Introduction Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United States.

The company is headquartered in Beaverton, Oregon, which is part of the Portland metropolitan area. It is the world's leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment with revenue in excess of $18.6 billion in 2008. As of 2008, it employed more than 30000 people worldwide. Nike and Precision Cast parts are the only Fortune 500 companies headquartered in the state of Oregon. The company was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bower man and Philip Knight, and officially became Nike, Inc. in 1978. The company takes its name from Nike, the Greek goddess of victory equipment and operates retail stores under the Nike town name. Nike sponsors many high profile athletes and sports teams around the world, with the highly recognized trademarks of "Just do it" and the Swoosh logo. Nike is the number one athletic shoemaker. It has 32 percent share of total market. Nikes market cap is 20 billion dollars, which is bigger than the rest of the manufacturers and retailers in the industry combined. The workers of the company are approximately 550000 in the different 55 countries. The company experienced enormous growth from 1996 to 1999. Its annual sales reached $9 billion in 2000. And during 2000 and 2001 the company encountered financial problems, which damaged its reputation. Nike performs all of the following tasks: 1. Creates a line of products and promotes them among retailers 2. Takes product orders from retailers and uses them to plan a production schedule 3. Outsources the manufacture of products to contract factories 4. Ships products from contract manufacturers 5. Receives products at its warehouses, where it stores them and, in some cases, performs value-added services 6. Ships products to retailers (or, in some cases, directly to final consumers)

Supply Chain management Nike was successful in implementing some managerial systems. At the beginning Nikes supply chain was based on centralization. All product designs, factory contracting and delivery are planned coordinated from Beaverton. The supply chain is built around six-month order cycle. Nike sells 120,000 products in four annual cycles a year and which puts some of them notably the Air Jordan sneaker through 136 separate manufacturing. Obviously, companies such as Nike have to rely on technology to run their supply chains. Nike had had supply chain software in place for years, but by 2000 it had become seriously obsolete. As the company continued to expand through the 1980s and 1990 IT staffers kept it up and running with patchwork repairs, but when there was finally no more room for patches, the company decided to invest in some new software. Future Program It was in the year 1975 when the Nike introduced the Future Program in order to deal with fluctuating market for running shoes. Nike won this market by guaranteeing delivery and an inflation-proof discount in return for getting its six months in advance. When Nike started to become global company, its supply chain started to fragment. Under this program the Nikes global operations were broadly divided into 5 geographic regions. This was aimed towards obtaining better operations and effective systems. During this era, toward the end of the 1990s the supply chain management seemed to be ineffective and inadequate. There were problems like ineffective forecasting and managing the changing trends. By 1998, it had 27 order managements system witch poorly integrated. So management decided to implement systems and software such as SAPs R/3 software, ERP software would be the fundamental part of Nikes strategy, with i2 supple, demand and collaborating planner applications and Siebels CRM software. NSC project Further in the year 2000 Nike launched the NSC project. This project aimed at implementing its ERP, Supply Chain, & CRM Software onto a single SAP Platform. This project ultimately proved to be a big disaster for the Nikes operations. Actually, for $400 million, Nike planned to implement this project by purchasing three software systems:

A planning system, called i2, to forecast demand and generate production orders for contract manufacturers. Enterprise Resource Planning (ERP) software, specifically SAP, to manage orders from customers and process information such as quantities of goods produced, inventory levels, shipments, and sales.

Customer Relationship Management (CRM) software, specifically Siebel, to facilitate sales and customer relationships by managing information on order handling, product availability, and customer accounts.

