How (and Why) Nike Recovered from Its Supply Chain Diaster

Too many Air Garnetts. Too few Air Jordans. Nike lost money, time and a measure of pride when its demand-planning software led it astray. How did it recover? Patience, perseverance and, most important, an understanding of what it was trying to accomplish in the first place

READER ROI

• The limitations of demand-planning software
• How a robust business plan can insulate tech execs from blame
• Single-instance strategies in a global environment

"I thought we weren't going to talk about i2," growls Roland Wolfram, Nike's vice president of global operations and technology, his eyes flashing at his PR manager with ill-concealed ire.

Wolfram, who was promoted in April to vice president and general manager of the Asia-Pacific division, is all Nike. His complexion is ruddy, his lips cracked from working out or working hard, or both. He's casually dressed, but with a typical Nike sharpness to his turtleneck and slacks, a sharpness reflected also in his urgent, aggressive defence of his company - a Nike pride that would seem arrogant were not the company so dominant in its industry.

Wolfram calls the i2 problem - a software glitch that cost Nike more than $US100 million in lost sales, depressed its stock price by 20 percent, triggered a flurry of class-action lawsuits, and caused its chairman, president and CEO, Phil Knight, to lament famously: "This is what you get for $US400 million, huh?" - a "speed bump". Some speed bump. In the athletic footwear business, only Nike, with a 32 percent worldwide market share (almost double Adidas, its nearest rival) and a $US20 billion market cap that's more than the rest of the manufacturers and retailers in the industry combined, could afford to talk about $US100 million like that.

It drives Wolfram crazy that while the rest of the world knows his company for its swooshbuckling marketing and its association with the world's most famous athletes, the IT world thinks of Nike as the company that screwed up its supply chain - specifically, the i2 demand-planning engine that, in 2000, spat out orders for thousands more Air Garnett sneakers than the market had appetite for and called for thousands fewer Air Jordans than were needed.

"For the people who follow this sort of thing, we became a poster child [for failed implementations]," Wolfram says.

But there was a lesson too for people who do, in fact, follow "this sort of thing", specifically CIOs. The lesson of Nike's failure and subsequent rebound lies in the fact that it had a business plan that was widely understood and accepted at every level of the company. Given that, and the resiliency it afforded the company, in the end the i2 failure turned out to be, indeed, just a "speed bump".