In the early 2000s, Nike had some major inventory management problems. The company lost around $100 million in sales due to these issues. It may be difficult to imagine that such a well-established corporation could have a massive operational failure like this, but they did. As they learned from this experience, inventory control can be difficult for a business of any size.
Fortunately, following this failure, Nike developed an improved inventory management solution to solve their problems rapidly. Here’s what happened to Nike and how the company recovered:
In 2001, Nike implemented an updated version of their inventory management software. The idea of this newly implemented inventory control software was to help predict which products they would sell the most, and thus prepare the right amount of supply to meet the demand. First they would produce a demand forecast and based on that forecast, they would prepare a manufacturing plan. That’s how most big corporations (and some small businesses) make their operational business decisions. Here is the process in a nutshell –
Based on historical sales data of different products, and based on some market growth estimates, Nike would first prepare a demand forecast for different families of products. This demand forecast is then used to determine optimal inventory levels, reorder points, material lead times etc. And the entire manufacturing plan for months is determined using these numbers produced by the inventory management software.
In Nike’s situation, however, they ran into some serious software implementation issues – bugs, and data errors – which resulted in incorrect demand forecast. The predictions the software made were totally off, so Nike didn’t produce enough of certain products that consumers were interested in buying. Conversely, they overproduced other skus. This erroneous manufacturing plan eventually resulted in lost sales worth millions of dollars.
Nike’s case illustrates just how crucial it is to manage your inventory and your inventory management system properly, irrespective of whether you are a small, medium or large business. When choosing an inventory management solution it is extremely important to ensure the quality of software that your vendor provides. It is equally important to make sure that you enter all the requisite data and double check everything! Especially if you are a small business owner and can’t withstand a massive loss in sales!