Nike – The OM Blog by Heizer, Render, & Munson

OM in the News: Why Is It So Difficult for Robots to Make Your Nike Sneakers?

It took Nike 8 months to figure out how to automate a way to put the Nike swish on a shoe, only to move onto a new shoe line for which the method no longer worked.

A yearslong effort by Nike to shift part of its manufacturing from China, Indonesia and Vietnam to North America illustrates how tough it is for U.S. brands to wean themselves off the flexible, low-cost contract manufacturers.

In 2015, Nike poured millions into an ambitious effort to partly automate what has always been a highly labor-intensive industry. At the time, rising labor costs in China and advances in manufacturing techniques opened the possibility of finding a new way to make shoes that would rely on fewer workers. The goal: Make tens of millions of sneakers at a new high-tech manufacturing site in Mexico, by 2023.

The plant would still include thousands of workers, but far fewer than are needed in Asia to make the same number of sneakers. Nike’s competitors also sensed an opportunity to rethink a manufacturing model built around hand stitched fabrics and glued soles. The same year, Under Armour announced “Project Glory” using automation to make shoes in Baltimore. And Adidas launched “speedfactories” in Atlanta and Germany, with high-tech machinery to quickly spit out shoes, which we blogged about then.

Nike aimed for large-scale automated production in under a decade, which would save on labor costs and allow it to deliver new models of shoes to Americans faster. It established new production lines that used machines commonly seen in electronics manufacturing. The machines were supposed to build the upper part of a shoe, knit fabric, add logos and glue the sole.

The effort quickly ran into trouble, reports The Wall Street Journal (April 22, 2025). The robots struggled to handle the soft, squishy and stretchy parts that are integral to shoemaking. Another problem was the huge variety of shoes Nike produces. As a result, factory production never became as automated as envisioned. As shoe production increased, the factory personnel swelled to 5,000, twice as many as originally planned and costing more than a similar workforce in Vietnam.

All three firms surrendered in 2019 and stuck with their original Asian locations.

Classroom discussion questions:

Will the threat of new tariffs mean they will ultimately have to bring shoe production back to the U.S.?
Why the failure for all three firms?

OM in the News: Nike Becomes a Supply Chain “Changemaker”

Sportswear giant Nike has cut lead times for orders from 60 days to just 10 days by installing over a thousand automated machines at supplier factories across manufacturing processes. The machines handle cutting, cementing, shoe assembly and solemaking, helping to increase efficiency and reduce labor times. Nike has also developed methods to produce footwear with 30% fewer production steps, and 50% less labor.

These “supply chain responsiveness” innovations are part of what makes the company a retail supply chain “changemaker”, that is, a firm bringing new technology to its supply chain operations. Retailers and brands are trying to overcome the turbulent backdrop of rapid inflation, shifting geopolitical disruption, and fragile global supply chains, writes Supply Management (July 18, 2023).

Nike has adopted radio-frequency identification and QR technologies over the past four years as part of efforts to create a single view of stock across global operations, which helped boost inventory visibility throughout the organization. The switch to more digital-led customer relations granted the company tighter control of its supply chain – now, its product distribution operations are centered around just 40 retail partners, compared to 30,000 at its peak.

Nike has aspirations to compete with Amazon’s delivery model by speeding up delivery times. The premise is of consolidating inventory from stores, retail partners and warehouses – meaning, for example, if a retail partner does not have stock it could connect with a Nike store nearby that does.

“Consumer preferences have changed forever, which will continue to send shockwaves up and down the supply chain. One day it’s out-of-stocks, the next month a glut of inventory is on the books. To get ahead of these supply chain shocks and manage unforeseen black swan events, complete supply chain visibility with trusted data has become a modern mandate,” says one industry leader.

Aldi and Tesco are two other top retail changemakers thanks to their investments in logistical efficiency, their integration of digital solutions, and their focus on reducing waste and emissions across their supply chains.

Classroom discussion questions:

What is a “changemaker” in the supply chain world?
What are some of the challenges of managing supply chains in today’s global economy?

OM in the News: Nike Overhauls its ERP System

Nike just announced it will launch its new ERP system across its global network this year in a bid to increase inventory visibility and productivity, reports Supply Chain Dive (July 11, 2022). The system is the company’s biggest investment in its digital transformation, and is set to go live in China this month, and in North America in 2024. The ERP system will be “foundational for increasing speed and agility across our supply chain as Nike leans increasingly into direct-to-consumer sales,” says the firm’s CFO. The investment involves shifting its ERP onto the SAP S/4 HANA platform.

