Nike is a sports apparel and footwear company which first introduced their shoes in 1972. “At an investor meeting at its world headquarters in June 2011, NIKE, Inc. announced an increase to its fiscal 2015 revenue target to a new range of $28-30 billion, up from its previous target of $27 billion announced in May 2010. The company also increased its fiscal 2015 revenue target for the NIKE Brand to $24-25 billion, up from its previous target of $23 billion.” (Nike, 2014)
In 2000, in an effort to streamline their demand and production process, Nike implemented the I2 system. The I2 system was a demand forecasting system to be utilized by the production planning department to predict customer demand for each type of product. An error in the model the system generated lead to the production of incorrect quantities of products. This lead to an overage of less desirable products and a shortage of desired products. The miscalculation “cost Nike more than $100 million that quarter. In addition, their share price went down 20% the day after they publicly announced the mistake.” (Magal & Word, 2009)
The main personnel involved directly with this costly situation are the production planning department, the manufacturing department, the procurement department, the sales department and corporate management. The implementation of the I2 software was decided by corporate management and was to be used by the production planning department to create demand prediction models. The model data was then to be used by the manufacturing and procurement departments to purchase the necessary materials and create the required products predicted by the model. The sales department additionally had numbers that were entered into the system however these numbers were not the ones used by manufacturing and procurement.
The symptoms of the problem were that not enough of desired shoes were produced while too many non desirable shoes were produced. This directly leads to loss of sales and increased expenditures as items that were not needed were produced. This problem occurred due to an erroneous demand forecast model generated by the new I2 system in the production planning department. There was no visibility between departments which would allow for the error to be detected. The I2 software itself had issues during the installation which included problems integrating with the existing legacy software at Nike. “Nike expected the demand planner implementation to be over quickly with the installation of I2 without taking into account the heavy customization that I2 would require and affects that the poor messaging between the legacy systems andIi2 would have on the supply chain. They paid a heavy price for failing to analyze the
integration demands of I2 and the legacy systems.” (Leshinsky, 2008)
Nike as a company has the main goal of being profitable. As a brand that manufactures footwear, they want to create enough shoes of each design to meet customer demand. The...