CENTRALIZED DISTRIBUTION AT NIKE

Table of Contents

  1. Reasons Nike, with centralized distribution would choose to ship some products directly to customers not through the distribution center. 3
  2. Reasons to start satellite centers when a company such as Nike has a centralized distribution center. 5
  3. Pros and Cons of locating material handling operations such as labeling and packing in a distribution center as opposed to in a factory 7
  4. Pros and cons for a company such as Nike to take on these materials handling services as opposed to leaving them to retail customers 9
  5. Conclusion 11
    References 12

Centralized Distribution at Nike

In a multiple retailing operation, centralized distribution refers to a means of organizing how products are received from suppliers and delivered to individual branches. What this means is that there may be different suppliers. These suppliers deliver their products to a single centralized place, from where the product is distributed to other branches. As a result, the suppliers do not have to go to each branch (Kohn and Brodin, 2008). Nike is a company with a company with such a distribution strategy. Usually, the company distributes goods to customers through the distribution center. However, given the nature of the demand of the products that Nike distributes, some distribution options would be worth considering for the company. Some of these will be addressed and discussed below

Reasons Nike, with centralized distribution would choose to ship some products directly to customers not through the distribution center.

Nike currently works through its central distribution center that is found in Belgium. This center employs about 3000 employees (Euro supply chain, 2016). In addition, Nike also sells products to wholesalers in the United States and other international markets. At times, the company sells directly to customers. These includes in line sales and factory retail outlets. One of the reasons Nike would choose to do this is that selling directly to customers provide higher margins when compared to selling to wholesalers (Press et al, n.d). This is mainly because, selling directly to customers means that the company receives a fair share of the demand for the products that they have created. Customers may choose to engage a company directly, if the advertising has been done right. This is one of the ways in which demand is created (Staff, 2016). If Nike is able to offer a way for these customers to buy directly from the company without having to go through the distribution centers. This could also be because distribution centers may store the product until there is demand for it, for example shoes waiting for a particular season. Selling directly to customers means that the product is always available to the customers and hence the demand tends to increase for the product.

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Nike could also decide to sell directly to customers instead of through the distribution center in order to generate more demand for the product that they are selling. This can mainly be done through online reaching directly to customers. An example of how this could work is if the customer wanted a pair of shoes that could be used for basketball. If Nike has an online presence, it could be more possible for the person to buy the brand. If the pair of shoed serves the customer well, word is likely to spread among the person’s friends who have the same interest. At the same time, the person is likely to come back to the same company for other needs including clothing. This strategy could also work on the offline side of the business. This is an example of how selling and reaching out directly could increase the demand for the product.

Another reason to sell directly to customers is so that the company can gain a power balance with retail sellers. Usually, retailers have no incentives to promote one brand over another. In the case of Nike for example, it is possible that a retailer would supply products from other companies that are similar or supplementary to what Nike is offering but are from other companies. Nike, therefore, should seek a way to make sure that there is great connection with the retailers. This could be done through partnerships or offering reliable and friendly terms. This way, the company would benefit by having their product promoted over all other products. In addition, the retail shop would be lucky to have a constant supply of the goods that Nike is offering. This creates a win-win situation for both companies. It also makes sure that the customers, who are the main consideration here, get their products from their favorite retail stores and in time. This is mainly done by making sure that the prices of products and the shipping costs viable. This way, the retailer can make the customers buy the products at comfortable prices.

Finally, Nike would decide to reach out directly to customers in order to be in direct communication with them. Communication is one of the key elements in the success of a product. By establishing direct connection to the customers, the company would make it easier for itself to receive feedback from the customers. This way, they can know what aspects of their products to improve, and which ones to highlight. This one thing is hard to establish if the company decides to use a distribution center. Another advantage is that the consumers can be educated with ease in case of a new product. Sometimes, the company may require making a product available where the technique for using it was not previously available. Through direct selling, whether online or offline, the company can employ people to educate the customers on the use of such a product. With such education, the customers are better able to appreciate the value of a certain product (Staff, 2016). Communication is also a good marketing tool and Nike would find that useful. In order to make the most of this, it is advisable that Nike provides a simple way in which customers can give feedback. Secondly, a thorough revision of the feedback provided by the customers would be necessary.

Reasons to start satellite centers when a company such as Nike has a centralized distribution center.