The ERP launch comes as the retailer continues to face elevated in-transit inventories and extended lead times to get products to market, issues that the new technology system could be instrumental in tackling. Transit times remain at roughly two weeks longer than pre-pandemic levels and aren’t expected to improve significantly through the end of 2023. In China, the extended transit times and factory closures have left Nike with bloated inventory reserves, with seasonal products arriving behind schedule. The firm says it is “recalibrating” its supply and demand in the region in response to shifting market conditions.

Nike has been planning an ERP overhaul since 2020, part of a strategy to more effectively service online customers and unify financial and inventory views across the company’s ecosystem. As part of the retailer’s acceleration of its direct-to-consumer strategy, the CFO noted that the revamped digital system should help fuel profits in China. “And our ERP is frankly the backbone that’s going to enable us to take advantage of those opportunities at a more significant way,” he said.

As we discuss in Chapter 14, ERP tools can make or break a business — they track and manage inventory, procurement, supply chain and other core business operations. Systems need to efficiently enable massive transaction volumes at global scale. But the enterprise technology landscape is riddled with ERP failures. Waste Management, for example, spent $100 million on its ERP failure. Nike itself is also still somewhat scarred by its 20 year-old reputation as the poster child for bad ERP implementations, having spent $400 million on that earlier failed system.

Classroom discussion questions:

What are the advantages and disadvantages of an ERP system?
Why do many systems fail and why are they so expensive?

OM in the News: Rethinking the Vietnam Supply Chain

Manufacturers looking to shift production out of China during the U.S.-China trade war piled into Vietnam, attracted by its low wages and the government’s business-friendly reputation. But strict lockdowns to contain a Covid-19 wave in the largely unvaccinated country have crippled manufacturing since July, forcing companies such as Nike and Lululemon to shift production to other countries. That is prompting some businesses to rethink their heavy reliance on factories in Vietnam, reports The Wall Street Journal ( Oct. 1, 2021).

Nike, which makes around half of its footwear in Vietnam, lost 10 weeks of production there

Factory shutdowns in Vietnam translated to 100 million pairs of Nike shoes not made. Nike anticipates demand for its products will exceed available supply for the next 8 months.

“Our experience with Covid-related factory closures suggests that reopening and ramping back to full production scale will take time,” said Nike’s CFO. Nike is maximizing footwear production capacity in other countries and shifting apparel production out of Vietnam back to China of all places. It is estimated that 1/5 of manufacturers have already moved some production elsewhere.

“What people are realizing is, whether it be China or Vietnam, you can’t have all your eggs in one basket, you can’t be vulnerable to one country from a supply-chain standpoint,” said an industry exec in Vietnam. Businesses have been left guessing about when Vietnam will lift its manufacturing curbs, which have included requiring factories to have their workers live inside their gates, or in some cases, outright factory closures.

Factories that wish to keep running are required to implement elaborate protocols, such as the “3-in-1-place” program, in which laborers eat, sleep, and work at their workplace. Large shoe and apparel factories with thousands of workers have found it impossible to house so many people on site. Many are shut down, or operating with skeleton crews.

The CEO of Crocs said it is moving some production to other parts of the world. Crocs was already planning to migrate some production out of Vietnam, and is adding facilities in Indonesia and India. “Ongoing diversification is essentially the name of the game,” he said. “When you think about the amount of effort everyone was putting in to getting out of China and now one of the places where you can get goods is China, I mean it really is crazy the roller coaster that everybody’s been on,” added the CEO of footware retailer, Designer Brands.

Classroom discussion questions:

Why the return to China?
What supply chain lessons are to be learned here?

OM in the News: Can Sneaker Makers Come Home?

“A new Trump administration has industry players who import almost all their sneakers from low-cost locales in Asia talking about their efforts to switch more production to the U.S.,” writes Businessweek (Feb. 6-12, 2017). They already know that manufacturing closer to home would lower the time it takes to get products to market. Now, sneaker makers’ efforts to manufacture here could also help deflect attention from the fact that they overwhelmingly are in the business of designing and marketing made-in-Asia footwear for American consumers.

Nike’s products are made by 1.1 million workers in 645 factories located across 42 countries. About 400,000 of the workers are in Vietnam, with 202,000 in China. Only 7,000 are in the U.S. Footwear companies are hoping for incentives for manufacturing onshore to speed up their made-in-America ambitions. But as they look to bring production back to the U.S., shoemakers are embracing a new kind of worker: robots. Sneakers, with lots of pieces stitched or glued together, are labor-intensive. That’s one reason so many plants are located in low-wage nations. So automating is key for any shift.

