Report on Nike Distribution Channels and Supply Chain Strategies

Supply Chain (SC) and Supply chain Management (SCM) owns a huge share in efficiencies field. Linking and reporting to Supply Chain, Supply Chain Management and the Managerial traits have a big role to the Supply Chain study field. The aim for this short study is to analyse and reveal the Nike Distribution Channels, explore its supply chain and the efficiencies. The structure of the essay is the following: introduction, main body (analysis of supply chain and distribution channels), conclusion and recommendations. 

Nike Distribution Channels: Essay Introduction

The company was founded in 1964 under the name of 'Blue Ribbon Sports' named Bill Bowerman and Philip Knight. Jeff Johnson changed the name to Nike in 1971 when he saw Nike, the Greek Goddess of Victory, in a dream of Greek mythology.

Nike is capable of running and flying very fast. Nike Swoosh's logo is drawn by a college student for 35 dollars and it represents the wings of the Nike goddess. Today, Nike is one of the three most recognized sports brands in the world. Sneakers, sports clothes and sports accessories design, design and marketing makes.

Nike is sold in almost all countries in the world. The profit, which was $ 60,000 in 1972, was $ 27.7 billion in 2014. Ranked 425th in the Fortune Global 500 list. In the Forbes list, it ranks eighteenth in the list of the 100 most valuable brands. Nike Company reaches its customers with five different brands; 1- Nike, 2- Converse, 3- Hurley, 4- Jordan and 5- Nike Golf.

Nike has 48000 employees in offices and stores all over the world. All Nike production is provided by contracted factories. It identifies the predisposition as design and makes products in countries with low labor costs. Nike considers itself responsible for marketing rather than production. It has agreement with 655 factories in 42 different countries. The main production countries are China, Vietnam, Thailand, Indonesia, Sri Lanka, Pakistan and Malaysia.

Supply Chain Network and Nike Distribution Channels

Nike is the best sports brand in the all around the world. In the Nike around 74000 employee works. Nike biggest source of income is the sports equipment, shoe and clothing. The labor cost of production in United States is very high, which means most of the Nike shoes manufactured outside of the United States. According to Nike 99 % of all shoes sold in United States are manufactured outside of United States. Nike goes one step further company not manufactured all the shoes outside of United States also they deliver 85 % of manufactured line in overseas.

Nike companies lean supply chain saves $0.15 per unit to compared traditional distribution models. Nike is saved $900 million in a year. The key factor of Nike is efficiency with low manufacturing cost. Nike’s shoe division services for 14 countries by independent contract manufacturers. Around 96% of factories locate in China, Indonesia and Vietnam, but no single factory accounts no more than 5% of output in total Nike shoe production. Beyond the production process. Nike relies on the independent contractors to product themselves. Nike's production and distribution models will have to deal with is automation. High labor management in the United States, the basic approaches to production, but the basic principle of production, but as Robotic technology evolves, in places like Nike this is untenable, it offers the opportunity to increase the launch and production operations. According to Morgan Stanley Forecast; almost 20 % of Nike shoe production will produced by automated factories in 2023 due to adopt themselves new generation. In that time many of overseas factory will adopt successfully without any risk of losing their cost advantage over domestic factories. According to International Robotic Federation repots in this next three years 1.3 million new robots will be installed in factories. This means Nike will be improve and adopt their production in that area. This will be Nike one of the strategies in manufacturing.

Nike distribution channels can be basically divided by into two categories. First one is the selling products to wholesaler and direct to consumer or (DTC). Selling products to wholesaler in International and US. This distribution channel is the biggest distribution channel for Nike. DTC sales include factory, in-line and e commerce sales in through the website. Also, Nike distributed it products e commerce web sites like Amazon, Ali Expressor more websites. Selling products in online to directly customer is the Nike’s fastly growing distribution channel. In the Nike distribution channels also created for some specific categories for retailer destinations by partnering some footwear (shoe) retailers such as Foot Locker, Jd Sports, Flo and more footwear retailers. Nikes most revenues come from wholesalers. But in wholesaler contribution to the sales mix contracted decreases 83% (2012) to 68% (2019) of revenues fiscal. In the DTC sales increased 16% for 32% during the same period. However, this DTC rates are lower than Nike’s rival rate. However, DTC and wholesale are important for Nike. In the future Nike can be investment some money for improving their DTC distribution channels.

Nike Distribution Strategy

Nike is mostly focusing on DTC (direct to customer) distribution channel. Nike sells their products to customer with Nike Direct. Nike direct is a web sites you can buy your original Nike products for this web site. DTC is the Nike’s best distribution channel in customer margin. Nike increased their sales to using Nike Direct. In the wholesaler side in Nike; wholesalers in customers increased 6% in 2019 fiscal year compared to 2018 fiscal year. Nike still uses wholesaler, but DTC sales increased from $5.3 billion in 2014 to $11.7 billion in 2019 fiscal year.

DTC (direct to customer) approach of Nike is two sided Nike owned retailer stores, which are brick and mortar stores and Nike’s digital platforms. Nike factory provide some premium product for consumers value. Due to relevant value proposition to attract higher consumers value. The end of 2019 fiscal Nike operated 384 retailer stores in United States and 768 stores in outside in United States. In United States 217 Nike brand factory stores, 29 Nike in-line stores and the others 109 Converse and 29 Hurley. In the outside of the United States 648 Nike brand factory stores, 57 Nike brand in-line stores the others are Convers stores. Online sales are the key factor for this distribution channel.

Also, Nike is focus on the online distribution channels. In 2019 fiscal year Nike online sales increased 35% year over year. In company consolidated revenue increased 7% Nike also focus for good constructed and unique design products for customers. Nike invents R&D for new technologies to determined products lines according to customer preferences.

Conclusion and Recommendations

Nike is one of the largest makers of athletic footwear. It is known globally for its successful supply chain management, it is also known for great product quality, innovative product designs, and a unique marketing style. Nike has retained a strong supply chain network. The brand has more attention to its quality of products and customer service, as a result the company pays more attention while selecting raw material and suppliers. Overall, Nike has managed a smart, efficient and quick supply chain. The main reason for its successful supply chain is outsourcing strategy. Nike relies completely on external sources for raw materials and manufacturing Instead of owning and operating its own factories, which also lowers the manufacturing costs. Most of its products are manufactured by independent contractors, also it has established a smarter distribution and logistics network that helps with faster shipments and quicker response to customer demands. This network add speed to the entire supply chain system. 

Nike depend completely on external suppliers and manufacturer, so this sometimes make big issues for the company. In 1991 there is supply chain crises happen to Nike which had a significant impact on the company’s sales and demands. They begin to see reports of abusive labor conditions in their supplier factories. So, they should monitor their supply factories and do periodic audit, they also should hire someone who will be responsible for monitoring their contractors. also, they should look for many supplier factory options and investigate them before they pick one, and they must know all the information about that factory and the workers and their ages and expertise. They might start to have their own factories instead of outsourcing this might cost them a lot but in long terms it will benefit them because they will have more control and authority. Furthermore, they can hire more expertise and trained workers.