Nike Supply Chain Management: Ethics, Sustainability and Efficiency
The importance of innovative supply chain management has been highlighted by scholars and researchers for the successful management of businesses in the 21st century. Most of the successful businesses worldwide have improved their growth rates only by adopting innovative supply chain management practices. Whether it is a retail giant, a fashion brand, or an electronics company, a lean and agile supply chain has become compulsory to making great quality products and for better business performance. Nike is the largest maker of athletic footwear and apparel. Its successful global business model is based on successful supply chain management. Nike is known for its great product quality, innovative product designs, and unique marketing style. The brand has maintained a strong supply chain network. The main support for its global business empire is the international supply chain network of the brand, located mainly in Asia. Its supply chain model has evolved a lot in this decade. The brand has grown more cautious about its environmental footprint, quality of products, and customer service. Its supply chain plays an important role in all three areas. Overall, Nike has managed a smart, efficient, and agile supply chain, which we will discuss in detail in this post.
For raw materials and manufacturing, Nike relies completely on external sources. Independent contractors manufacture nearly all its products. It has a broad base of suppliers that support its business and growth. However, quality is a central concern in Nike’s supply chain. The company maintains great caution while selecting raw material and suppliers. There is a global procurement team at Nike to obtain raw materials. It takes care of the entire procurement process from supplier selection to contracting with the right suppliers for the right goods and services. Its strategic sourcing initiatives have also helped the brand reduce its carbon footprint. Nike has committed itself to the purchase of sustainable raw materials.
Nike’s supply chain extends to several nations. Its products are made in 42 countries at 567 independent factories employing more than 1 million workers (check out Nike’s manufacturing map). These independent factories produce virtually all of the products marketed and sold by Nike. In the fiscal year 2017, only 5 of its contract manufacturers accounted for around 69% of its total Nike Brand footwear production.
(2018 update: Nike has outsourced most of its production to external suppliers. 124 footwear factories located in 13 countries produced Nike footwear in 2018. None accounted for more than 10% of Nike’s entire production. The largest factory supplied 9% of Nike Footwear. 328 apparel factories located in 37 countries supplied Nike retail stores in 2018. None accounted for more than 15% of the production for the year.)
(2019 update: Independent contract manufacturers located outside the US manufacture virtually all of Nike products. Many of these contract manufacturers own several factories. 112 factories located in 12 countries supplied Nike shoes in 2019. Four leading contract manufacturers accounted for 61% of the company’s footwear production in 2019. All of them accounted for more than 10% of the company’s footwear production during the year. However, none of the producing factories accounted for more than 10% of footwear production in the year; the largest factory accounted for only 9% of the total. Most of the Nike brand footwear production took place in Vietnam, China, and Indonesia. Together, the three countries accounted for 49%, 23%, and 21% of Nike brand footwear, respectively.
334 factories in 36 countries produced Nike brand apparel in 2019. Most of Nike’s apparel production took place in China, Vietnam, and Thailand. Together, the three countries accounted for 27%, 22%, and 10% of Nike’s apparel production during the year. Top five apparel manufacturers together accounted for 49% of the company’s apparel production in 2019.)
As a part of its supply chain management strategy the focus is on quality and long term agreements. In past, Nike has courted several controversies over its supply chain practices related to labor welfare. It is why, it made its focus on ethical supply chain practices stronger. Its sourcing strategy focuses on suppliers and prioritises them who have shown leadership in CSR and sustainability and who offer more than the minimum quality standards. Its supply chain partners have agile and resilient management systems to enable them to grow sustainably and with minimized environmental impact. The focus is on fostering a culture of safety, diversity and inclusion down the supply chain and therefore the suppliers are also judged and audited based on fair labor standards.
To ensure that its suppliers follow the best practices, Nike has set a code of conduct and Code Leadership standards for them. The code of conduct lays down the minimum standards that each of its suppliers factories and facilities are required to meet. It lays down several requirements, chief of which are related to forced labor, child labor, excessive overtime, compensation and freedom of association. The Code leadership articulates the standards according to which the code of conduct must be implemented. It also notes how Nike measures compliance against the set standards. The expectations and standards have been continuously raised throughout these years for Nike suppliers. Apart from having established the standards for conduct for the suppliers, Nike also ensures compliance using various methods. Its suppliers are required to declare that they are sourcing materials from vendors which are Nike code of conduct compliant and comply with the local and national labor laws. Moreover, this system is evaluated and updated periodically to ensure a risk free supply chain system. Nike carries out regular audits of its supplier factories to ensure suppliers remain compliant. It uses detailed criteria for evaluation and audits.
Apart from its network of suppliers, Nike has an efficient distribution system to cater to the needs of its individual customers really faster. It has established a smarter distribution and logistics network that helps with faster shipments and quicker response to customer demands. These distribution and logistics centers also serve as critical touch points serving the needs of thousands of Nike retail stores, online sales and individual customers. They add speed to the entire supply chain system. Three years ago, Nike opened its North America logistics campus in Memphis, Tennesee. It is the largest of all distribution centers Nike has opened to cater to more than 2000 Nike stores in North America. This state of art facility is set over 2.8 million square foot and holds footwear, apparel and equipment by Nike and Jordan. It has improved Nike’s ability to deliver premium products to the customers faster and more efficiently. This facility meets Nike’s highest standards of sustainability and helps cater to the increasing demands of the individual consumers and wholesale customers. The logistics center offers higher cost efficiency by reducing shipping time and increasing service capabilities. Its European logistics centers stretches across four locations in Belgium and meets its high sustainability criteria. These regional logistics campuses or distribution centers have helped Nike manage a faster and smarter supply and distribution chain. In this way, there are several outstanding things about Nike’s supply chain, the most important of them are its efficiency, focus on ethics and sustainability and strong physical infrastructure.