Case study of Nike’s ERP implementation Failure

Profile

Nike is an American multinational corporation that is engaged in the design, development,

manufacturing, and worldwide marketing and sales of footwear, apparel, equipment, accessories,
and services. The company is headquartered near Beaverton, Oregon, in the Portland
metropolitan area. It is the world's largest supplier of athletic shoes and apparel and a major
manufacturer of sports equipment​. ​In addition to manufacturing sportswear and equipment, the
company operates retail stores under the Niketown 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(tick) logo.

Situation

ERP systems experienced rapid growth in the 1990s. Because of the year 2000 problem and the
introduction of the euro that disrupted legacy systems, many companies took the opportunity to
replace their old systems with ERP. "ERP II" was coined in 2000 in an article by Gartner
Publications entitled ERP Is Dead—Long Live ERP II. It describes web–based software that
provides real–time access to ERP systems to employees and partners (such as suppliers and
customers). The ERP II role expands traditional ERP resource optimization and transaction
processing. Rather than just manage buying, selling, etc.—ERP II leverages information in the
resources under its management to help the enterprise collaborate with other enterprises.
In the year 2000, however Nike took the decision of implementing a unique management of
supply chain with the ability to forecast demand in the market so that the company can quickly
meet with these requirements. This was also the time when the organization also was in the SAP
ERP system implementation process but the company found that the forecasted demand was not
adequate to the requirements at that particular situation (Amoako-Gyampah 2010).
This made the company to adopt and choose the software named as I2 in order to
● Enable the organization to quickly respond to the changes in the market of shoes
● Scheduled of planned productions with newer requirements
● Start to produce new products within a week instead of waiting for a whole month as the
company did before.
However, if successful then this strategy could have been a very fruitful one for Nike and the
company would have been easily able to decrease the unwanted products from being produced,
decreased inventory system and increase the shoe styles production rising the required demand.
It was also known to Nike that implementing ERP systems can be very threatening and so the
company was very patient when implementing these systems but as the system of I2 was very
small, various precautions required to be taken by Nike were not taken.

Problem

The particular demand planning software instance is known as the software of I2 which was the
main factor that led towards major problems in the company. The company of Nike failed in
properly evaluating the way in which this new software of planning demand will be integrated
within the system legacy (Amoako-Gympah 2010). The company rushed in implementing the
software prior to their main package of SAP which was not ready to be deployed causing the
system failure of I2 within the supply chain of Nike.

There is no doubt that the company had a unique process of supply chain which needed the
stores to make merchandising pre-orders that is in advance for 6 months. The issue in this was
the fact that the company did not every know whether the ordered sneakers in Nike’s store will
be fashionable in the next 9 months when the same will be delivered to the stores. The
company’s fashion designers and the planners of demand did not acutely interpret the way in
which order with such a high leading time should be placed and the company totally depended
on the brand name of Nike for selling its new products. In the shoe market a short order shipment
of products is always demanded from the stores and this forced Nike to be under competitive
pressure for getting their system of supply to perform in the next 6 months. The challenge of not
being able to get the SCM in position led towards opening the company to lose out on the share
in the market especially because of the fierce market competency (Amoako-Gympah 2010).
Therefore, when I2 system was implemented at Nike and the system lost the capability of
holding up urgent and vigorous requirements of the9 month cycle planning, the company began
to lose out and the forecasted information also completely was thrown off resulting in making
the supply chain to cost the company 100 million dollars from damages directly. The company
also had to face brand image problems, lawsuits being filed on its name and other speculative
investigations further lowering the reputation of the company.

The software of I2 was actually made to help Nike in matching the demand and supply by
mapping the specific products to be manufactured. The software needed to be linked with several
ERP systems and back end processes (Amoako-Gympah 2010). This project also was a
replacement from the previous Manugistics implementation. The responsibility of the new
project was to reduce the rubber needed, canvas needed and other sports requirements to be
fulfilled by Nike but it failed.
Losses

Trouble began soon after the live launch, when a software glitch resulted in skewed factory
orders. Nike ended up flooding the market with low-performing Air Garnett sneakers, while
leaving sellers short thousands of pairs of in-demand Jordan models.
The company took considerable losses as a result, incurring $100 million in lost sales and
suffering a stock price drop of 20 percent. The loss in sales as well as class action lawsuits, were
because its system failed to deliver its new Air Jordans and Air Garnett to appropriate
distributors.
Nike placed the blame squarely on i2 Technologies, contending that the company's flawed
software was the root cause of the supply chain breakdown. On top of that, the clothes company
claimed the software provider could have easily addressed the issues, which resulted in sluggish
integration and failed ordering operations. However, those on the outside looking in believed
Nike shared some of the responsibility. The i2 Technologies solution accounted for just 10
percent of a $400 million ​supply chain overhaul that seemed overly ambitious from the start,
according to CNET. The company wanted to consolidate a client relationship management
system, an ERP and supply chain tools into a ​single functioning system​, CIO reported. This is a
tall order for any technology firm, as an innumerable number of variables must line up for things
to go off without a hitch.

Conclusion

From the perspective of analyzing the case of Nike, it was evident that the exploration of
implementing ERP done by organizations needs to consider the important factors of success and
then recommendation should be provided to maintain success with the implementation of ERP.
These key success drivers are general regions which most of the projects of implementation
based on ERP need to accomplish.
It was not a complete failure, after the debacle, Nike realized that the supply chain management
implementation using the ERP system software cannot and should not be lightly considered. I2
was a very small system but the company should have taken all risks into consideration.
Nike decided that it should implement the solution of SAP AFS as a variant of software named
as SAP R/3 particularly for the industry of apparel and footwear. With the strategy of single
instance within the conformity, the SAP AFS application was used by Nike throughout
geographic locations and also made choices of implementing various applications of SAP
inclusive of management of the supply chain along with warehouse of data in business.
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https://myassignmenthelp.com/nike-case-study-analysis-erp-system-failure
https://www.slideshare.net/UtsavDesai12/nike-case-study-erp-failure-mis
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