowledge, 2001.
Adam Aston, Supply-Chain Whiz Comes Back Wiser, Business Week, June 03, 2002.
Kimberly Hill, Facing the Complexity of the Global Supply Chain, CRM Daily,
July 19, 2002.
David A. Taylor, Supply Chain vs. Supply Chain, Computerworld, November 10, 2003.
Julie Bort, How far can we go?, Network World, November 11, 2003.
Stacy Cowley, Nike merges enterprise unit with services group, IDG News,
December 09, 2003.
Stanley Holmes, Street Wise, BusinessWeek, June 24, 2004.
Marc L. Songini, SAP implementation contributed to Nike shortfall, Computerworld,
August 12, 2004.
Jorina Choy, Just Do It, http://www.asiacomputerweekly.com, October 25, 2004.
R.Michael Donovan, ERP Successful Implementation the First Time,
www.refresher.com, January 14, 2005.
Thomas Hoffman, A Sarb-Ox for IT?, Computerworld, January 31, 2005.
Jian Zhen, Why IT Projects Fail, Computerworld, February 07, 2005.
Eric Rosenfeld, After All This Why do Projects Fail?, Adaptive Consulting Partners,
www.adaptivepatners.com.
www.nike.com.
www.sap.com.
www.sapinfo.net.
www.mrpii.com.
www.searchsap.com.
www.sapittoolbox.com.
www.ecominfocenter.com.
www.nike.com.
www.siebel.com.
www.ibm.com.
www.i2.com

1.
2.
3.
4.

19