Why does Nike care about supply chain digitalization?
Consumer expectations have shifted dramatically. Ten years ago, Nike dictated its own product cycles, with retailers placing 94% of their wholesale orders at least six months in advance.  Today, consumers have adopted the “buy now, wear now” mentality. With the internet, consumers have access to whatever they want whenever they want it, making the traditional retail calendar obsolete. Social media has also accelerated the fashion cycle, as consumers are constantly searching for the next “hot” item.  Not only do consumers want new products faster, but they also want to be able to customize them. 70% of consumers say that they would be “more loyal” to brands that gave them the ability to customize products. 
Nike’s established supply chain, with long product lead times and large batch production, is no longer able to meet consumer demands. As a result, Nike needs to transform its capabilities with technology. This will enable the Company to 1) shorten product cycles, 2) reduce labor and material costs via automation, and 3) efficiently produce customized footwear. A digitized supply chain is table stakes for Nike – it’s main competitor, Adidas, has already invested in a “speedfactory,” where robots are producing customized designs.
Management’s short-term and medium-term initiatives
Today, customers can choose one of ~10 shoe models on NIKEiD and customize the color and fabric. Nike’s current manufacturing processes are set up to produce large runs, but their goal is to have complete production flexibility (i.e., use the same amount of time to produce 1 SKU 20,000 times and 20,000 different SKUs). 
In the near-term, management wants to increase automation of the entire manufacturing chain, including pre-production, material preparation, stitching, and assembly. In addition to reducing operating costs, these innovations will help deliver NIKEiD products 5-10x faster (in a matter of days vs. several weeks)  Specifically, Nike has partnered with Flextronics to develop and roll out the following technologies:
- Laser-cutters: Lasers follow a “digital recipe” and can easily switch between cutting different SKUs without additional set-up time.
- Roboticized bolt holders: Each shoe model requires different fabrics to be moved and handled. A roboticized bolt holder automatically feeds the line based on the shoe’s fabric requirements. 
In the medium-term, Nike’s goal is to provide consumers with custom-fit, 3D-printed shoes in a scalable manner. Nike and Adidas are in a race to mass-produce 3D printed shoes. Nike has established a partnership with HP but has not revealed any public targets; Adidas has announced a goal of selling 100,000 pairs of shoes by 2018. [7, 8] The two main challenges with 3D printing are:
- Inability to scale due to high costs: soles take ~10 hours to print and machines are expensive.
- Unappealing aesthetics: 3D printers have more much limited colors and textures compared to traditional manufacturing. 
Almost all of the press around Nike focused on its technological innovations (i.e., laser cutters, bolt holders, 3D-printing), but I believe that in the near-term, increasing supply chain transparency is equally as important. In order to achieve faster fashion cycles, Nike needs to understand what products retailers are selling. To the extent it can, Nike should integrate into retailers’ data systems and run predictive analytics. This will help Nike 1) forecast demand and replenish products in a shorter timeframe and 2) provide immediate feedback to the product development team.
In a similar vein, Nike should partner with retailers who can handle faster fashion cycles (i.e., retailers who are willing to hold more styles for shorter time periods and can market them effectively).
In the medium-term, 3D-printed shoes will require just-in-time production. To limit inventory costs, Nike should integrate with suppliers, so that the suppliers can see what orders are received in real-time and arrange for just-in-time delivery of materials.
3-D printing will also cause a shift towards the direct-to-consumer (D2C) channel and fundamentally change Nike’s business model. I believe that growth in the D2C channel will benefit Nike, as D2C 1) allows Nike to own the relationship with the customer and 2) has higher margins vs. traditional retail. That said, management should carefully evaluate what resources will be needed to scale D2C (i.e., customer service and logistics).
- How much of Nike’s supply chain needs to be transformed? Digitalization makes sense for producing customized shoes, but is the investment worth it for products that Nike has produced consistently over the past decade?
- Producing customized shoes (both NIKEiD and 3D-printed) requires significant upfront investment in R&D, IT and machinery. Is this a market that only large, well-capitalized incumbents like Nike and Adidas can win, or can start-ups like Feetz break in?
- Nike, Inc., May 31, 2007 Form 10-K (filed July 27, 2007), via Capital IQ, accessed November 2017.
- CPP-Luxury, “Millennial Consumers are Keen to ‘See Now, Buy Now, Wear Now,’” http://www.cpp-luxury.com/millennial-consumers-are-keen-to-see-now-buy-now-wear-now/, accessed November 2017.
- Cotton Incorporated Lifestyle Monitor, “Keeping the Supply Chain Running Smoothly,” http://lifestylemonitor.cottoninc.com/mining-the-data/, accessed November 2017.
- Morgan Stanley, “The Need for Speed Hits Athletic Wear,” June 6, 2017.
- Flextronics, “Nike Case Study”, https://flex.com/insights/case-studies/nike, accessed November 2017.
- Flextronics, “Recoding the Run,” https://flex.com/intelligence/manufacturing/recoding-run, accessed November 2017.
- Nike, “At Nike the Future is Faster, and it’s 3D,” https://news.nike.com/news/nike-hp-3d-printing, accessed November 2017.
- TechCrunch, “Adidas’ Latest 3D-Printed Shoe Puts Mass Production Within Sight,” https://techcrunch.com/2017/04/07/adidas-latest-3d-printed-shoe-puts-mass-production-within-sight/, accessed November 2017.
- “3 Reasons You Won’t See Mass Produced 3D Printed Running Shoes – For Now,” https://www.solereview.com/3-reasons-you-wont-see-mass-produced-3d-printed-running-shoes/, accessed November 2017.