Inventory Management

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Nike being such a major, successful company, they have even had their fair shares in facing problems.  They had some major inventory management problems and had lost about a total of $100 million in sales.  As Nike, and many other companies have learned, inventory control can be a difficult thing to handle.

Due to this occurring, Nike was able to develop a much improved inventory management solution to solve all of their problems promptly:

In 2001, Nike updated their inventory management software which purpose was to help predict which products would sell the most which can therefore help the company prepare the correct amount of supply to meet their demand.  The company, like most other major companies, would first figure out a demand quota that they must meet and start manufacturing products.

To come to a number figure for a product’s demand, the company must look at data from historical sales of different products.  Based on market growth estimates, Nike, as well as other companies, would be able to forecast a demand number for different products.  This figure is next used to determine reorder points, optimal inventory levels, material lead times, etc.  The numbers produced by the inventory management software determines the entire manufacturing plan for months at a time.

However, in Nike’s condition, the software program had some major issues, such as: bugs and data error, which ended up in incorrect demand forecast.  The figures that were produced by this software were way under-determined, so that made the Nike Company make a shortage of certain products that consumers were very interested in buying.  On the other hand, they overproduced other products that consumers were not as interested in.  This resulted in a huge loss of sales that added up to the millions.

Nike’s situation shows other companies and the public how critical it is for a company to manage their inventory system, no matter how big or small their business is.  When choosing software or an inventory management solution, it is very important to check the quality of the software that their vendor is providing. It is also important for every business owner to double check their data, especially if they cannot endure an enormous loss in sales.

This article talks about the activity we did in class the other day.  The activity was called Past Demand for Big Game (cases per week.). In class, we had to estimate demands for that week and then make sure we did not under order or over order because then it was going to cost us a lot of money. That is what Nike had to do in this article; they under ordered their demand dramatically. This shows us that even big companies like Nike have trouble guessing their dammed for particular items.

4 thoughts on “Inventory Management

  1. I thought it was interesting to read that even a big company, such as Nike, has difficulties with inventory management. I agree that they should have ensured the software they were using was reliable. This article makes it clear that poor inventory management can significantly impact sales.

  2. I find this an interesting article because I never realized that even such a large company can have this sort of problem. We all know that it is almost impossible to make a definitive forecast, but inventory systems are supposed to help with that. And the fact that Nike’s had bugs is intriguing; you really just have to pay close attention to every detail.

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