Still, getting U.S. production to account for more than a tiny fraction of their global totals will be tough. Nike employs 1,300 at factories in Oregon and Missouri, and says it plans to invest in advanced manufacturing to bring production to the U.S. Even if many shoe factories were to get built in the U.S., most of the jobs they’d bring would likely go to industrial robots or 3D printers, not people. Adidas, for example, says its upcoming “speed factory” in the Atlanta area will initially employ only about 160 people. And Under Armour uses just a dozen workers to make its 3D-printed shoes in New Hampshire.

Classroom discussion questions:

Why does the U.S. want shoe jobs back?
Will Nike ever leave its plants in China and Vietnam?

OM in the News: Nike’s Struggle to Balance Cost and Worker Safety

Nike's factory in Vietnam — Nike’s factory in Vietnam

Nike’s head of sustainable business had been lecturing colleagues for years about the dangers of manufacturing in Bangladesh, reports The Wall Street Journal (April 22, 2014). Yes, the country featured some of the cheapest factories in the world, she argued, but the athletic-gear maker could ill afford another public pasting over its labor practices. Her counterparts in operations, charged with squeezing costs, countered that they should all visit the place together and then decide. So one day last year, they popped into a Dhaka building that housed one of Nike’s suppliers, Lyric Industries. Rolls of fabric were strewn across the production floor and some windows were bolted shut, clear-cut hazards in the event of a fire. The team flew home and decided to cut ties with the company.

Nike’s internal conflict over Bangladesh shows that its effort to clean up its act in the developing world, which began about 20 years ago, remains a work in progress. As the U.S. apparel industry sends more production to low-cost nations, Nike’s experience offers a lesson in the difficulty of managing the twin priorities of controlling costs and maintaining acceptable working conditions.

Nike was founded in 1964, in part on the premise that it could produce quality footwear at lower costs by using cheap labor at overseas factories. At the time, only 4% of U.S. footwear was imported. Today, the figure is 98%. But by 1998, the Nike CEO stated: “The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse.”

So Nike released the names and locations of its factories—the first major retailer to do so—to be more transparent about its supply chain. It improved air quality for workers and stationed dozens of people in countries where it manufactured products to help find cost savings and improve worker treatment. In 2008, Nike created a “country risk index” to score the potential downside of doing business in certain locations. Bangladesh ranked near the bottom, with over 5,400 garment factories churning out $20 billion of clothing exports.

Classroom discussion questions:

1. Since Nike has 1,000,000 workers in 744 factories worldwide, how can it monitor both quality and sustainability?

2. What major disaster occurred in Bangladesh recently that highlighted the problems of manufacturing there?

OM in the News: The New Industrial Revolution

The upper for Nike's Flyknit shoe — The upper for Nike’s Flyknit shoe

“Welcome to the New Industrial Revolution,” writes The Wall Street Journal (June 11, 2013)—a wave of technologies and ideas that are creating a computer-driven manufacturing environment that bears little resemblance to the gritty and grimy shop floors of the past. The revolution threatens to shatter long-standing business models, upend global trade patterns and revive American industry.

“Manufacturing is undergoing a change that is every bit as significant as the introduction of interchangeable parts or the production line,” says the head of GE’s global research lab. “The future is not going to be about stretched-out global supply chains connected to a web of distant giant factories. It’s about small, nimble manufacturing operations using highly sophisticated new tools and new materials.” The upheaval is accelerating thanks to the convergence of a number of trends: the low cost and accessibility of Big Data associated with cloud computing; the plummeting cost of electronic sensors and microprocessors that can be used to make machines more adept; and software advances that allow a whole new level of manufacturing precision.

To get an up-close look at how the new technologies are already disrupting the old ways of doing things, consider Nike’s Flyknit shoe. As high-tech as some sneakers may be in materials and appearance, almost all of them are still made on assembly lines that put heavy emphasis on human labor. Workers sit side by side in enormous facilities, cutting material and stitching and gluing shoe components together. But with new technology, Nike has begun to make a shoe with just a few parts instead of dozens– and with up to 80% less waste. Out of the blue, the reason for making shoes in low-wage countries begins to evaporate and the advantages of locating the machine closer to the customer—in part for faster delivery—begin to loom much larger.

Boston Consulting Group just published a report predicting that as much as 30% of America’s exports from China could be domestically produced by 2020.

