Nike Learns Patience
Nike learned from its mistakes. There would be no rushing the SAP installation. And even though Nike executives occasionally questioned the project's complexity and expense, Steele never considered abandoning the single-instance strategy. "We said single instance is a decision, not a discussion," says Steele.
Nike wanted to do a staged, geographically based rollout of SAP, but it also wanted to avoid making each rollout so specific to a region that it would require specialized support. That meant building a design for the US rollout that accommodated some of the peculiarities of the EMEA rollout - such as multiple currency support and different legal restrictions - even though those things were not required for doing business in the United States. This necessitated creating a global template for SAP processes, with all the regions agreeing on the minutiae of doing business. Naturally, this made each rollout longer and more complex.
Canada, a relatively small (roughly $US300 million) piece of Nike's $US11 billion business, went first, on Thanksgiving weekend 2000 (the pre-northern-spring rush quiet time), with SAP's AFS ERP, a bundle of i2 applications and Siebel's CRM system. Steele and regional Nike executives, dressed in smocks, served Thanksgiving dinner to project employees working around the clock. Other regions - the United States and EMEA - followed on successive Thanksgivings, putting 6350 users worldwide on the system by the end of 2002. (The last two regions, Asia-Pacific and Latin America, are scheduled for rollout before the end of 2006, according to Nike.) Steele claims he's never had to serve humble pie along with the turkey, saying to date there have been no disruptions to Nike's business from the three rollouts.
This may be because of Nike's newfound respect for training, another weakness of the i2 implementation. Nike's US customer service representatives received 140 to 180 hours of training from highly trained fellow Nike "super users", says Andy Russell, Nike's global transition director. Employees are locked out of the system until they complete the full training course, he says.
What Phil Knight Ultimately Got for His Money
So what have six years and $500 million done for Nike's business? Wolfram claims that better collaboration with Far East factories has reduced the amount of "pre-building" of shoes from 30 percent of Nike's total manufacturing units to around 3 percent. The lead time for shoes, he asserts, has gone from nine months to six (in some periods of high demand, seven). But John Shanley, managing director with Wells Fargo, says: "Retailers are saying it's still closer to nine months than six." Gross margins have increased slightly since 2001 but not significantly.
Inventory levels have been reduced, says supply chain vice president Dewey, by cutting Nike's factory order interval time from one month to a week in some cases. But here, too, the effects may not be trickling down to the balance sheet as fast as Nike would like. Inventory levels are still at the mercy of Nike's fickle audience of teens. Nike's inventory turns were 4.34 per year in 2003, according to Footwear News, an industry trade magazine, slightly less than the industry average of 4.39 and behind rivals Reebok (5.07) and K-Swiss (4.47).
Nike also is behind its rivals in direct point-of-sale (POS) integration with retailers, says Shanley. Supply chain experts agree that actual data from stores, rather than software algorithms, are the best predictors of demand. But Nike's SAP system cannot yet accept POS data, though the company says it's working on it.
So far, the most direct benefits of the system have been typical for ERP: improved financial visibility, cash flow management, revenue forecasting, and an ability to juggle Nike's cash stockpile in different currencies to take advantage of shifting exchange rates - benefits that are enhanced by the single database that holds all the data.
But Steele maintains that the best is yet to come. "We haven't changed our processes too much yet," he says, "because we didn't want to complicate the rollouts." Eventually, he believes Nike will get that six-month lead time down to three. But, he cautions, that that would require "significant changes on the part of our retail and supplier partners as well as Nike processes".
He'd better hurry. Shanley says the sneaker market has changed a lot since Nike created its Futures program in the 70s. Retailers don't like having to order products six months in advance when fashions can change in a flash. Rivals are allowing retailers much more leeway in ordering practices, eroding Nike's market lead in select areas.
But because Nike developed a plan in 1998, and stuck with it, the company claims it can make a coordinated global effort to cut that lead time. The system to make that happen is in place - which, given all that has transpired in the past seven years, is rather remarkable.
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