Nike i2 failure: strategic or tactical
Nike the world leader in sports apparel manufacturer with a market share of 32 percent and market cap at $20billion decided to implement i2 demand planning engine to manage its supply chain at a cost of $400million. It was supposed to help Nike with its supply chain and to reduce the lead time for the manufacturing of sneakers from nine months down to six. The i2 system worked on the principle of using the data from the previous sales figures and predicting the productions numbers for the future. The i2 system failed and resulted in duplication and missing orders. The consequence was a loss of around $100million and drop in the stock prices by 20 percent. This case study analyses various factors which resulted in this situation and highlights how Nike dealt with the problem and moved ahead with its plan to implement supply chain project 1. What characteristics about Nike contributed to their troubles with i2 becoming nothing more than a speed bump? Nike introduced the i2 demand planning engine so as to help Nike with its supply chain and to reduce the lead time for the manufacturing of sneakers from nine months down to six. Nike was hasty in its implementation of the first part of its supply chain strategy: i2’s demand and supply planner software applications. Nike decided to install i2 beginning in 1999, while it was still using its legacy systems. i2’s predictive demand application and its supply chain planner used different business rules and stored data in different formats, making it difficult to integrate the two applications and the system frequently crashed. But these problems would have remained only glitches had they not spilled over into factory orders resulting in orders being dropped or duplicated. The consequence was a loss of around $100million and drop in the stock prices by 20 percent But inspite of these troubles of i2 was nothing more than a speed bump Nike is the world leader in Sports apparels.In the athletic footwear business, only Nike, with a 32 percent worldwide market share (almost double Adidas, its nearest rival) and a $20 billion market cap, could afford to make a failure like that. Nike however confirmed that all problems were fixed by fall 2000. Consultants were brought in to build databases to bypass portions of the i2 applications, and custom bridges were constructed to enable the i2 demand and supply planner applications to share. And the company asserts that its business wasn’t affected after that quarter. Nike stopped using i2’s demand planner for its short- and medium-range sneaker planning (it’s still used for Nike’s small but growing apparel business) in the spring of 2001, moving those functions into its SAP ERP system which allows to simplify integration requirements. Nike’s demand-planning strategy is 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. The computer models are trusted more when the product is a reliable seller and the planners’ intuition plays a bigger role in new or more volatile products. i2’s demand-planning software was one of the most ambitious ever attempted by a company its size. It was a part of a wider strategy to integrate ERP, supply chain planning and CRM software onto a single platform shared by Nike operations in North America, as well as Europe, the Middle East and Africa (EMEA). Nike has never wavered from its single-instance strategy, even when problems with the first piece of that strategy, the i2 system, hit the news on Feb. 26, 2001. The i2 problems paved a way for overall supply chain project. If achieved, it would save the company a lot more than Knight’s $400 million and the $100 million in wayward sneakers. Nike’s supply chain project is supposed to drive the manufacturing cycle for a sneaker down from nine months to six. Nike learned from its mistakes. There would be no rushing the SAP installation. Canada, a...
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