What is ERP
An enterprise resource plan is be defined as a packaged business software system that lets a company automate and integrate its business processes that share common data and information across the enterprise, and produce and access information in real-time. It controls all the businesses processes in a firm. ERP systems are therefore all the systems that are integrated to form the company’s overall ERP system (Filip, Jose &Jorge 6)
According to its website, Nike is “a global marketer of athletic footwear, apparel, and equipment”. Bill Bowerman and Phil Knight started it in 1972 as a footwear distributor based in the U.S before it grew to the global company it is today. They state their goal as to carry on the innovative thinking, which enables them to produce products that help, and support athletes achieve their potential, they also create opportunities that differentiate them from their competitors and provide value to their shareholders by being profitable from their undertakings and increasing the net worth of the company. (Nike.com)
Nike is the market leader with 47% of the market share in its industry with revenues of $3.7 billion in 2010 followed by Reebok, which has 16% of the market share. Nike utilizes 100% outsourcing, to manufacture its products and has been producing them mainly in China, Indonesia and Vietnam. This is with the aim of gaining a competitive advantage and reducing the manufacturing cost for its products This market strategy calls for a good ERP for it to be able to link all its manufacturing operations in the various countries to be able to meet the big demand they enjoy from their market share. (Dosen 1)
In this case study, we are dealing with the effects of Nike’s supply chain and ERP systems upgrade in 2000, which was aimed at making it a luminary system, acquired at a cost of $400 million. It led the company into a $100 million lost sales, a 20% drop in its share and numerous lawsuits. (Wailgum 1)
In his article “10 Famous ERP Disasters, Dustups and Disappointments”, Wailgum lists ERP failures in recent history with Nikes ERP upgrade being among them. It goes further and terms the ERP software’s as being very expensive, accompanied by much hype during the purchase phase but the results achieved are epic failures.it also states that this is the main reason why ERP has a bad reputation with C.E.Os (Wailgum 1).
In May 1999, Nike decided to acquire demand and supply planning applications from i2 technologies. The main aim of the system was to help the company match its demand and supply, reduce waste being used in the production process, and make sure that they met their customers’ requirements. (ICMRINDIA.ORG 1). It was to be linked with other ERP systems present in the company for it to achieve success, and this proved to be a major problem during the implementation face of the project.
Nike decided to install the i2 system with the existing legacy systems in place instead of following the systematic procedure for the implementation of the system as a supply chain ERP project. It later became evident that i2s predictive tools used a different format to predict and store data that did not integrate well with the existing ones. (Koch 6).
Nike went ahead and implemented the system without the help of outside integrators. Because the acquired software was new to the company’s employees, it led to problems that were evident in the case where Nike accused i2 technologies of the inability to deliver only to find that the main problem was the way the system was being implemented. Nike also minimized the customization of the software to only 10-15%, which proved to be inadequate for the desire results to be achieved. (ICMRINDIA.ORG 2)
The factors that led to the project failure were mainly attributed to the way Nike decided to implement the project and the fact that it did not support their work model. Nike decided to run the project using the existing systems other than coming up with new ways of doing things that were in line with the software requirement. The fact that the company produced over 100,000 products and had a wide variety of information sources this made it hard for it to work effectively.
The i2 system needed huge customization for it to be able to operate effectively with the existing legacy system, it took as long as two minutes to record a single entry and with millions of entries being fed into the system, it would occasionally crash. The system also duplicated and deleted orders leading to a huge amount of errors. Nike also ignored the scope of the project by using the available employees to run it, but when the system failed, they had to call in consultants to help (Koch 7)
By constantly monitoring the progress of the projects defects and corrections could have been made before it was too late. Nike also needed to work with the software developer as a team to help customize the project to its needs. By training the employees and passing on the necessary skills needed for the success of the project, Nike could have achieved better results. Nike should have conducted a good feasibility study of the project and tested it before actually using it to familiarize them with every bit of the project before they put it into use.
In the short run, The project proved to be a failure with both sides blaming each other, this is evident by the court cases the companies filed against each other is evident that the i2 system uses different business rules and formats to store data compared to the ones Nike had. This was due to the way the project was being managed without the teamwork of the developer and the actual user of the program who is Nike if they could agree on a common platform the software could have been a success (Koch 6). Over customization was also a cause of the project failure.
The cost involved in the purchase of the software and the returns that were realized during the time that the project was being implemented is a clear indicator of the success of the project. The system was purchased at $400 million and during the time it was being used the company realized a loss of sales of $100, which clearly indicates the project, was a failure.
Nike learned from its mistakes of making rushed decisions on the implementation and slowly developed and integrated the system into a working model, and by 2004, Nike used supply chain systems 95% for its global business. (ICMRINDIA.ORG).
Dosen, s. n.d. The Manufacturing Practices of Nike and its competitors. Home | The University of North Carolina at Chapel Hill. n.d. Web.
Filip, J., Jose C., and Jorge, C. Enterprise information systems. Berlin: Springer, 2008. Print.
Koch, Christopher 2004, Nike Rebounds: How (and Why) Nike Recovered from Its Supply Chain Disaster. Web.
NIKE, Inc. – About NIKE, Inc.” NIK.,n.d. Inc. – The official corporate website for Nike and its affiliate brands. n.d. Web. 2012.
ICMRINDIA.ORG.n.d. “SCM and ERP Software Implementation at Nike: From Failure to Success n.d,. Web. 2012.
Wailgum, Thomas 2004, 10 Famous ERP Disasters, Dustups and Disappointments. Web. 2012.