Nike expected that, with the new systems in place, it would reduce the manufacturing cycle for a sneaker from nine to six months, a significant boon to production planners because retailers traditionally order footwear six months in advance. Now manufacturing schedules could be based on what retailers had actually ordered, not on what Nike anticipated they would order in the future. I2 software implementation Dallas, Texas-based, i2 is a major supply-chain software vendor. The company has been highly successful, with many customers both large and small. I2's supply-chain software is designed to improve the management of inventory, production, shipping, and sales forecasting. Nike turned to i2 because it wanted to be able to respond more quickly to shoe market changes by being able to plan production schedules and begin production of a new line of shoes in one week rather than taking a full month after demand shifts. The system is supposed to help predict demand so that the company could better plan and control the production of existing products. Thus, Nike would be able more quickly to reduce the production of shoes that have gone out of style, leaving the company with fewer unwanted shoes, while increasing its production of shoe styles that are rising in demand. The key element of the i2 project was to aid in speedily forecasting market changes. In addition it was also to automate and so make efficient the way Nike manufactures, ships, and sells its shoes, and thereby lowering operating costs. SAP implementation In the months leading up to February 2001, Nike decided to spend millions of dollars in buying a new supply chain management system from SAP. Along with the hardware and
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software, SAP sent in teams of software engineers to help Nike implement the system. Eager to quickly reap the benefits of the new system, Nike went against the recommendations by SAP and turned on the green light for the entire system from factory to warehouse to retailers to begin all at once. Because of the lack of testing period, the software bugs that showed up in the manufacturing side made it all the way to retailers, resulting in overstocking of some models while the more popular models remained sold out for weeks. The system miscalculated demand forecasts and Nikes undertrained engineers had little idea how to fix it all. After a series of failures, Nike learned from its mistake and pulled the plug on the entire system, and SAP had to step in again to build the system from ground up. This supply chain disaster was a mistake by the company management, who decided to implement the system without a clear idea of how it would affect the operations. Demand Forecasting i2 Demand Planner was a fairly capable forecasting engine with a multi- dimensional cube as a backend, and average interface. It could not possibly have been responsible for all Nikes problems unless Nike pushed the vendor to implement it incorrectly. Secondly, the knowledge level demonstrated about forecasting in comments by Nike leadership indicates that it would be challenging for any demand planning applications team to have success at Nike. Only the most expensive forecasting software will work. Contrary to what vendors want you to believe, most forecasting software is pretty much the same. The algorithms have been around for so long now that it is unreasonable to expect that one systems math is better than anothers. The important thing when choosing demand software is selecting a system thats robust enough to handle the amount of data that you intend to enter. Problems The strategy was sound and the expectations sensible, but pretty soon, Nike found itself in hard position: Everything that could go wrong did. Nike had expected that the installation of its new i2 software would go smoothly. After all, at $10 million, the estimated cost of the i2 project would be small part of the cost of the whole software upgrade. Almost immediately, Nike managers realized that the new system couldnt communicate well with its existing systems. Moreover, it was painfully slow, it crashed frequently, and it doubled some factory orders while
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ignoring others. On top of everything else, no one could double check to see just exactly who had ordered what because the system deleted ordering data eight weeks after it had been entered. Nike officials said an i2 supply and demand planning application didn't perform as expected, resulting in shortages of some footwear models and excess stock of others. Regardless of who's to blame, the resulting inventory shortages will reduce Nike's fiscal third-quarter sales by as much as $100 million. Earnings estimates for the quarter, which ended this week, have been cut to 34 to 38 cents per share from 50 to 55 cents. Nike has been working on its i2 software implementation since June as part of a $400 million overhaul designed to streamline communications with buyers and suppliers and lower operating costs. The i2 software failed to meet expectations both in performance and functionality. "This is what we get for our $400 million?" Nike chairman Philip Knight asked financial analysts when the company issued its earnings warning earlier this week. i2 and SAP both are the standard software products and enable an enterprise to get them customized for its specic requirements. Nike found i2s recommended methodology and templates too rigid to use them. It overlooked AFS (Apparel and Footwear Solution), the initial version of industry specic solution (ISS) for apparel and footwear industry developed by SAP. When the i2 implementation began in March 1999, Nike planned to customize it to accommodate all modications made to the old system to fulll its peculiar needs. At that time, Nike was using its legacy system for order and delivery management. SAP installation had just begun. Nike didnt wait for the completion of the SAP implementation. i2 software was so heavily customized to run with the legacy systems that the entire system became slow to the extent that a single screen would take as much as three minutes to load. Moreover, it faced severe problems in matching information from two systems, which resulted in inaccurate orders being placed for manufacture. The supply-chain software was supposed to reduce the amount of raw material needed for production. Instead, it over-ordered certain material and did not place the order for the needed material on a timely basis. Product shortage resulted in lost sales and revenue. To get the required raw material urgently and to make the product reach the market immediately, it had to incur additional freight cost. On the other hand, excessively produced shoes were disposed of at heavy discounts. The i2 problem resulted in an overall shortfall of $100 million in sales and made its chairman, president
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and CEO, Phil Knight, to grouse, This is what we get for our $400 million, huh? i2 developed new applications and made changes to the software. But, by the time, the changes were made; the inventory problem had already cut Nikes bottom line. Indeed, Nike confirms that it stopped using i2s demand planner for its short- and medium-range sneaker planning (its still used for Nikes small but growing apparel business) in the spring of 2001, moving those functions into its SAP ERP system, which is grounded more in orders and invoices than in predictive algorithms. This allows us to simplify some of our integration requirements, says Nike CIO Gordon Steele Solutions First of all, the previous system didnt run in parallel before the production system was Nike must bear responsibility for how they cut over new systems to production. No vendor can make you do this incorrectly as it is under the clients control. Secondly, Nike commented on quantitative forecasting underestimating it. Typically a magic number is not expected, but a proposed forecast. The assumptions are that the system will provide its best guess as to the forecast, and that this best guess will have a percentage of error. The excerpt goes on to say that what is called quantitative or statistical forecasting does not fit with the Nike business process. The forecasting process does in fact fits with Nikes business process because, as with other companies, there is a lead-time between when a product is demanded (in the store) and when it can be supplied. Nike must forecast its demand because it cannot instantaneously produce the shoe in the store. Orders are always used in forecasting. They are called the demand history. However, a predictive algorithm better known as forecast methods such seasonal, trend, linear is used on this demand history to produce the forecast, which may then be manually adjusted based upon domain expertise Within SAP ERP, only a very limited set of functionality for forecasting is available, which would be unable to meet Nikes extensive forecasting requirements. Wolfram says Nikes demand-planning strategy was and continues to be a mixture of art and technology. Nike sells too many products (120,000) in too many cycles (four per year) to do

