Softworld for the supply chain Case Study

In 1992 Deloitte & Touche consultants started working with sportswear manufacturer Nike to re-engineer the company’s logistics network, to ensure that it could efficiently meet customer demand and reap the benefits of a single European market.

Then, Nike had between 20 and 25 warehouses in use throughout Europe.

Each country business unit employed its own sales force and selected the products appropriate to its own markets, making its own forecasts and controlling its own stock.

The downside to operating a number of locally-based distribution operations were considerable:stock was left unsold in one country while the market in another was unable to meet demand; value added services-re-labelling, ticketing, repacking or hanging – could not be provided in a consistent way; increases in sale volumes meant that each country in turn was affected by capacity problems – leading to piecemeal investment in the infrastructure; and the amount of discount being given in order to dispose of old stock was costing the company tens of millions of dollars every year. Co-ordination and centralisation of stock management offered the prospect of major savings in this area.

The first phase of the Nike assignment saw the consulting group developing a new strategy for European logistics. Then at the end of 1992 the development of Nike’s new pan-European customer service centre in Belgium got underway, covering apparel, staff accommodation, leisure and sports facilities.

The consultants’ recommendations persuaded Nike Europe to centralise its stockholding and distribution operations for Europe at a single distribution centre. The strategy also suggested locating the facility in Belgium or the Netherlands, and provided an overall capital budget for the construction of the facility.

Within six months of this decision in late 1992, board approval had been obtained, a site had been found, a deal struck with a Belgian government and regional development agency, and the first foundations had been dug for Nike’s new distribution centre.

Site selection, from a list of around 10 locations in Belgium and the Netherlands, took into account wide-ranging parameters, including access, proximity to workable ports of entry, labour availability and quality, ground conditions, local grants and incentives and a position which enabled the company to service accounts within 48 hours. In addition, Nike was keen to ensure that its arrival would have a positive impact on the local community. The company plumped for a site at Laakdal in Belgium. Building work began in July 1993 and the facility opened for business in September 1994; stage two, the European footwear facility, was completed in September 1995.

At the heart of the Laakdal centre is a 30 metre high bay storage cell (14,000 square metres in all) with stacker cranes available for handling product. Within the total product range of more that 30,000 stock keeping units, faster-moving products are stored on pallets and slow-moving lines held as individual cartons.

The new facility can stock around 12 million items with the apparel and footwear processing areas each taking up approximately 23,000 square metres.

Both crane drivers and pickers alike receive their instructions by radio data terminals, making this essentially a “paperless” warehouse and reducing unnecessary administration. Shipping notes and packing lists are the only documents produced. The warehouse management system that drives the operation was jointly developed by Nike and IBM.

There are more that 11 kilometres of conveyor in the combined facility and this transport system connects the receiving, storage, picking, processing, packing and shipping functional areas by a “highway” which means that a parcel can be transported from any one area to another, giving total flexibility to the system.

Since the completion of the project, Nike’s strategy for European logistics operations has yielded cost savings worth millions of dollars each year, with the initial capital investment recouped within two years.

The biggest benefit to Nike is an all-round improvement of customer service now that all apparel stocks and deliveries, along with the majority of footwear, can be handled at one location.

Retailers are given a consistent response, a greater range of products and a full menu of added-value services. The old idea of each country having its own stock has been replaced by central inventory management.

Although centralisation can lead to an increase in transport costs as delivery distances rise, transportation costs for small or high-value products are more than offset by reductions in inventory and depot costs.

On top of this, savings in close-outs (product left in stock at the end of the season to be disposed of at a discount) brought further benefits, including better inventory management.

Nike has been extremely successful in expanding its European business.

Growth rates have exceeded forecasts to the extent that additional capacity is required well before the planned date. Deloitte & Touche is currently working with Nike on the early stages of the next development at Laakdal.