This document contains nothing interesting at all.

Background
In February 2001 Nike, Inc. announced that it would miss sales and profit target
s for the quarter due to problems with supply chain software it had begun to imp
lement the previous year. The company said that it had experienced unforeseen co
mplications with the demand and supply planning software that would result in $1
00 million in lost sales.
Nike was trying to put in a system that would cut its response time to changing
sales demand. These types of systems rely on algorithms and models that use hist
orical sales data combined with human input to generate a sales forecast, which
is then converted to a manufacturing plan and orders for raw materials from supp
liers. It s not easy to set up and successfully run these applications to produce
optimal results. The process demands a lot of trial and error, testing, and runn
ing in parallel with the old system to shake out bugs.
As reported by CNET News Melanie Austria Farmer and Erich Leuning, SAP spokesman
Bill Wohl, reflecting on Nike s dilemma, said at the time, What we know about a sof
tware implementation project is that it s just not about turning on the software.
These projects often involve really wrenching changes in a company s business proc
ess It involves changes in the way employees work, and anytime you make changes in
the way employees are used to working, it can get difficult.
Nike is in the apparel business, where styles come and go, and where advertising
and promotional programs can spike demand, requiring the supply chain to react
just in time, delivering to the market just the right amount of each style. An o
versupply of shoes or other apparel will lead to discounting and reduced profits
, and an undersupply will lead to lost sales. Nike ran into both of these scenar
ios, and its profit dropped while sales declined, resulting in the $100 million
unfavorable financial impact to the company.
Inside the logic of the software Nike chose, parameters and settings must be opt
imally set for the most efficient quantities to be produced and distributed to t
he market. It s very easy to get it wrong, and companies launching this type of ap
plication usually run a pilot for several months before they are satisfied with
the recommended production and distribution plans generated by the software.
Much has been written about Nike s experience, and much of it is valuable for any
enterprise thinking about a similar project. Keep in mind, though, that this was
a public spat, and both the software firm and Nike told their own version of th
e story for the public record. That means we don t have all the facts. Nonetheless
, I think there are valuable lessons in the Nike story, and at the risk of not g
etting all the facts right, I present my conclusions more to help you learn and
succeed than to cast blame on any of the Nike project participants.
Key Points
Here is what I think were the main issues in the Nike project:
Complexity of the application without commensurate resources applied to making i
t work. Christopher Koch, writing in CIO Magazine at the time, said If there was
a strategic failure in Nike s supply chain project, it was that Nike had bought in
to software designed to crystal ball demand. Throwing a bunch of historical sal
es numbers into a program and waiting for a magic number to emerge from the algo
rithm the basic concept behind demand-planning software doesn t work well anywhere
, and in this case didn t even support Nike s business model. Nike depends upon tigh
tly controlling the athletic footwear supply chain and getting retailers to comm
it to orders far in advance. There s not much room for a crystal ball in that scen
ario.
I don t fully agree with this assessment; I think demand forecasting systems are c
ritical to modern businesses, and if configured and used correctly, bring many b
enefits. Other reports said Nike didn t use the software firm s methodology, and if
true, this would greatly contribute to its troubles. I have implemented these sy
stems and they require precise attention to dozens of settings and flags, pristi
nely accurate data, and the flawless sequential overnight execution of sometimes
30 or more heuristic calculations in order to produce a demand forecast and a r
ecommended production and raw material supply plan.
It s also critical with these types of applications to have the right subject matt
er experts and the best system users in your company on the team dedicated to ma
king the system work the right way for your business. This is where, if publishe
d reports are true, I believe Nike may have failed. It is possible Nike simply n
eeded more in-house, user-driven expertise, and more time to master the intricac
ies of the demand planning application.
In 2003 I ran an ERP project that included an overhaul of supply chain systems.
The suite included demand and supply planning solution software, which we would
use to forecast demand, generate a production and raw materials supply plan, and
determine the plan for supplying product from plants to distribution centers. U
nfortunately the best system users declined to be part of the team due to heavy
travel requirements, and we had multiple problems getting the parameters right.
The supply chain suffered after launch as incorrect production and distribution
plans disrupted the business for several months.
Combining a maintenance-heavy, complex application with an organization unwillin
g or unable to meet the challenge is one way to find the money pit.
A big bang approach to the launch without sufficient testing. Despite prevailing w
isdom and suggestions by veterans that Nike phase in the new application, Nike c
hose to implement it all at once. This immediately put at risk a large portion o
f the Nike business. A phased approach would have limited the potential damage i
f things went wrong.
A case study of the project published by Pearson Education discusses this point:
Jennifer Tejada, i2 s vice president of marketing, said her company always urges i
ts customers to deploy the system in stages, but Nike went live to thousands of
suppliers and distributors simultaneously
The study also quotes Lee Geishecker, an analyst at Gartner, Inc., who said Nike
went live a little more than a year after launching the project, yet this large
a project customarily takes two years, and the system is often deployed in stage
s.
Brent Thrill, an analyst at Credit Suisse First Boston, sent a note to his clien
ts saying that because of the complexities he would not have been surprised if t
o test the system Nike had run it for three years while keeping the older system
running. According to Larry Lapide, a research analyst at AMR and a supply chai
n expert, whenever you put software in, you don t go big-bang and you don t go into p
roduction right away. Usually you get these bugs worked out . . . before it goes
live across the whole business.
I can understand that Nike would want to convert a large portion of its business
and supplier base at the same time. It reduces the length of the implementation
and therefore the cost of maintaining consultants and support staff, and it eli
minates the need for temporary interfaces to existing systems.
But a smart move might have been to launch and stabilize the demand planning por
tion of the software first. It s easy for me to second guess, but Nike could have
taken the forecast generated by the new system and entered it manually into thei
r existing, or legacy systems. After all, if the forecast is wrong, then everythin
g downstream the production, raw material, and distribution plan are also wrong.
I did this on two projects, and it significantly reduced risk. On both projects
we launched the demand planning (DP) application and ran it in parallel with ou
r legacy system until we were satisfied with the results, then we disengaged the
legacy DP application and began manually keying the new system s DP forecast into
our legacy production, raw material, and distribution planning software.