Question

Nike sells sportswear for men, women, and children, carrying everything from shoes and clothing, to gear and accessories. Have you ever walked into one of Nike's stores and considered the massive variety of products available on the retail shelves? There are numerous products in each category and an assortment of sizes and color variations. Imagine that you are looking for a men's athletic shoe and have your heart set on an Air Jordan in black and varsity red. You wear a size 11 and find they are out of stock. Chances are that you will go elsewhere and may select a competitor, say Reebok Zig Pulse in black and red, instead. Nike may have underestimated the demand for the Air Jordan in red but maybe overestimated the demand for the Nike Shox Turbo in red. The company may be surprised to find that the Shox Turbo in the color blue is the big seller and may have to discount the shoes in red as there are too many of them. So how does Nike decide how much to have of each one of the different products? What should be the quantity of an Air Jordan in black and red versus an Air Jordan 1 Retro in high silver? How much should they order of Nike Air Maxim 1 in pink versus in blue? These decisions are based on a forecast of demand for each product and location. Now consider the range of product variety that must be stocked at various Nike loca- tions around the globe, and you can understand the complexity of the forecasting task. Forecasting is extremely important to Nike. Forecasts drive the decisions regarding how much to carry of each individual product at each location, how much to produce, and what supplies to order for production, from leather to shoelaces. The entire supply chain is dependent on these forecasts. In June 2000 Nike made headlines after going live with a highly touted i2 demand forecasting software intended to solve their forecasting challenges. Nine months later, its executives acknowledged that they would be taking a major inventory write-off because the forecasts from the automated system had been so inaccurate. In fact, the total cost to Nike was estimated at $400 million as the forecasts themselves were way off. Relying exclusively on the automated projections, Nike ended up ordering $90 million worth of

After reading the opening vignette about Nike’s forecast and errors, how will you as a colleague defend the person/s that were involved in making these forecasts.

Please explain in great detail. Thank you!

Answer 1

Demand forecasting is an integral part decision making in any business unit. It makes use of historical sales data and predicts future demand that helps a firm to optimize production, efficient in   inventory management, effectively mange supply chain partners and an increase in sales order and customer satisfaction. Without a proper demand forecasting, Company could not deliver the right product at the right time.

Nike, the world leader in sports equipment, sports shoes, planned to implement demand and supply chain management software from I2 technologies in 1999. Nike expected that new forecasting software would help them to plan their stores equipped with the accessories that would have the highest customer demand. But I2 Technologies demand forecasting system failed to do so that cost Nike $100 million loss in sales and depressed its stock price by 20%.

Nike blamed I2 technologies that their forest was ineffective and inaccurate forecast led to the huge loss.. But I2 technologies denied Nikies allegation. But , i2 software solution stated that Niki is whole responsible for the failure as the improper and hurry implementation of software system without any proper plan led to the failure. We all know the company I2 technologies how well implementing demand forecasting and supply chain software with other companies. If we observed the fact closely we could understand that Nike should have taken serous efforts implementing the forecasting software with proper paln. Following are the short comings Nike   failed to consider during their implementation phase

• Nike had little experience working with software and ERP system so that they should have incorporate a third party integrator to carefully implement the ERP system in a phased manner
• Nike used an old software system before and   they have insisted I2 technologies customizing their software in tune with their obsolete software which led to duplication or drop in sales orders. Many at times, the software crashed and arrived at wrong estimation. Niki would have first implemented an ERP SAP which sync well with i2 Forecasting system.
• Nike would have implemented i2 forecasting and supply chain solution in a phased manner. Rather, they integrated new forecasting system with all their stake holders, supplier, supply chain partners in one go.
• Nike would not train their staffs effectively work with new software, the in experienced staff failed to manage errors and system crashes happened during forecasting.

Nike learned great lessons from their failure. They able to rebound from the I2 software implementation debacle later.. They realized the need for an ERP SAP before implementing a demand forecasting tool. They implemented SAP ERP later that relay on customer invoices. They also started carefully training their staffs adapt with new software. By 2004, Nike successfully implemented Nike supply chain Project ( NSC) that help them to manage better visibility in customer order, decreased manufacturing time , reduced inventory level and increased gross margins.