Discussion questions:

1. What is the “new industrial revolution”?

2. Will the number of manufacturing jobs in the US increase dramatically? Why?

OM in the News: Can Outsourcing Be Improved?

TAL factory in China. TAL makes 1 of every 6 shirts sold in the US

The day after the Rana Plaza factory crumbled in Bangladesh, the death toll numbered 225. “We were lucky: It could have been worse”’ wrote the LA Times. But when recovery halted, the final toll was not lucky at all: 1,127 bodies. You’d be hard-pressed to pick a lower point for outsourcing or a better example of the high cost of cheap labor when you discuss outsourcing in Chapter 2.

The past two decades have provided plenty of reasons to believe that relying on low-wage workers overseas has made multinationals complacent about their safety. Some of the companies manufacturing in Bangladesh have rushed forward with promised improvements — H&M and Zara signed an accord to improve laborers’ safety and pay in the country. “Costs are rising everywhere we go. There’s no running away from that,” says the CEO of TAL Group, the manufacturing giant that has factories in China, Vietnam, Thailand, and Indonesia.

A decade ago, Nike took a different tack to improve its manufacturing. The company was plagued by stories of poor working conditions and underpaid labor in sweatshops, so in 2004 it began to publicly reveal online all of Nike’s factories. Still, such fixes can’t grapple with the fact that most workers’ fates remain tied to the laws (or lack thereof ) in their home countries. An MIT outsourcing expert concludes that private oversight isn’t enough. “We need to bring government back in,” he says, offering the example of Cambodia, a country reliant on the apparel industry after years of genocide and civil war. The U.S. allowed the country to expand its exports on the condition that labor standards show steady improvement. The Cambodian government has since replaced U.S. oversight, and it now licenses for export only factories that have met the standards of the International Labor Organization. “Bangladesh, take note,” writes Fortune (June 10, 2013).

Discussion questions:

1. What responsibility do global companies have in improving working conditions in Bangladesh and other developing countries?

2. How has TAL worked to lower costs as wages increase?

Good OM Reading: The Greening of the Chinese Supply Chain

Given how much of the world’s manufacturing takes place in China, and the damage it has wrought on that country’s environment, more and more multinationals are under pressure to clean their supply chains, writes MIT Sloan Management Review (Winter, 2012). For companies that ignore the problems, the costs can be considerable. Just last August, a group of 5 Chinese environmental NGOs focused attention on our beloved Apple for using suppliers with public pollution problems. The international headlines forced Apple to immediately tackle its–and its suppliers’– act.

This excellent article says that even industry green leaders such as Nike and Adidas may never completely cleanse their supply chains . But rather than just monitoring Chinese suppliers compliance with health, safety, and environmental standards, top US firms are giving them tools and incentives to improve independently, helping use energy, water, and materials more efficiently. They are also reaching deeper into 2nd and 3rd tier suppliers, where the greatest damage occurs. Nike, for example, sends environmental engineers to 40 footwear suppliers to help them set targets to reduce waste and scrap, and improve efficiency. Instead of auditing, the Nike team spends 80% of its time driving new green initiatives.

The MIT Sloan piece points out that audits alone are very limiting, as factories have become adept at hiding problems from auditors. There is even an indigenous consulting industry designed just for that purpose. (Auditors are also commonly susceptible to bribery.) “Corruption is widespread,” says a former rep for Wal-Mart, which has 20,000 tier 1 suppliers in China alone!

The lengthy article includes a 12 point plan for companies to follow to deal with this major supply chain issue. It makes for valuable reading as you cover Chapter 11.

OM in the News: Industry Clustering and the New Economy

We bring up the subject of “clustering” in Ch.8, Location Strategies, and illustrate how various regions/nations have become homes to major resources such as machine tools (Busto Arsizio, Italy), software (Silicon Valley), theme parks (Orlando), or wine making (Napa Valley/Bordeaux area of France). As a nice supplement for class discussion, USA Today (June 7,2011) has 2 articles on the very topic. The paper points out that hubs grouping manufacturers, suppliers, training programs, and researchers in the same region aren’t new. But with the loss of 8.7 million jobs in the recession, governments are now trying to speed the growth of nascent clusters to create new jobs. Emerging industry centers, encouraged by government incentives, include electric car batteries in Michigan, clean energy in Colorado, and robotics in Pittsburgh.

