Team 2 NIKE ERP Failure SIM CASE Study PDF

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Essays discussing case study from Nike about the failure of implementing ERP in 2004...

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Kiara Glory (041911233079) Nadiatul Qalbi Amalia Rizqi (041911333077)

NIKE ERP FAILURE CASE STUDY Nike’s 2000 ERP implementation led to $100 million in lost sales and a decrease in its stock price by 20%. In an attempt to upgrade its systems for the modern age, Nike spent roughly $400M in its ERP failure. The issue with the system was that its demand planning module overpredicted the amount of Air Garnett sneakers needed and underestimated the amount of Air Jordans that customers would want. The net impact on its operations were profound: it couldn’t properly forecast customer demand and get the right products to the right customers at the right time, which is a big problem for a large consumer products company like Nike. This is a prime example of a time when new technology in the form of an ERP forecasting tool failed. The company had to invest another 5 years and millions of dollars more to overcome the problem and to get the software working properly. Why do supply chain system installations fail? Looking back, for Nike the supply chain system is not really new. With a centralized pattern, all product design, contracts and deliveries, have been planned from Beaverton. Nike's own supply chain has been built since 1975 with a 6month order cycle, called the Futures Program. However, as Nike's business became more globalized, its supply chain began to fragment. By 1998, the company had 27 order management applications, each of which was highly customized and difficult to connect to its headquarters in Beaverton. Now, to control its 9-month manufacturing cycle, Nike also needs a centralized system like the planning process. For this reason, ERP software - in this case SAP R/3 - is the backbone, equipped with supply and demand forecasting applications (commonly called SCM) from i2, and CRM applications from Siebel, using middleware from STC (now SeeBeyond). Despite having purchased the Apparel and Footwear Solution (AFS) software -- an early version of the SAP R/3 software specifically for the apparel and shoe industry in 1998 -- Nike was patient enough not to install it until SAP developed a more stable version. ?We even sent people to Germany (SAP headquarters) to tell us what we want in the second version,? Steele's story. Unfortunately, Nike did not show the same patience when implementing the initial part of its SCM system, namely the demand and supply forecasting application module. Instead of waiting for the i2 software installation as part of the SAP ERP project (because it uses a single instance implementation strategy), Nike impatiently chose to install i2 in early 1999, while using its legacy system. Well, according to the class action document sent by Nike and i2 shareholders, the symptoms of a problem were already felt in June 2000. The demand and supply planner application from i2 uses different business rules and stores data in a different format than the legacy system, so that these two systems difficult to integrate. So, the i2 software must be highly

customized to be operational with legacy systems. It took at least one minute for each input to be recorded by the old software. And because the number of products handled reaches tens of millions, the system crashes frequently. Worse, the system seems to ignore some orders, but instead duplicates other orders. The demand planner application even deletes order data 6-8 weeks after the order is entered, making it difficult to know what they are asking each factory to produce. As a result, as already mentioned, order records to factories in Asia for products such as Air Garnetts are redundant, while Air Jordan orders are reduced or even partially erased.

Nike’s mistakes are: 

They didn’t hire a third-party integrator to help them to implement the new system smoothly.

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Didn’t wait to deploy i2 as part of its SAP ERP project; Nike decided to install i2 software at the beginning of 1999, while it was still using the legacy systems.

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The i2 software has an integration issue as its software has different business rules and stored data in various formats. This software required to be heavily customized to operate with Nike’s legacy systems. It took much as a minute for a single entry to be recorded by the software. Due to that issue, the system frequently crashed by overwhelmed by the tens of millions of product numbers Nike used.

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Nike decided to go with the “Big Bang” approach for implementing an ERP system.

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Fail to train employees properly with new systems, which led to the excess production of unsought shoes.

These Solutions are: 

They hired consultants and external experts to construct databases and bypass portions of the i2 software application. Plus, the team further built bridges within the

software to enable data sharing. Later, they moved its short — and long — run shoe demand planning from i2 application to SAP ERP system. Nike picked SAP ERP system for using more predictive algorithm to estimate real demand. 

In addition to that, Nike installed the program that required employees to receive mandatory training and development for 140 to 180 hours so that they could understand the new system better.

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Nike adopted a phased geographical approach while integrating its new SCM, CRM, and ERP system. Initially, the project has envisioned as a 2–3 year for implementation....