The future of the supply chain: Nike, near-shoring and its new technology

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Well, Nike must be worried. The sportswear company needed a Holland win against Germany in last night’s Euro 2012 championships. As Peter Best, Nike’s EMEA transportation and customs director, told delegates at the TOC Container Supply Chain Europe conference in Antwerp: “We are sponsoring the Dutch. And if they don’t win tonight we will have some serious inventory exposure.”

Nike’s supply chain, and its emphasis on sustainability – along with its aim to cut emissions – has been well-reported. But it goes far deeper than merely calculating the carbon cost and asking its transport providers to try to cut emissions. No, this is a company well ahead of the curve in sustainability. And there’s a lot other companies can learn from it. If its vision of the future comes to pass, then logistics providers seriously need to take note. It could change everything.

Best set the scene by asking: “What’s the best supply chain for baked goods?” The response? “An emailed recipe.” He also indicated how Nike sees the future with the statement that “the best freight is no freight”.

But let’s start at the beginning. As part of its CSR programme, Nike’s slogan is “better world”. Working with Damco, Nike set out to understand, and ultimately calculate, its carbon footprint. It worked first on the inbound flows, and is now applying the same techniques to its outbound.

“We don’t buy or own our own trucks and transport, but we need to do the right things. Our key objective is not to ship empty volumes. We don’t want to ship more than what is necessary.”

One way of doing this, of course, is by near-shoring. Best pointed to the example of a new shoe (pictured above) that Nike has recently developed, the FlyKnit. Made in the same way that a sock is, it’s effectively a technical product ie, produced not through labour, but through technology. Best acknowledged that Nike has, in the past, moved its production to wherever the cheapest labour is. But through the use of technology in manufacturing, it will be able to near-shore much more effectively.

“We have a source choice,” he said. “We typically source in lower wage economies. But we can now balance our supply chain around the globe. We want short supply lines. It will minimise our freight bill.”

This isn’t simply a question of opening up factories in the US or Mexico, as near-shoring has come to imply. As a global company, seeing global demand for its products, Nike plans to manufacture near its consumers, wherever they are. “China is a growing consumer economy, and we need to reflect that.” It will be a future of “round trip products, a closed loop”. Best believes that 3D printing could well be an answer.

That of course is still some way off. Best said Nike wouldn’t necessarily be near-shoring straight away, but it is trying to match consumer demand and its manufacturing base.

There will of course, still be freight. But that freight must be used in the most efficient way possible. Nike discovered that packaging makes up 22% of the waste in its value chain. So it has been reducing the packaging weight of its boxes while retaining the function. In that way, Best pointed out, the company can fit more shoes into a container. “Rethinking the box” is how Nike puts it.

Nike’s aim is to minimise volumes while maximising speed. It wants a “lean and mean” supply chain, and it is prepared to invest in it.

It’s not something that every company will either have the desire or the will to achieve. Best noted that it had taken some serious corporate leadership and guidance simply to attain its measuring system, and to work out the drivers. “What are our fill rates? What are the opportunities to optimise those?” he asked. “We have to try to fill the containers, and the vessels.”

And, while it still relies on freight, what of Nike’s procurement? How can transport providers get these dwindling volumes? “We need to work with people who are actively implementing clean cargo,” said Best. In answer to a question from a logistics manager at Nestle, Best added that Nike had embodied its sustainable ambitions into its RFQs, and that providers needed to complement Nike’s measuring system.

It sounds, however, as if transport providers have some way to go before they meet Nike’s high standards. Alan Murphy, COO of SeaIntel, spoke about how the company had decided to assess carriers’ environmental credentials. So he asked 20 carriers where they thought they were on a list of the top 20. All but two, both of which were Chinese, incidentally, put themselves in the top 3 or top 5. He also revealed that the so-called carbon calculators offered by some logistics companies were nothing of the sort. “We tracked two boxes on the same vessel, using different carbon calculators but which used the same methodology. And we found a difference of 300%.

“Carriers want to show that they care about the environment. But to find out if they actually do, you need to find out if their sustainability department is part of their operations department, or a subset of the marketing department.”

Carriers be warned: your customers want to see a real, sustainable strategy.