PROJECT REPORT

ON LEAN MANAGEMENT

APPLIED BY NIKE

PRESENTED BY:-

PGPM-15, SECTION B,

A quote from “THE MANAGEMENT PROCESSES: UTILIZING LEAN THINKING AND SIX SIGMA [6σ] TECHNIQUE EDUCATION IN SUSTAINABLE METHODS, Dustin Bessette Marylhurst University, USA”

This lean technique can be thought as being very similar to the six sigma technique in the fact that it is proposed to send less waste materials to the environment while still being able to bring the core of the customer value up. According to the Lean Institute, “A lean organization understands the customer value and focuses its key processes to continuously increase it” (LEI, 2009). This thinking will not only be able to bring about more reliable customers as well as a higher reassurance of stability within the company’s finances, but this will also make the concepts for the standardization of customer reliability higher than before.

Inference: Strategic planning is not only a tool for the future, but also one of survival.

Nike : As we know it ----

Nike, Inc. is an American multinational corporation that is engaged in the design, development, manufacturing and worldwide marketing and sales of footwear, apparel, equipment, accessories and services. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area. It is one of the world's largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment, with revenue in excess of US$24.1 billion in its fiscal year 2012 (ending May 31, 2012). As of 2012, it employed more than 44,000 people worldwide. In 2014 the brand alone was valued at $19 billion, making it the most valuable brand among sports businesses.

How Nike has used this principle:-

Sustainable innovation takes many forms at NIKE. Today innovation means a continuous requirement to adapt and learn the surrounding environment. For example, in 2012 nike introduced the first product made using the innovative new NIKE Flyknit technology and manufacturing process. The Flyknit Lunar 1+ running shoe, launched in 2013, reduces footwear waste in the upper part by 80% on average compared with traditional production methods. To put a picture to that amount of waste, from its introduction in 2012 through FY13 the total combined material savings from just the uppers of the Flyknit Lunar 1+ compared to a traditional running shoe was 66,000kg.

Other opportunities, such as improving working conditions within its global supply chain, are beyond the reach of any single organization and require collaboration with other supply chain participants. One way they are working on these changes is through collaboration with the Fair Labor Association to develop the Sustainable Compliance Initiative. This initiative, still in development, provides tools to improve the quality, consistency and efficiency of efforts in the industry to comply with country laws/regulations, and company standards.

The future of lean for NIKE is to deliver profitable growth through sustainable manufacturing and sourcing. To do this, they are making lean NIKE, Inc.’s manufacturing standard. They require a

commitment to lean as part of being accepted into their source base and a minimum commitment and progression for positive ratings by including it in their Sourcing and Manufacturing Sustainability Index, a component of Manufacturing Index which assesses factories based on sustainability, cost, quality and on-time delivery. They are working with supply chain to demonstrate the value of lean as a driver of sustained, improved business performance where workers are engaged and enabled to drive business success through continuous improvement. Some of the standard metrics used to assess factory adoption include productivity, human resources management assessments, turnover, absenteeism, and factory implementation of and results from worker engagement and well-being surveys.

The innovation and revolutionary practices are critical for sustainability and for maintaining the brand value, but not the only criteria for being recognized in the market as a successful lean practicing organization. It requires all the employees to follow the same standardized practices throughout all manufacturing units.

Details from research paper: “International Journal of Production Research, 2014 Vol. 52, No. 15, 4623–4645,

Topic: Method for assessing human resources management practices and organisational learning factors in a company under lean manufacturing implementation Guilherme Luz Tortorella* and Flávio Sanson Fogliatto”

According to Biazzo and Panizzolo, a work perspective supported by lean principles depends heavily on people’s flexibility and involvement. Thus, change management in a lean production system should focus on factors such as impacts of changes on people, effects of positive leaderships and the effectiveness of communication channels. With that in mind, reorganisation of manufacturing according to lean principles may ignite radical technical and organisational changes towards a leaner company, with a new structure, strategy, and culture.

