Project 2

Group Project 1

Group 2

Introduction

Recently there has been interest in evaluating SCM systems. As one looks to evaluate any system, it is instructive to look at other Companies who have implemented similar systems and evaluate their successes or failures as well as any lessons learned. This document provides analysis of the implementation of SCM by Wal-Mart and Nike as well as lessons that can be learned from their experiences.

Organization Descriptions

Nike was founded in 1964 as a distributor for a Japanese shoe manufacturer, making most of its sales at track meets. By 1971, they were manufacturing their own brand of shoe. By 1982 Nike became the Number 1 supplier of athletic and training shoes in America. Today, Nike sponsors athletes from football, tennis and basketball. They employ over 44,000 people and are worth nearly $10 billion.

Wal-Mart is an international retail supplier of household goods, pharmacy and auto supplies to a primarily consumer market. The company was founded in the mid 1940’s by Sam Walton, who began with just one retail store in Newport, Arkansas. Walton’s vision was to innovate the way retail stores conducted business through a customer centric philosophy that included being the lowest cost provider. Sam Walton focused on improving sales by constantly reducing costs, adopting efficient distribution and logistics management systems; and implementing innovative information technology tools. By 2002 Wal-Mart generated revenues of nearly $220 billion annually. The company operates 3,500 U.S. stores, 1,170 international stores with approximately 1.3 million employees.

Problem to Be Solved

As part of the apparel business, Advertising and Promotional programs can create high demand for particular product lines at different times. Nike needed a SCM system that could deliver the appropriate amount of product to each region over time. Underestimating need would result in lost sales and Customer dissatisfaction as wanted product lines become unavailable. Over production would require discounts to reduce overhead, leading to a loss in profits.

Walton’s goal and stated competitive advantage was to be the lowest cost provider in the markets they served. The original business model architecture and hands-on approach of a brick and mortar retail company was no longer a requirement for retail success or for the changing consumer demographics. The internet, and in particular online shopping, was starting to become very popular and operated at a lower acquisition cost than brick and mortar. To protect market share, Wal-Mart senior executives recognized they were going to have to find additional ways to meet customer expectations and reduce operations costs. In addition, most of the current business models and management systems were primarily a hands on process. Senior management understood that the same technology which they embraced in the current business models, would need revamping.

Assessment

The supply chain software that Nike implemented was a failure. It cost Nike $100 million in lost sales because of unforeseen complications on the demand and supply domain, not to mention millions of dollars spent buying and implementing the supply chain system. The enterprise system relies on algorithms that were calculated by software using historical sales data and human inputs in order to generate sales forecasts. The sales forecasts were subsequently communicated to the manufacturing plant and as well as scheduled orders and shipping of raw materials needed for production. The intention was great, however, the implementation was a Hail Mary, as Nike tried to implement the software in one comprehensive rollout instead of managing it in phases. Nike went live with the new enterprise systems to thousands of suppliers and distributors simultaneously. The data being fed to the new software overwhelmed the system. The new system was not fit to the Nike business model, creating havoc on the enterprise forecasting goals.

Wal-Mart was successful due to several factors. First, was a willingness to look beyond initial achievements. Secondly, all senior level areas of the business provided invaluable viewpoints. The process included executive buy in from the ownership to the line level employees. With each level of growth, the company sought to innovate and challenge industry standards to achieve their goals and objectives. Initially, Wal-Mart relied on increased inventory on hand to increase customer satisfaction. Wal-Mart owned their trucks which lowered shipping costs 2 percent below competitors. Recently, the company began integrating new technologies in the supply chain by using barcodes and hand held computers. This enabled the staff to have real-time insight into what inventory was in the store and immediately replace it. New technology also allowed them to better understand what products customers purchase the most, enabling better availability management for high demand products. Aided by data gleaned from newer technology, integrated with logistics and inventory management, was the emergence of a logistics model called cross docking. Cross-docking was implemented at Wal-Mart based on capturing and analyzing data which defined a trend. With this model, customer orders are fulfilled directly from manufacturer to the customer, changing Wal-Mart from a supply to a demand chain. This was major for Wal-Mart because it virtually eliminated distribution centers and stores which in the early years were their bread and butter. Instead of the retailer ‘pushing’ products into the system; customers could ‘pull’ products (Chandran, 2003). When and where they needed customer orders controlled the supply chain. Wal-Mart for their part realized a lower supply chain cost and retail price.