Satellite centers are other distribution centers for a company, aside from the main distribution center. These centers are usually as a result of a number of things. One of the main reasons why these may be put in place is if the company finds that the demand for goods is increasing. This could lead to other factors as will be discussed below.
As the demand for the products increases, the company may be forced to hire more employees in order to make the distribution of the products that are being offered faster. At the main distribution center, the capacity for the employees could easily become full. With increased demand, there would be a need for the company to sell more products, hence hire more people with limited space. There are two ways that Nike could solve this. One is to refuse to hire any new applicants (Anon, n.d). This is because it is far better for the existing workers to work in enough space. However, this poses a few disadvantages. One is that the workers could be overworked thereby reducing their overall productivity. Another is that the demand in the market may not be met by these few workers. One way to solve this problem would be by setting up satellite distribution centers in areas where the demand for the products is high. An example of an ideal place to set up this kind of thing would be at a university or near a high school. These places are more likely to engage in sports hence need a constant supply of sports gear which Nike can easily provide.

With the need being there to expand and bring the goods closer to people. Nike would consider satellite centers if the company could find favorable centers. The company is currently located in Europe. The demand for their products is however strong in America. Nike could consider operating in an area that has a fair tax policy. In such an area, it would be required that Nike pays a certain amount of money to the government (Anon, n.d). The area would also have to favorable in terms of the buildings and the cost of building there. In addition, it would have to generate enough income for the company, while at the same time offering enough in terms of labor from the people around.
Another reason from this decision would be the need to move away from the tradition and enhance new business practices. Nike would consider having new business ideas if the old ones are outdated. It would also be a way of keeping up with the competitors, especially if they are located in areas that the company would like to expand to. Additionally, the company could want to change the structure of the architecture. Since it is difficult to do a makeover at the centralized distribution center, the more viable option would be to set up a satellite center. One or two with the required design would suffice (Anon, 2011). These centers would then be a way for the company to make sure that the customers get the most of the company. In addition, there would be employment opportunities for the local people at the place where the company is set up. The company would now be free to do the architecture in their most desirable way, and incorporate new, better and improved technology into their business.

Pros and Cons of locating material handling operations such as labeling and packing in a distribution center as opposed to in a factory

Every decision in a business is made after having considered the pros and cons of the decisions. In the case of Nike for example, the decision of having the company rely on distribution center was made due to a number of advantages over others. The options for Nike were to sell directly to customers, to use a distribution center or to use retail stores. The company opted for a distribution center. This decision included some operations such as labeling and packaging. The advantages and disadvantages of these services will be discussed below.

One of the advantages of a distribution center is that the center will offer value added services to the product. A factory only considers the final product and its storage. This is not the case with a distribution center. It will offer value added services such as transportation, order fulfillment among other things. Labeling and packaging are all part of these value addition services. It would thus be easier for a distribution center to carry them out. In addition to all this, a distribution center can easily respond to customer complain or positive feedback when compared to a factory.
Another advantage of a distribution center over the factory is that a distribution center is more focused on the customer. Usually, it will focus on providing the best goods and services to the customer. This is why Nike, for example, would go for it since they can get feedback and improve on the service. A factory is more focused on the manufacturing process. It will attempt to find the most cost effective way to do something. In addition, it will also attempt to try to save on space, or ignore some services that would boost the product ad make it more appealing to the customer. A distribution center has only one main mission, to provide the best goods and services to the customer (Lie, Lei and Park, 2008)

A distribution center, compared to a factory, would be more technologically driven for the services listed above. Labeling and packaging could benefit from more technology. The services would easily be available and would be faster if the technology is more efficient. There would also be less need for human labor. At the factory, the technology would be more inclined towards production. It is thus easy for the factory to ignore vital services that could be beneficial to the customers and to the company as a whole (Lie, Lei and Park, 2008).

Some of the disadvantages include the fact that setting a different building from the factory would be more expensive in both the short and the long run. This means that the company would be acquiring more charges as opposed to having all the services that the company offers provided at the factory. They would also require more people, which means more expertise and hence greater costs and this could be expensive (Lie, Lei and Park, 2008).

Another disadvantage is that unlike direct selling to customers, would experience some delay in delivering. There is usually a waiting period at the distribution center during which customers cannot get the product directly from the company even if it has been already manufactured. This waiting period could easily be marked as inefficiency on the side of the distribution center (Lie, Lei and Park, 2008).

Pros and cons for a company such as Nike to take on these materials handling services as opposed to leaving them to retail customers

Material handling attracts some advantages and disadvantages. One of the advantages is that by handling these services, the company can save on costs. Usually, the company will use the technology that uses already existing materials. In the long run, the company will save on the costs while making the most of the technology. The company can also take advantage of the knowledge that is available to them from people in different fields working for the company. For example, some workers provide technical skills, others provide financial skills, yet others provide logistical skills (Anon, 2010). Bringing all these skills into one central place is a way of making sure that the products that are coming from the company are of the highest quality and that customers will be pleased. If this were done by the retail customers, it would be impossible to monitor the kind of skill that is either present or lacking at the each of the retail distribution centers.