The article has demonstrated a growing recognition of the importance of HRM practices for which little attention has been paid. It stresses the importance of individual-centred approaches listing six key practices: (a) Coaching: a practice that questions the status quo and allows others to improve and learn from mistakes. Moreover, inspires people to perform at their best by increasing the cooperation and commitment to change. (b) Communication: can be an effective practice to strengthen the change process, since it allows the information sharing among all, facilitating the understanding about the need for change. (c) Involvement of employees: a practice that increases the commitment and ownership of employees through the change process; (d) Motivational incentives: a practice that includes the creation of an environment that provides motivational incentives, ranging from how work is planned and designed to the level of training that the staff receives. (e) Recognition: a practice that implicitly favours the creation of a new performance standard, occurring in a subtle but yet public way. Encourages individuals to continuously perform at their best, and may be exercised in various forms other than financial. (f) Teamwork promotion: a practice that allows the construction of more significant results during the change process. Inference: HR practices, followed by Nike are the sole guarantor of sustainability. More than technology it is the acceptance of the need to change for a better future, which is more capable for bringing about a methodical approach for Nike. The following road map may be followed:-

As brands that believe in the power of human potential, Nike believe that one of the greatest impacts they can have is to help give a voice to the million people who work in our supply chain. For many years, footwear and apparel manufacturing was considered an inherently low-tech, low-skill and low-wage job. The move to lean manufacturing models challenges that assumption: To participate in lean production, workers need knowledge, skills and decision-making authority. However, when they first started working with our contract manufacturing partners on the implementation of lean manufacturing principles, many factories lacked the capability to develop these skills in their workforce.

They began to offer human resources management (HRM) training and other support to contract factories to help them invest in the potential of their people. Research shows that satisfied workers are more productive workers, and that investments in workers will yield long-term value for factory owners. During FY12, they transitioned to an integrated training model – Sustainable Manufacturing Training – that addresses a full range of issues, including lean manufacturing, HRM, health and safety, environmental compliance, energy management, environmental sustainability and freedom of association.

Practices at Nike:

What Nike believes “Lean manufacturing has been a hallmark of our approach with factories and is the foundation of how we advance sustainable manufacturing. Lean manufacturing is a business system and continuous improvement philosophy that aims to deliver the highest-quality product while eliminating waste, including lost time and material. At Nike, we also believe lean can empower workers and teams. The success of the lean approach depends on the implementation of physical changes to production processes, increased leadership capabilities and the development of an empowered workforce. Lean manufacturing seeks to engage the minds of those closest to the work to solve the problems that prevent them from delivering quality product on time, every time.”

Nike has 2 overarching goals in their strategy:

1. Make Today Better 2. Design the Future

Design the Future: Nike Lean Manufacturing

Nike has determined that their finished goods manufacturing is where they have the largest impact on people and the environment. Within that context, they want to be a catalyst for positive change. Consider these numbers:

785 Contract Manufacturers Over 1 Million factory workers More than 500,000 unique products

How lean is implemented at work place/ production houses:-

1. They believe that implementing small changes which may reduce the time is difficult in a large organization and thus the work is contracted to various agencies where the supervision is easier and there are multiple agencies responsible for maintaining efficiency in terms of time and capital spent.

2. Rigorous screening process to select the vendors. 3. Even in terms of time it takes to become a partner, it now takes Nike 152 days versus 246 days.

That means it takes Nike 38% less time evaluating a manufacturing partner. Lean process starts from home.

4. Continuous assessment of performance by integrating improved practices with the vendors. 5. Building trust in vendors. This is done by qualifying them for long term contracts but only if they

maintain efficiency in the processes. Routine evaluation of performance is the key. 6. Inclusion of sub contractors in company value chain.

Problems faced in this process:-

1. While some factories meet or beat all standards, certain issues continue to arise like working hours, overtime and associated wages have made up the vast majority of violations found by audits of footwear, apparel and equipment factories. Solution:- A lot of time and resources is being devoted to addressing these types of issues in the poorer-performing factories, while having less time to engage with the higher-performing factories. That’s why building relationships with contract factories and developing a new manufacturing vision is critical.

2. It has been observed that monitoring does not bring about sustainable change. Often, it only reinforces a pattern of hiding shortcomings or failures. Solution:- Nike has defined and implemented expectations for the factories with which they contract, through a companywide Code of Conduct. The Code covers working conditions, health and

safety, and environmental performance. Widely used Nike procedure is the Code Leadership Standards (CLSs), available online and widely to the industry, describe those expectations in much more detail. Both the Code and the CLSs have been translated into multiple languages. This help a large organization like Nike to maintain a universal

Uniqueness of Nike:

The aspect of the Lean deployment that impresses most is that other 0rganizations start Lean primarily in the Daily Management section of the model and it is limited to that mostly. Commonly known and practiced as shop floor management.

