Striding forward: Nike’s quest to reinvent its supply chain
Can Nike succeed in its mission to mass-produce customized shoes?
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.
Student comments on Striding forward: Nike’s quest to reinvent its supply chain
As my essay was about the effect of Nike’s strategy on Dick’s Sporting Goods, I’m curious to hear more about how you recommend Nike partner with retailers even as they pursue going directly to consumers. I think it will complicated for Nike to arrange good in-store positioning and marketing from retailers who feel they are actively being squeezed out. One idea is to actually differentiate the shoes that go DTC from the shoes that go through retailers, meaning that each type of product has its own channel and conflict is minimized. A recent Bloomberg News article talks about how apparel companies like Nike use various retail channels to hit different price points. To your point, Nike could likely use the DTC model and high-end, fashion boutiques to carry customized shoes and limited edition models. They could still use mass retailers like Dick’s to supply the more standard fixtures like Air Jordans, at a lower price point. Another idea could be Nike partnering with Dick’s and offering a “Nike Lab” as an in-store experience. Consumers could try on shoes for the right fit, and then combine various colors and designs on an interactive screen. If the supply chain is enhanced as anticipated, Nike and Dick’s could promise next-day, free delivery on the customized order. This approach would allow Nike to benefit from a physical retail presence, particularly useful when considering kids and families who are going to the retailer to make multiple, simultaneous sporting good purchases and wouldn’t otherwise consider a customized Nike shoe to be affordable or accessible.
While I agree that Nike must digitize its supply chain and increase transparency in order to keep up with market trends and consumer demand, I want to challenge the assumption that NIKEiD and customization are the drivers here. As athletic footwear gains casual traction via the “athleisure” movement, it’s far more important for shoe and apparel companies to iterate quickly and change their designs to keep up with consumer behavior than it is to offer customizable products. The colors and materials of a shoe are important, but the key driver is the baseline shape and style. These shoe designs are what drive consumer purchases, and often the most highly sought after shoes are designed by the shoe company or via collaboration as opposed to individual customer customization. Adidas is a great example of this, given the recent success of their Ultra Boost technology and partnership with Kanye West.
So, then, the question becomes whether or not digitization is important for the traditional shoe supply chain. I think the answer is unequivocally yes. All of the things this post mentions around efficiency, scalability and transparency are becoming ever more important for the core offering of shoe companies. Digitization, in this case, is a necessity.
I think there are two separate issues at play in this article that may be not be as related as you have stated. 1) is how to efficiently produce custom shoes and 2) is how to better predict demand in this fast fashion age. I think 1) is more of a manufacturing problem whereas 2) is makes for a better digitization case. If Nike is indeed able to achieve complete production flexibility by investing heavily in new manufacturing technologies, the need to forecast is less important (and also less effective for the case of custom shoes). If you are able to achieve JIT delivery due to your manufacturing technologies, at least the manufacturing schedule would not require accurate forecasting (although yes, this would still benefit you in terms of inventory planning). If Nike instead values 2) more, than I would argue that they should stray away from customizable shoes. The increased variations make accurate demand predicting difficult even with 100% transparency and digitization of the supply chain. So I’m with Michael – digitization is a must because fast fashion is the future. But perhaps less customization is a tradeoff that Nike needs to make to fully capitalize on the benefits of a fully digitalized supply chain.
I strongly agree with Michael above that there is not a strong market demand for increased design customization in sneakers. Sneaker customization has been offered by Nike and its competitors since I was in elementary school, when I designed both running shoes and basketball shoes with my name and number on them. While it’s true that Nike could invest in expensive new 3D printing technology to accommodate customization at scale, I don’t think it would be addressing any customer pain point at scale; rather, I cultish sneaker-heads and design buffs are still niche.
Secondly, while I agree with you that it would be ideal for Nike to be integrated with their customers’ IT systems in order to analyze sales data in real-time, I question the viability of this plan. Nielsen and IRI are two data companies that already provide robust and fairly reliable retail sales data (on sell-through rates and distribution, for example), and they publish updated data every few weeks; One Click Retail offers the same data services for the online retail world. I believe it would be a tall ask for Nike to demand that their retail customers integrate their IT systems for data sharing, given that (a) other manufacturers do not do so and (b) good alternatives like Nielsen, IRI and One Click exist.
As traditional retailers continue to struggle and the clothing industry becomes saturated with smaller pure e-commerce players, it will become even more critical for brands to provide unique offerings to consumers to differentiate themselves from the competitive set. Nike is no exception to this. Furthermore, as retailers move away from the traditional fashion cycle to meet consumer demand for instant gratification (“see now, buy now” mentality), I predict that consumers will play a larger role in the actual design of the products. This is where mobile e-commerce and 3D printing come into play.
Platforms such as NikeID allow consumers to have a completely different retail experience and provides the differentiation they are seeking a. However, currently NikeID custom orders take several weeks longer to deliver than standardized products. As 3D printing matures and becomes more cost effective and accessible, consumers will be able to have their custom orders delivered instantaneously. Both large established retailers as well as start-ups are already exploring this and as the technology improves, more power will be in the hands of the consumer.