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Key Topics
Requirement
Application of Lean Principles in Manufacturing and its benefits
Solution
Summary
Manufacturing process and service designing are the two toughest challenges for the entrepreneurs in today’s competitive environment. As the concept of marketing has changed from production and product to holistic approach (the approach of marketing that considers quality, customer, supplier and other stakeholder, environment and society), the manufacturing and service units have to find suitable process or designing that will meet the present expectation. To be successful in the long run, the organizations have to consider all those factors that has direct and indirect effect on its product and service delivery. These factors are Cost, Quality, flexibility, environmental sustainability, regulations, units of output etc. [Nike Inc. 2018].
In this report, I am going to discuss how these factors have influence on manufacturing process by taking an example to explain it properly. For the purpose of explanation, I have selected NIKE Inc. I will try to explain each of the above mentioned factors influence on manufacturing of Nike shoes.
In addition to that, I will explain the concept of Lean Manufacturing system and its effectiveness in manufacturing system which results minimization of cost and achieving the desired output using the Nike manufacturing system as to support my points.
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NIKE Shoe production system
Before we look into the factors impacting production system, it is important to know about the shoe manufacturing of Nike Inc.
Nike Inc. follows Cold Cement (A production process of shoe making where there is no requirement of upper to the outsole attached doesn’t required upper placed into an oven) production process. The reason behind using this process is to make athletic shoes for better performance. [Mittal, N., 2013.]
The shoe upper layer is prepared with the Strobel bottom. The upper is steamed to make it soft and the Last is inserted and pulled tight. After that a second lasting machine pulls the heel edge. Once the last fixed inside the upper and temporary laces are pulled tight, the upper layer is cooled to shrink the upper tight to the last. The shoe may carry plastic or fabric installed on top of tongue (Shoe tongue means pads on top of the foot) which protects surface from damage in the lasting operation. At least sheet sole is fixed using EVA foam. Here the skilled workers by using hand join the lower and the upper after the heating treatment done in earlier phase. The workers put the shoes next in a hydraulic press. The pressing takes place in 3 ways which are vertical press, heel and toe press and finally side press. After all these glue is put to move towards final touch. At last a shoe de-lasting machine pushes the last out of the shoes without crinkling the upper.
Factors
Cost- A business organization always wants to keep the revenue and profit higher again and again not just to fill the pockets of executives but to cover the expenses, make investments in opportunities and contribute towards society development. This can be possible when the organization is able to minimise its cost. Nike has global operations which produces almost 900 million units per year. The cost of production is the key factor that influences the price much but What Nike does is outsourcing of the production or operation activity. It has not own factories which helps to the company to cover up 88% of its revenue.
The operational strategy of outsourcing gives multiple advantages of costing of the shoes. These can be- There is less requirement of Nike to make capital investments in machines and equipment. They don’t need to spend huge money on the workforce and also to the outsourcing units as most of them were paid on fixed term basis. Making shoes in different markets like China, Indonesia, Vietnam, Philippines, Taiwan etc. helps in producing shoes at lower cost due to availability of material and technology and less transportation cost. The only cost that Nike has to incur in the production process is about designing the shoes and the cost of R&D. Even the risk of financial loss is shared among the outsourcing units to reduce burden on its cost of production. If we look at the cost sheet of the Nike shoe then we can find that the Factory FOB cost comes around $25 per shoe which later after inclusion of duty, taxes, insurance etc. takes it to $28.50. They add 43% as mark up to set price of shoe $100. This means, Nike’s actual factory cost is only ¼ of its total cost of shoe while its margin is around 2 times to actual cost. This is the way they are able to manage cost and also do variation in pricing to be competitive in market. [Lewontin, M., 2016.]
Another way Nike is managed to save its cost is reduction in number of vendors for the supply of materials. They have also reduced number of material used in making shoes. This cost reduction is possible with long term contracts with the suppliers and use of specific material through bulk purchasing. Even continues efforts to reduce wastage and increase productivity of labour force is helping Nike to have a cost focused strategy.
Quality- Reduction of cost is not sufficient to justify efficient manufacturing process, it is the quality of output that signifies it. After minimization of cost, the next challenge comes for retaining superior quality of the product. Manufacturing units try to bring that into reality what the customers are looking for and this is defining quality. How does Nike deal with Quality?
It is the Total Quality Management or TQM that does the work for quality control and enhancing the quality of shoes for better customer responses. It is the set of principles that aims at reducing errors in manufacturing, eliminate waste, increase in customer satisfaction, smoothen logistics and guaranteed high level of training to workforce. [Burgess-Johnson, S., 2018]
For Nike quality means a combination of functionality, durability, appearance, reliability, recovery and contact. These all it achieves from its Design Management system. The Nike R&D works on robust designing, modular designing, Computer Aided Designing (CAD), value chain and environmental friendly designing to ensure quality. The team works on the forecasted result of market considering the eco-friendly design, water scarcity, less wastage etc. These days Nike is using recycling strategy under the concept of Green Manufacturing. Even Nike uses only Environmentally Preferred Material (EPM) to create sustainable products. Flyknit shoe can be taken as a good example of Quality Management by Nike.
Nike’s compliance rating system- from A to D which consists of Management Audit, SHAPE audit, Fair labour association audit and factory visits are the contributors to its TQM program.