things by intuition alone. Weve tuned our system so we do our runs against [historical models], and then people look at it to make sure it makes sense. The art that Wolfram describes is also known as domain expertise. The planning with domain expertise applies what the planners think the forecast will be, and then adjusts the forecast. Nike is a major apparel and footwear design, marketing and distribution company, they dont manufacture products. It would be strange if Nike used only manual methods to perform forecasting. The cost differences between a make to stock vs. make to order shoe are neglected here, because Nike has designed its entire manufacturing strategy around inexpensive and controllable overseas factories that have long lead times in order to pay the minimum in labor and environmental costs for shoes. Shortening lead times means moving production closer to consumption, which would greatly reduce Nikes enormous margins on its products. Lessons learned from Nikes i2 failure and subsequent recovery 1. Strong Business Case: The lesson of Nikes failure and subsequent rebound lies in the fact that it had a sound business plan that was widely understood and accepted at every level of the company. Given that resilience, it afforded the company, in the end the i2 failure turned out to be just a speed bump, said Christopher Koch, Executive Editor, CIO Magazine, in 2004. Nike had a clear vision of what it wanted to achieve with its $400 million investment on IT. It aimed to take three months out of its manufacturing cycle and continued to work to achieve its target even after the things went wrong in 2001. A clear understanding of goal throughout the organization sustained the project and enabled Nike to achieve its goals. 2. Business Process Re-engineering: ERP gives an opportunity for re-engineering business processes, which is a way of improving business processes and practices in line with the best business practices. Instead of re-engineering its own processes, Nike chose to customize i2 to accommodate all modications as per its existing business process requirements. This overcustomization bogged down the entire system. 3. Patience: Had i2 been deployed as a part of its ERP Project, it would have been very easy for the company to get accurate information for production, as it would have needed only
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one interface with SAP, there being no need of customizing i2 to have a link with the legacy system. At the rst instance, Nikes impatience became a good reason for the bad accidents. But later, with its demonstrated patience, the same software helped it to gain competitive advantage. 4. Learning from mistakes: When rashness, inadequate training, unstable software, inadequate and insufcient testing affected i2 project in a bad way couple of years, Nike intensied its efforts and paid due attention to those areas at the time of rolling out SAP R/3. Nike was able to use the learning from the mistakes to its advantage and emerged successful with the R/3 implementation.