A. Value Chain Analysis
Nike's value chain contains seven primary activities. These activities are Technology Development, Product Design, Component Manufacturing, Assembly, Marketing, Distribution and Retail Sales. As stated in its annual report, Nike is primarily a design and marketing company. As such, Nike controls the functions related to design and marketing of its products.
1. Technology Development
Nike's shoes have been on the leading edge of technology development for nearly 40 years. Major advances in the technology Nike has used are the waffle tread pattern, now common on athletic shoes; the use of a single wrap-around toe piece, rather than multiple pieces stitched together; and, the use of an air cushion in the sole of the shoe.
2. Product Design
Nike takes full control over its design processes. Nike's products are known for including Nike's innovative technologies into innovative footwear designs. Nike's products are also known for both their form and function.
3. Component Manufacturing
The manufacturing of the components of Nike's shoes is a shared process. Nike, through a wholly owned subsidiary called Nike In House Manufacturing (Niked IHM) produces many of the specialized rubber, foam and plastic components used in its products. Most of the other components used in Nike's products are obtained in the countries in which the products are assembled. Nike IHM's primary facilities are located in Portland, Oregon and St. Louis, Missouri. Nike IHM also supplies products to companies in a number of other industries.
A network of 900 independently contracted firms assembles Nike's products. The vast majority of these firms are located in China, where Nike has been operating since the mid 1980's. Outsourcing this part of its value chain gives Nike the flexibility required to produce large amounts of highly seasonal products without fear of being overburdened by large manufacturing related fixed costs; should...
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