Flexibility- Today’s business environment requires Dynamism in the production system and service designing as the taste and preferences of customer is changing at a faster rate. Flexibility in manufacturing is the ease of making changes in the production process according to the requirement without hampering the quality of the product. The flexibility can come in use of material, shape of product to the methods of production depending on the circumstances. Especially in manufacturing bringing flexibility is not an easy task as it involves huge cost and unlearning-relearning process to execute the flexibility in action. Nike deals with Sports and Fitness industry where day by day things are changing and people are looking for better performance of shoes to increase their productivity. So it is important for Nike to have a flexible manufacturing system to go side by side with the trend.
The partnership with Flex is an example of how Nike brought flexibility into act. After the partnership with Flex, Nike is constantly trying to identify the ways to reduce the amount of material and labour needed to make high performance, customization in footwear and speedy delivery. For ex- With use of labour cutting, Nike is able to create 20-30 parts of a typical shoe. If a shoe comes in size-10, the standard production involves at least 200 pieces of each shoes. When Nike faced trouble with soft fabrics, it came with a process which allows the leaser cuts in whatever pattern is needed. [Boyle, G., 2017]
Environmental Sustainability- The need of saving the ecology and biodiversity has been a major issue for the business organizations. The current business environment demands the organization to use the method of production that will have the least adverse impact on environment. How Nike does it?
Mark Parker (President and CEO of Nike Inc.) once said that creating a single line of green products is not possible, sustainability can be achieved through a design ethos across all the products. Nike has been continuously trying to figure out the areas where it can bring environmental sustainability. Reducing the wastage, use of renewable energy, disrupt thinking of water and chemical use and recycling of products are some of the solutions it has got in the mean process. According to the Official report of Nike, in FY15, they are able to convert 54 million pounds of factory scrap into premium material to be used in Footwear. In shoe manufacturing, it has achieved, 92% of total waste from landfills and incineration diversion without energy recovery. The use of renewable energy makes the Nike units to use only half the energy and emission to make a pair of shoes than it was 8years ago. Water uses has been reduced by 43% on shoe making and 95% of material passes through restricted substantial list testing. In 71% of cases, recycled material is used to make shoes. [Kamal, M.M et.al2017]
Regulations- Manufacturing process is now a days governed by different governing bodies to ensure Corporate Governance. They have the influence of setting operations and service designing. The influence can be on choice of facility, layout of manufacturing, environmental impacts, specific quality standards etc. For Nike also there are a long list of rules, regulations and compliances which it takes into consideration to set up for the manufacturing of shoes. These can be-
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Product safety- It is the General Product Safety Directive-A set of rules which ensures the safety of use.
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Chemical restricted substances- The chemical substances used in the shoes must not harm customer nor should it pollute environment. There is a prescribed limit to use all these substances as mentioned in REACH regulations.
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Labelling of footwear- All footwear must be labelled with information about material used in the shoe. For ex- Tour label must indicate whether material is leather or coated leather or textile or any other.
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Intellectual property right- This is applied to a certain design, sign, symbol of Nike that describes the exclusivity of design and material. [Zhan, W et.al2018]
There are many other such factors under this category like use of wild plants and animals, fair wages, improved working conditions, child labour, building safety, eco-labels etc.
Units of output- The quantity of products the organization manufactures also determines the choice of appropriate manufacturing process. Nike is producing varieties of footwear thus it is obvious that the manufacturing process of each varies accordingly.
Earlier Nike used to use new materials for making a pair of shoes and this continued over a longer period of time. Nike slowly realised that every time using new material is increasing the cost of production and also increasing CO2 emission which is affecting environment. When the demand of sports shoe started rising due to increasing awareness of healthcare and fitness, it has to change the method of production method by introducing using old pair of shoes to make new pairs. The company started utilizing the waste material to make the new pairs [almost in 71% of total new shoes making] the company even stopped buying carbon offset. It started focusing on its own emission by eliminating all wastage in manufacturing using a closed loop. [Kim, S.S.,et.al2003]
They also introduced the Robots and Cobots system (A mix of robots and human working method) in the factories to increase the rate of output and minimising the errors and wastage. Overall, it is the innovative role of the workers, innovative role of technology and finally call to action approach that is helping Nike to redefining and reengineering the manufacturing process.
Nike Lean Manufacturing and its benefits
Nike applied Lean Manufacturing system after its controversies over sweatshop problem. Since then Nike has been successfully doing business with good results. Nike has always given preference to Innovation and doing better always. Bringing Lean Manufacturing into manufacturing process was one of such step taken.
The aim of Lean system in Nike are- I. Make today better and II. Design better future. With the motive, it set the target to provide the best possible working condition, reduction in wastage, retaining the quality output and smoothening the production process with lean system.
Quality begins at supplier source- Nike made contractual partnership with suppliers which are kept limited and all material checking at source were done by Nike to use it in production. Lean helped Nike to find suitable partners by reducing the time consumption by 38%.
The Nike team viewed that Lean manufacturing brought sustainability in their manufacturing. For them Lean become continues improvement business system that aims at philosophy of high quality product while eliminating waste including loss time and material. Lean has brought physical changes I production process like introducing Cool cemetery for making shoes, increase in leadership capability and development of empowerment workforce. [Zangiacomi, A.,et.al2017]
Conclusion
Nike has achieved some good results by applying Lean manufacturing into its manufacturing process. The company is going to get even better results if it continuously apply Lean + Agile+ TQM + Kanban system in the production process. Lean is not an end itself, it is just an approach towards innovative thinking and doing something extraordinary.
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