Another advantage is in the fact that if materials are planned by the company, there is an easier way to make an inventory for the company. This means that the company could easily store their goods at a regional distribution center just before the demand begins. However, as compared to having retail tasks where the company would rely on the data that is provided by the warehouse, there is a bit of a disadvantage (Hall, 2014). The company can no longer calculate all the costs and make inventories as easily as the distribution center also handles other tasks that the company.

Another advantage is that a distribution center that is handled by the company offers more centralized training and administrative roles to the people that it employs. This could have been difficult if the material was to be handled by individual retail stores. The company can monitor the skill levels of the employees that it has much more easily when there is a centralized straining system. In addition, the company can organize all the required equipment and technology in such a way that the company would only use similar computer software for things like conveyer belts (Anon, 2010). If the company is setting up new distribution centers, these skills can be transferred to the new centers without the need for extra training or supervision. An additional advantage is that administrators can now focus better on their administrative roles concerning materials since all the workers are at a central location.

Distribution centers are centers that encourage innovation from the workers. If a person comes up with a system that shows potential increase in the company’s productivity, it is more likely to be widely accepted than if the service is only confined to one location in the retail stores. If the innovation is technological, it is also more likely to benefit all the workers as they can learn from the central location (Anon, 2010). This is one of the advantages of a centralized distribution center as compared to a distribution that involves many retail stores.

There are however, some discouragements to innovation. One of them is that the company only encourages innovation that conforms to the already available materials and standards. Innovation that does not fit into this description could easily be turned down even if it could be beneficial to the company (Anon, 2010). For example, for Nike, if the innovation is a way to make shoes better and more fitting but the material is unavailable, then Nike would try to get ways to discourage it. The company may end up losing on the good technology if it does not conform to the set standards.

Distribution centers are also ways for the company to set up standardized goods. They also make the management of materials easy. This is one of the things that eventually, set Nike apart from all other companies that manufacture the same products. For example, the Nike logo is usually associated with the company and its quality product. Due to the centralization of the company, it has been able to make sure that the company has a patent on the logo and that only it can provide goods with that kind of logo (Anon, 2010). This is one of the ways of making sure that company is only associated with quality products. It acts as a good marketing strategy at a less cost than it would accrue if the company relied on other service providers.

Conclusion

In conclusion, the case of Nike has been discussed. Most of the discussion points revolve around the use of centralized distribution for the company. Under this, various factors that affect have been discussed in terms of their advantages and disadvantages. For example, why Nike would chose direct shipping when it has a strong distribution center. It has been seen that this could happen if the company finds it necessary to lower the time it takes. For example if there is a high demand for the product of the time. The advantages of a centralized material place in the distribution center instead of different ones at retail stores have also been discussed. One of the clear disadvantages is the discouragement on innovation. Comparisons have been made between a distribution center and a warehouse. From this, it is quite clear that a distribution center is better. The expansions of Nike have been mentioned as a factor that would motivate a change in the distribution of the products that Nike has. All this, are in the supply chain and logistics center for Nike and are worth considering.

References

Anon, n.d. Business continuity management. Guidance on supply Chain continuity
Anon, 2011 Current thinking On Supply Chain Strategy. Supply Chain as Strategic Asset the Key top reaching Business Goals, pp. 105-108
Anon, 2010 Material- Handling improvements. Berk/Cost suction and Optimization for Manufacturing and Industrial Companies, pp160-165
Hall, N.G., 2014. The inventory packing problem. Naval Research logistics 6(4) pp. 339-418
Kohn, C and Brodin, M (2008) Centralized distribution systems and the environment. How increased transport work can decrease the environmental impact of logistics. International Journal of Logistics Research and Applications 11(3), pp. 229-245
Nike opens a sustainable distribution center in Belgium. [Online] euro Supply Chain Jobs. Available at http://www.eurosupplychainjobs.com/news/nike-opens-a-sustainable-distribution-centre-in-belgium-5934 [accessed 24 Sept 2016]
Liu, S., Lei, L. and Park, S., 2008. On the multi-product packing delivery problem with a fixed route. Transportation research Part E logistics and Transportation Review, 44(3) pp. 350-360
Press, T. A., Oregonian/OregonLive (2016) Sports Apparel and equipment news. Available at: <http://www.oregonlivw.com/playbooks-profits/ [accessed 24 Sept. 2016)
Staff, E., 2016. Distribution Models [online] Entrepreneur. Available at www.entrepreneur.com/encyclopediamodels [accessed 24 Sept. 2016)

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