Week 1 – Chapter 1 Introduction about Logistics Case Study Discussion #2 Nike (Europe) Beaverton, Oregon based Nike, Inc , had built its European distribution in a fragmented way during a period of hi[.]
Week – Chapter 1: Introduction about Logistics Case Study Discussion: #2: Nike (Europe) Beaverton, Oregon-based Nike, Inc., had built its European distribution in a fragmented way during a period of high sales growth during the 1980s Each country had one or more distributors of Nike shoes, and each of those distributors operated as independent business units, providing sales, merchandising, and distribution functions In 1992, when European sales had risen to $1 billion, a distribution system analysis revealed serious inefficiencies Models of shoes popular in Germany often sat unsold in warehouses in France Nike was wasting tens of millions of dollars annually on inventory Excess inventory had to be discounted to move, despite the fact that the same shoe may have been in short supply in a neighbouring country The solution Nike chose was to centralize all shoe distribution for Europe Taking advantage of the economic integration of the European market, Nike built an 850,000-square-food distribution centre in Lakdaal, Belgium, close to the ports of Antwerp and Rotterdam The company chose to pay higher transportation costs by moving its shoe inventories farther from their European markets, but realized an even greater saving by dramatically reducing its inventory costs Shoes, however, are small, high-value products, and transportation costs form a relatively small percentage of logistics cost “Increase in transport costs can easily be more than offset by reductions in inventory and warehouse costs The rule of thumb is that, by combining two warehouses into one, your total buffer stock will reduce by about 30%” said Martin Ashford, consultant to Nike The savings to Nike were dramatic; they consolidated 25 warehouses into one Questions: What was Nike’s problem? How did Nike tackle that problem? Why did they decide to increase the transport cost instead of reducing inventory cost?