Analysis

Nike lost $100 million due to its unforeseen errors in the demand and supply chain. It has created inconsistencies with data between the production/manufacturing and the marketing department. Schedules were greatly affected as Nike runs on a tightly planned schedule, most especially with their footwear products. A delay in any information can largely affect the entire supply chain. Any such error would create devastating lags to the demand and supply schedule both upstream and downstream of the business. As Nike is committed to consistency in terms of product offerings and availability with its customers through its various touch points (retailers), it was a failure in terms of quality and performance.

One of the major reasons why Walmart is so successful is because they were able to bring purchasing costs down and provide significantly lower prices to its customers. They are able to do this is by being tough negotiators and procuring goods directly from manufacturers. Walmart spends time with vendors to understand their cost structure, allowing them to drive hard bargains. Another way they are able to cut costs is by purchasing from local and regional vendors and suppliers. With over 40 distribution centers located in different geographical locations, Wal-Mart had to be very efficient with scheduling and distribution. Walmart’s ability to directly supply 85 percent of the inventory, compared to 50-60 percent for competitors, meant that they were able to replenish within two days compared to at least five days for competitors. A sophisticated barcode and handheld computer system was used to manage the distribution center’s inventory levels. This gave employees access to real time inventory information and allowed them to plan their product procurement accordingly.

Lessons Learned

Managing the implementation in phases could have mitigated the unforeseen damage to the business. It would have been better if Nike set up a backup system that would assist the upgrade or transition of the new enterprise system. Implementing a whole new business process through a system is costly. A firm that does not want this expense, but wants to improve its business process will fail. That was what happened to Nike. To be successful, all stakeholders must be on the same page. Supply and demand are forecasted, and there is no magic formula to get exact figures. Hence, implementing the new enterprise system in the supply and demand business area can improve forecasting but will not produce real numbers that exact real life market demand without constant monitoring and tweaking by Business experts. Implementing such a huge enterprise system could last for a year or two, depending on how the system adapts to changes. Consultation must be done regularly as employees become used to the new system.

Walmart’s aggressive negotiation and budgeting tactics are largely credited for their success. Walmart strongly believes that its company’s success derived from building relationships with its customers, suppliers, and employees. This notion helped them become the world’s largest retailing company in the world. They learned to capitalize on every cost saving opportunity, allowing them to pass the savings along to their customers. They also learned that incrementally improving store layouts and merchandising techniques improved customer satisfaction. A well-organized supply chain management system allowed Walmart to increase efficiency in operations, improve customer service, eliminate old stock and maintain good food quality. Owning their own transportation system not only helped them to replenish their shelves faster but also save significantly on transportation costs. Using technology like bar coding to their advantage enabled them to conduct proper analytics to keep accurate distributions of goods.

Conclusion

A phased approach to any SCM system implementation is preferable as it lessens business impact and potential risks. Issues can be more easily identified and quickly addressed. A phased approach also makes it easier for users to adapt to the new system. Proper testing is also important for any implementation. For a SCM system, business patterns change over time, so it is important to implement the system in parallel, so that results can be monitored and system settings adjusted for optimum results before fully transitioning. Stakeholders selected to participate in the project should include representatives, who are subject matter experts, from the various affected business areas.

References

Case Study: Nike’s Adventure With Supply Chain Software (n.d.) Retrieved March 27, 2017 from http://softwaremoneypit.com/case-studies/nikes-debacle-with-supply-chain-software/

Chandran, P.M. (2003). Wal-Mart’s Supply Chain Management Practices. Retrieved March 29, 2017 from https://mohanchandran.files.wordpress.com/2008/01/wal-mart.pdf

Nike Inc. Success Story (n.d.) retrieved March 22, 2017 from https://successstory.com/companies/nike-inc