But at Nike, they go deeper and higher and more broadly. In their words, this is how training is done in order to help their people – notice the level of Lean Six Sigma Training conducted.

The curriculum contains 10 modules that each focus on a key area of the Culture of Empowerment Model. Each module is designed to share HRM best practices related to lean manufacturing, and contains interactive exercises that allow factory managers to assess their current state and identify improvement opportunities in areas including recruiting, selection, employee development, performance management, worker-management communication and retention.

The curriculum also contains instruction and exercises on lean problem solving and planning tools including PDCA (plan, do, check, act) and A3 reports, which facilitates knowledge sharing and collaboration in a concise document. These tools are used throughout the capacity building to define follow-up projects that factory managers implement after completing the training.

The sustainability index widely spoken about consists of levels of compliance: both on the organization end and from the vendor side. The code of conduct and code leadership standards are maintained, monitored and revised regularly, not as a measure of increasing efficiency but included as a part of daily work culture. This imbibes the feeling that the people be it at any level or hierarchy are committed to the same goal and thus, are a part of a fraternity tried to achieve something common and sustainable. Further this also gives rise to a competitive spirit as one is always evaluated and graded, but failure are not treated as a dark spot but only as a temporary blemish ready to be wiped out through continuous efforts.

The following is the map of Leadership code of conduct:-

Green and Lean In NIKE:

Increasingly, organizations are concerned not only about operational and financial performance but also the environmental impact created by their processes and products. These environmental impacts are measured by the amount of resources and materials used by the organization. Hence bringing improvements in sustainability index is important to bring about changes in the production processes.

“The synergy between lean and green is real”

The above statement is true with respect to the way NIKE’s manufacturing processes are designed. Even, Maxwell, Briscoe, Schenk, and Rothenberg (1998) confirmed that facilities using lean production are dedicated to a philosophy of waste reduction—an approach that could also achieve the objectives of environmental protection.

Several studies have focused on establishing the relationship between lean and green (King & Lenox, 2001; Maxwell et al., 1998; Miller et al., 2010; Pojasek, 2008; Rothenberg et al., 2001; Simpson & Power, 2005; Vais et al., 2006).

In this regard, NIKE has introduced several measures to make their products green and environment friendly. It believes in sustainability-based innovation. This is one reason why it stands out from its competitors.

To quote, Feng Tay Group, one of the supplier, produces about 1 out of 5 NIKE shoes annually. In 2008, carbon emissions from their footwear production accounted for approximately 18% of the total NIKE’s footwear carbon footprint. In order to reduce this, NIKE worked closely with their supplier and devised a strategy to reduce carbon emissions and focus on energy savings. FTG employed a continuous improvement approach, creating a strategic framework to evaluate and study energy use and carbon emissions in their factories. From the framework, they test and study potential reduction opportunities, and then create implementation plans and budgets to support the work. FTG has more than 30 people who work on energy in the factories, and have implemented projects on systems ranging from boilers to electric motors, lights, and air compressors. Since then, FTG has achieved an incredible 24% reduction in energy use per pair from 8.46kWhe to 6.41kWhe, and a 17% reduction in CO2 emissions per pair from 3.46 kgCO2 to 2.86 kgCO2 per pair. This reduction in energy consumption and CO2 had a ripple effect on NIKE’s product quality and sustainability.

In another situation, NIKE was so concerned about the significant use of water for dyeing its apparel. In general it would use around 12-18 gallons of water per pound of fabric and demands large amount energy. In such a situation even an incremental solution would be very helpful to reduce the amount resource utilized. While working simultaneously on incremental changes, NIKE acquired a Netherland based startup DyeCoo Textile systems B.V, which had developed a new technology that could dye fabrics using no water, remove a significant amount of the energy footprint and eliminate the need for process chemicals. Having made a small investment in such a technology has immensely helped NIKE reduce the use of process chemicals and eliminate the use of water. NIKE is closely working with other Dye houses to replicate the same technology and incorporate this technology as part of its supply chain. All such measures are certainly helping NIKE get the competitive advantage and motivating the internal team and its collaborators to come up with new materials and innovative process designs.

