Supply Chain Management

Case Analysis

Submitted to: Prof. Amar Sapra

Submitted by Group 8:
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1. Is Nike’s current supply chain strategy (without regional hubs) aligned with
its business strategy in Europe? Why or why not?
Nike’s supply chain and business strategy in Europe aren’t aligned.
Nike’s current supply chain strategy: Centralized logistics distribution strategy
with multiple go-to-markets approach. They try to capture the complexities caused by
high volume, variety, faster renewals & multiple products through a single warehouse
in Laakdal, Belgium, with centralised inventories for the entire European market
European Business Strategy: Nike’s digital business grew much faster; they now
wanted to satisfy online delivery expectations of two days or less. They wanted an
omnichannel experience with multiple pickup and shipping options.
Nike’s Consumer Direct Acceleration Strategy will give rise to implied demand
uncertainty, which the current supply chain won’t achieve. Below are the reasons:
 Shipping to the entire Europe from a single location won’t support quicker
Amazon-like deliveries (not 2 hours but 2 days), as identified by Ed Mukhtar.
 A centralised network cannot get Nike closer to the consumer.
 Low delivery speeds, customer satisfaction, and high reliability in one facility.
 Entire European business risks coming to a halt in case of disruptions. (3
months’ inventory is okay, but what if outbound itself stops?)
To cater to this, a multiple-node supply network with regional warehouses is
required.

2. Does it make sense to ship high runner (or high turnover) SKUs to stores
from the Madrid Hub? Why or why not?
Yes, it makes sense to ship high runner SKUs to stores from the Madrid hub, but
with some potential challenges that need consideration.
 Supply Chain POV: high runner SKUs represent products with consistent
demand and rapid turnover. By positioning these products in the Madrid hub,
Nike can achieve faster fulfilment times, particularly in metropolitan areas where
consumers expect rapid delivery (within 1-2 days). Shipping these SKUs to stores
improves customer satisfaction and reduces the risk of stockouts.
 Cost Efficiency POV: high runner SKUs contribute to predictable inventory
movement, allowing Nike to optimize transportation and reduce the frequency of
replenishment orders. Since these products are in constant demand, stores can
carry a reasonable stock of high runners without incurring excessive holding
costs.
 Customer Experience POV: having high turnover SKUs available at nearby
stores not only supports faster delivery for online orders but also enhances in-
store availability, aligning with Nike's omnichannel strategy. This strengthens the
customer experience by providing multiple fulfilment options, such as buy-online-
pick-up-in-store (BOPIS) or same-day store pickup.
While shipping high runner SKUs to stores from the Madrid hub makes strategic
sense it brings increased complexity in inventory and the potential for higher holding
costs. To mitigate these challenges, Nike could implement advanced demand
forecasting tools and dynamic inventory management systems to ensure high
runners are replenished efficiently, without excess inventory build-up.

3. Does it make sense to ship online orders for low runner (or non-high
turnover) SKUs from stores? Why or why not?
Low runner, low turnover items would probably best be serviced from the regional
hub or central warehouse, since the costs associated with variability in demand
and longer holding periods would outweigh the demerits of slower delivery.
Store POV:
 Adding SKUs that act as the long tail in Nike’s offerings would complicate
inventory and store management at the local level.
 Holding costs would increase with a less than commensurate increase in
sales and customer satisfaction.
Customer POV:
 Popular items would be available across other stores/channels such as
Amazon as well, and quick delivery would be a valuable proposition for Nike
to provide.
 Customers wanting to buy non-popular items are probably looking for
something specific and would be willing to tolerate slightly higher wait times.
Considering space and cost constraints, Nike would probably be able to maximize
customer satisfaction by prioritizing high turnover products for the stores, while
delivering low turnover items through regional hubs or the central warehouse.

4. What should be the KPIs for the Madrid hub?

Key insights that the management would like to gather from the pilot hub at Madrid,
apart from an uptick in overall revenues, would be focussed on lead times,
customer satisfaction and supply chain efficiency.

 Lead Time: what is the average lead time, and what proportion of orders are now
being fulfilled under the 2 day and 1 day target for national and metropolitan
coverage respectively.
 Customer Satisfaction: how do the customers rate the delivery service provided
for their order?
 SKU Concentration Variability: to what extent does the list of top SKUs driving
most of the demand change after every 2-week assessment.
 Cost per delivery: how much does an average delivery cost the company with
this new model?
Rationale:
The strategy is aimed at being able to deliver products to customers quickly,
therefore assessment of order lead times would be essential.
The increased costs in establishing regional hubs and direct experiences in turn
hinges on the assumption that this will lead to greater customer satisfaction, which
should be tested, to check for any damages or unanticipated pain points not being
covered.
To build on this pilot and advance the project, Nike would also like to measure cost
per delivery to see how much the regional variability in delivery locations impacts
their last mile delivery costs, which could help them optimise for the hub/store mix.
Measuring variability in the key SKUs that drive demand would signal the feasibility
of the 7%  40% optimisation, as highly variable demand could add to inventory
costs at the hub. Return rates and mix of orders across O2O matrix would help refine
the in-store hypotheses.

5. Should customers be given a choice to pick up orders or return products to

stores? Justify your answer from a supply chain perspective. If yes, then
what is required in the stores?
YES, providing this option to customers would enhance customer satisfaction and
most likely reduce costs (and carbon footprint) of Nike’s operations.
 Cost Savings: Last mile delivery is the most inefficient/costly part of the
supply chain, and a store pickup/drop facility enables Nike to cut down on
those costs.
 Customer Satisfaction: Flexibility in dealing with the company, with a holistic
online/offline experience would improve satisfaction - allowing for a more
premium experience for those who would like to pick up from a branded store
and get personal attention when returning products.
Requirements:
 Dedicated Desk: Processing these transactions would require a separate
zone where customers could get quick service. For returns specifically, there
may be need for some exception handling as customers get their queries
resolved or products replaced.
 Tech Infrastructure: Smooth operation would require a real time, connected
inventory system that allows for pickups and returns of products sold from
different stores to be processed immediately, and for added communication
efforts to make the pickup and return process easy for customers.

6. Nike is planning to start a hub in the UK. Does it make sense to ship all the
products directly from suppliers to this hub and then use it ship products
for all the channels (direct and wholesale)? In other words, all the products
sold in the UK will not be routed through Lakdaal.
No. It would be best for Nike to ship products to the central warehouse and then ship
to regional hubs at regular intervals to avoid excessive ordering + holding costs
across SKUs and smooth out ordering volatility to the supplier.
 Holding & Ordering Costs: an additional facility ordering independently
would increase ordering costs per unit for UK, and with the flexibility of
ordering from a Belgian warehouse removed, the facility would be forced to
invest in more capacity and hold more SKUs than necessary ( or repeatedly
pay high ordering costs)
 Order Quantity Smoothing: When operations across Europe are
consolidated at the Belgian warehouse, Nike can be more confident in
avoiding stockouts, since statistically – normality assumption implies that ‘n’
distributions of mean ‘x’ and std dev ‘’ would have st dev of √n.
Especially considering all channels such as wholesale that don’t require quick
delivery, the pileup of inventory at the UK hub would be inefficient, unless the UK
generates a disproportionately high percentage of the EU demand.