The 1st USA article reports that Ohio has a $2.3 billion program to nurture new tech-based businesses. The story details Cleveland’s biomedical startups and its success in more than doubling the number of biomed firms in the past decade, to 600. The Cleveland Clinic and Case Western U. were among the draws for firms like the Israeli-based Simbionix, which makes computers that simulate surgery for med students.

The 2nd article describes how Portland, Oregon has emerged as the #1 cluster for athletic footwear and outdoor clothing. Nike, of course, is the draw (founded in the 1960’s by Phil Knight). Its managers spun off a slew of new ventures and the cluster now boasts over 300 companies, employing 12,000 workers. The deep talent pool and outdoorsman culture have brought others, such as apparel maker Icebreaker.

Colorado, meanwhile, has a renewable energy cluster of 1,600 companies that employ 20,000. The hub is anchored by the National Renewable Energy Laboratory, which lures scientists and companies like Vestas. Vestas is the wind turbine giant with 4 plants in the state, drawing 10 parts suppliers to follow it to Colorado.

Discussion questions:

1. Why is clustering an important topic in Location Analysis?

2. Ask students to name other clusters and the reasons why they have come into being.

Good OM Reading: The Sustainability Embracers

Here at the POMS meeting in Reno we see 14 paper sessions just on the hot topic of sustainability. But today’s blog is also influenced by some new material by MIT on sustainability. Earlier this week, I sat in on a live webcast on the subject and then the next day received a copy of the MIT Sloan Management Review research report called “Sustainability: The ‘Embracers” Seize Advantage” (Winter,2011). The webcast featured Peter Grof, SAP’s Chief Sustainability Officer, who was also quoted in the report.

This 27 page study compares two broad categories of companies–those that have embraced sustainability and those that have not (called cautious adopters). Who are the embracers and what practices do they share? As businesses increasingly turn to sustainability for competitive advantage, here are MIT’s 7 conclusions:

1. Embracers tend to be bold, see the importance of being an early mover, and are ready to act even before they have all the answers.

2. They balance their aims with narrowly defined projects in, say, supply chain management, which allow them to produce early, positive bottom-line results.

3. They drive sustainability not only from top down, but also involve employees (who are often much more aware of sustainability challenges and solutions than management).

4. They do not treat sustainability as a separate function, but have a culture in which sustainability is applied to all business processes.

5. They establish baselines and set up assessment methods that can be identified and can measure progress.

6. They value intangibles as meaningful competitive benefits of their strategy.

7. They do not overstate motives or set unrealistic expectations, and they communicate their non-successes as well as their successes. For example, when Nike started producing labor supply chain reports 6 years ago, they announced that they had encountered noncompliance in numerous standards.

This report makes for interesting reading by providing a snapshot of how the future of the management of sustainability will look.

OM in the News: Nike’s Sustainability Push

Stung in the 1990’s by a public campaign against its Asian labor practices, Nike has been working hard in recent years to make itself a sustainability leader. Its goal (according to www.nikebiz.com/responsibility) is to embrace a “future where creation of products isn’t tied to scarce natural resources like water and oil; where manufacturing is lean, green, equitable and empowered; and where everyone, everywhere has access to sport.”

And indeed, here are just a few of Nike’s accomplishments:

1. Introducing sustainability practices into product design (eg., eliminating toxics and waste when possible).

2. Pushing lean manufacturing concepts onto contract manufacturers to create a greener supply chain and to reduce the CO2 footprint.

3. Using recycled materials throughout (eg, the DartVII running shoe is mostly from recyclables).

4. Taking defective returns, counterfeits, and used consumer shoes and turning them into material for resurfacing playing fields (called Nike Grand).

Now Information Age (April 11, 2011) reports that the company is recruiting to hire a Code for a Better World Fellow ( I have idea what this title means)– a person to help lead the effort to bring sustainability to every aspect of the company.

But the firm still does have its detractors. The daily Lean blog called Evolving Excellence, writes: “According to your own data, 94% of your shoes are made in Vietnam, China and Indonesia. At last check these countries rank 90th, 84th and 82nd out of 141 on the list of the greenest and most livable countries – compared to numbers like 23rd in the USA, 25th in the UK, and 8th in Australia – the places you sell your shoes. You ship the shoes about 7,000 miles from where you make them to where you sell them… a pretty deep carbon footprint. If you want to be sure “manufacturing is lean, green, equitable and empowered,” you might want to quit ducking the environmental regulations in the developed nations where you sell your shoes by having them made in some of the worst polluting places on earth.”

Discussion questions:

1. How important is Nike’s “green” drive?

2. On what grounds can its position be criticized?