NIKE has around 785 contract factories in which it employs 2.5 Million people. Since, It is highly concerned with the processes and sustainability, it requires its suppliers too to adapt to lean manufacturing. In fact, Lean manufacturing is a minimum requirement to be a part of NIKE’s supply chain. As mentioned earlier, the ripple effect produced by adopting such lean practices throughout 785 factories would definitely drive NIKE to produce more environment friendly products and greater profits.

So, with the current practices we believe that Nike has the following SWOT analysis.

Strengths:

Dominant market position built on a strong brand portfolio

Focus on R&D activities

Multi-channel approach

Weaknesses:

Dependence on independent contract manufacturers

Opportunities

Growing global footwear market

Threats

Intense competition

Growing online retail channel Increase in counterfeit products

Comparison of the Present market conditions:-

The improvement in the processes of Nike can be seen in the improvement in their revenues over other big competitors like Adidas and Puma. ( Adidas growth has been substantial because it acquired Reebok brand ). So, even after strict compliance of lean in all aspects starting from production to HR management Nike is not losing on revenue generation. So, this reveals a direct and positive relationship between profits earned and practice being followed. Nike’s efforts of following a strict schedule has bore fruits and has come after giving an added advantage of doing good to the environment and spreading job satisfaction among the employees. The revenue figures of the companies are as follows:-

Adidas and Puma have also followed Nike in recent years in production practices, but Nike always as the first mover advantage and thus have gained customer satisfaction to a larger extent. Further the contribution of Nike to the green quotient is unmatched adding to its reputation of a successful and responsible corporation. Conclusion: We studied Nike’s history and methods of applying Lean methodology into their processes, the problems faced and their solutions. In the process we could understand how applying the Lean methodology to HR practices can make a process robust and sustainable. Nike has applied these principles to its core and

has yielded results. They have not only been able to maintain customer satisfaction but also satisfaction of their own employees. Safety in a Nike factory today doesn’t only mean maintaining a hazardless working environment but also reducing hazards for the nature. Reducing wastes has not only increased production efficiency but also reduced the effluents making the organization greener in terms of work culture. Although there is still scope of improvement as lean methodologies implementation is a never ending process. We must remember that although adaptation of Six sigma processes are efficient in reducing defects, reducing defects more that a certain limit won’t be economically viable. But lean implementation is not only a process of reducing wastes only by using better efficiency measures in the process but also methods of making the people realize the advantages of using better processes. This seldom results is higher economic expenses and the gains made are far greater, both economically and socially. So, Nike should continue its focus on continuous improvements in terms of engaging its manpower in HR friendly practices, reducing professional conflicts and making lean a norm of work. Further the vendor system should undergo a stricter evaluation schedule, where it is ensured that all workmen follow the system and ever changing norms without stress and the practices make the workplace smoother to function and hazardless. Innovation is at the root of the work culture for Nike, so the same must be continued and the innovators must be counseled regularly to make them aware regarding the environmental and customer satisfaction parameters being met by their work. This will keep Nike ahead in the game and will enable it to maintain the numeruno position in the apparel industry. References:

1. http://www.nikeresponsibility.com/report/content/chapter/manufacturing/evergreen

2. http://www.shmula.com/nike-lean-manufacturing-example-good-policy-deployment/13755/

3. http://www.mckinsey.com/business-functions/operations/our-insights/next-frontiers-for-lean

4. Integration, Incentives and Innovation Nike’s Strategy to Improve Social and Environmental Conditions in its Global Supply Chain:- Stanford Initiative for the Study of Supply Chain Responsibility (SISSCR).

5. Sobral, Maíra Clara; Sousa Jabbour, Ana Beatriz Lopes de; Chiappetta Jabbour, Charbel

José. Environmental Quality Management. Spring2013, Vol. 22 Issue 3, p65-72. ‘Green Benefits From Adopting Lean Manufacturing’.

6. THE MANAGEMENT PROCESSES: UTILIZING LEAN THINKING AND SIX SIGMA [6σ]

TECHNIQUE EDUCATION IN SUSTAINABLE METHODS, Dustin Bessette Marylhurst University, USA

7. International Journal of Production Research, 2014 Vol. 52, No. 15, 4623–4645,

Topic: Method for assessing human resources management practices and organisational learning factors in a company under lean manufacturing implementation Guilherme Luz Tortorella* and Flávio Sanson Fogliatto”.

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