Materials Management - Case Study 11.4.

2020

Supervisor : Dr. Shaker

Done By : Rudaina Abdulrahman

Materials Management – Dr.Shaker Al-Qudah

Centralized distribution at Nike:

centralized and specialized, but not standardized – Case 4

Nike has a central customer service centre (distribution centre) located at Laakdal in
Belgium. The centre is 200,000 square meters in size and serves 45,000 customers in EMEA
(Europe, Middle East and Northern Africa) with footwear, apparel and equip- ment. The
centre receives products from supplier factories around the world for distribution to retail
clients both before the start of all four seasons each year, as well as during the season. Prior
to the start of a season, when work is at a peak, the workforce stands at some 2,300
operational staff. Off peak, that drops to 1,350 staff. Deliveries are very time critical, given
the seasonal nature of the business. Retailers demand in store availability on day one of a new
season. The centre is a clear example of a company deciding to centralize receiving, storage
and shipment to customers at one location in Europe. The benefits including consolidation of
inbound shipments, lower inventory levels and better delivery service (in comparison to
fragmented warehouses scattered around Europe). This does not mean, however, that the
logistics operations are standardized for all flows of goods and all customers.

Not every shipment is handled in a standard way through a single distribution pipeline:

● About a quarter of the volume of shipments is shipped to customers directly. These are
larger shipments such as full pallets for larger customers – for which there is no need to
consolidate with other shipments. As a result it is cheaper and quicker to make these
shipments directly.

● New growth areas that are served from the centre are Russia, Turkey and South Africa. For
Russia, the first satellite centre with small inventories was recently opened to enable faster
local replenishment of selected products.

● Selected shipments to selected retailers are dealt with by a materials handling operation at
the centre. This mainly involves labeling and re-packing operations.
● Some retailers share weekly point of sale data with Nike, enabling it to replenish
inventories based upon actual sales.

Questions :

1.What are the reasons for a company, such as Nike, with a centralized
distribution centre to ship some products directly to customers, not
through the distribution centre?

• According to Eric Sprunk, Nike Chief Operating Officer New Court

Distribution centre represents Nike’s continued investment in a fast and
flexible supply chain to deliver the full range of our product to
consumers when they want it, where they want it.

• Direct sales to the consumer provide higher margins than do sales to

wholesalers. Nike’s DTC sales have increased considerably, as has its
contribution to its overall sales mix. The company’s DTC sales rose to
$11.7 billion in fiscal 2019, up from $5.3 billion in fiscal 2014.

• Direct distribution allowed Nike to further reinforce MSRP

(manufacturer's suggested retail price) and communicate directly with
consumers about price points. Direct distribution allowed Nike to collect
a goldmine of data. Better customer data leads to better promotions,
better products, better relationships and more sales.

2.What are the reasons to start satellite centres when a company such
as Nike has a centralized distribution centre?

Nike has satellite offices and subsidiaries in more than 50 countries, and
below are some of the

• Cost Effectiveness - Cost of Nike satellite capacity does not increase

with the number of users/receive sites, or with the distance between
communication points. Whether crossing continents or staying local,
satellite connection cost is distance insensitive.

• Global Availability - Communications between Nike’s satellites offices

and its consumers cover all land masses and there is growing capacity to
serve maritime and even aeronautical markets. Customers in rural and
remote regions around the world who cannot obtain high speed Internet
access from a terrestrial provider are increasingly relying on satellite
communications.

• Superior Reliability – Unlike the distribution centres, Nike’s Satellite

communications can operate independently from terrestrial
infrastructure. When terrestrial outages occur from man-made and
natural events, satellite connections remain operational.

3.What are the pros and cons of locating materials handling operations
such as labelling and packing in a distribution centre, as opposed to in
the factory?

The main purposes of packaging are protection of product,

attractiveness of product, co-operation with channel and segmentation.
It is known as a technology for protecting products for distribution,
storage, sale and use. packaging is also described as a coordinated
system of preparing goods for transport warehousing sale and use. On
the other hand, labelling is known as a written or graphic
communication on the package or on a disconnected but associated
label. Both the systems have some advantages for which they are an
important operational part of distribution channel.

- Packaging provides different advantages to different types of

segments. Some advantages of packaging are provided below,

• Advantage to manufacturers: Packaging helps the manufactures of

Nike to keep the product safe while transporting it. Packaging also helps
to facilitate storage and helps in advertising and sales promotional
activities. Besides, it is responsible for increasing demand and profits of
an organization.

• Advantage of middleman: Packaging will help the middlemen to store

the product in is proper place. Based on the packaging, it will be easy to
exhibit it before the customers. By Looking at the packaging, the workers
working in a warehouse will be able to understand what is inside the
package and they will be able to handle it accordingly.

• Advantages of customers: Packaging will reduce the chances of

tarnishing and it is also helpful in providing important knowledge about
the product and the organization that manufactured it.

- Disadvantage of packing in a distribution centre:

• Problems with Local Managers- By electing not to distribute
warehouses, problems may arise with local managers. In general, local
managers have a strong bias for high inventories being visually present.
They would feel more secure because natural catastrophes or inventory
mismanagement would not impact them as much.

4.What are the pros and cons for a company such as Nike to take on
these materials handling services as opposed to leaving them to retail
customers?

Advantages:

•Improve customer service

•Reduce inventory excesses

•Shorten delivery times

•Lower overall handling costs in manufacturing, distribution and

transportation

•Enhance handling through streamlining and better timing

•Facilitate product control through better monitoring and management

•Improve inventory management and the accuracy of information

through real-time monitoring.

- Disadvantages:

•Potential high cost of rush delivery- Everyone makes mistakes, even

inventory control managers. However, those mistakes could potentially
have a grave impact on a centralized warehouse system. If there is a
miscalculation in how much product is needed or how long it should last,
then the retailer would have to pay additional fees for rush deliveries to
compensate for that mistake. If these mistakes happen regularly, then
the money saved from opting to use a centralized warehouse will
balance out.

•Lack of Preparation for Emergencies- Natural catastrophes are often

unforeseen, and it can cripple a retailer. If most of the inventory is in
one centralized warehouse, a retailer could lose millions of dollars if a
fire were to break out and decimate the entire stock. In 2007 for
instance, a fire at an Illinois warehouse, owned by the Kable News
Company, destroyed the entire inventory belonging to Jackson,
Wyoming-based Alpinist, which was a quarterly high-end magazine
dedicated to alpine style mountain climbing. The magazine’s inventory
included back issues and merchandise including hats, shirts, water
bottles, stickers and coffee mugs. It was reported that the Magazine lost
an estimated $4 Million worth of merchandise at a peak time. If the
company had not utilized a centralized warehouse system, it could have
saved millions of dollars.