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Nike Lean Manufacturing: An Example of Good Policy Deployment

By OpEx Learning Team , Last Updated May 29, 2014

I was invited to the Nike Headquarters several months ago, where I met with most of the leadership team of the Nike.com business unit, which is the business unit tasked with growing their direct-to-consumer business. I was very, very impressed to see their commitment to Lean and was pleasantly surprised at how far up and how deeply down the commitment to Lean is at Nike. This article will provide an overview of Nike Lean Manufacturing , the business units involved, their use of Hoshin Kanri , and how they are tracking progress thus far.

But, wait, real quick here’s a picture of my waiting in the lobby – that’s my water bottle and notebook on the table. . .and, as a side note, the day I was at the Nike Campus, Kobe Bryant was in the cafeteria hanging out. I didn’t get a picture with him, but I could have thrown my bowl of Thai Noodles at him – he was that close.

Reputation Management to Innovation Opportunity

Nike’s manufacturing footprint is huge. As of this writing, they have manufacturing contracts with over 785 factories, across India, Vietnam, Philippines, and South America. And, over the years Nike has been criticized for its lack of oversight of its manufacturers. Initially, they approached the problem as a way to manage reputation. But, now they are seeing their oversight and relationship with contract manufacturers as an opportunity to innovate.

But innovation isn’t in a vacuum. Innovation at Nike must be within the context of (a) serving the athlete, (b) grows the company, and (c) delivers inspiration. While you won’t see Lean lingo, the context matters. This is effectively Nike’s “True North” if we were to speak in terms of Hoshin Kanri.

Nike has 2 overarching goals in their strategy:

• Make Today Better
• Design the Future

Pretty simple and can easily be remembered by all employees. Under these two main pillars in their strategy, Lean begins to take context.

Design the Future: Nike Lean Manufacturing

Nike has determined that their finished goods manufacturing is where they have the largest impact on people and the environment. Within that context, they want to be a catalyst for positive change. Consider these numbers:

• 785 Contract Manufacturers
• Over 1 Million factory workers
• More than 500,000 unique products

Those numbers are staggering and humbling at the same time.

Factory Sourcing

Quality begins at Factory Sourcing – that is, the process a contract manufacturer has to enter in order to be selected as a Nike manufacturing partner. The sourcing process is more rigorous than it was and Nike has improved the quality of the manufacturing partner and the time it takes to select a partner.

In terms of time it takes to become a partner, it now takes Nike 152 days versus 246 days. That means it takes Nike 38% less time evaluating a manufacturing partner. This is a massive improvement.

In terms of quality, Nike has increased its requirements but doesn’t leave the partner hanging dry – Nike actually spends time and energy and resources helping the contract manufacturing partner reach Nike’s new standards. As of this writing, Nike has 0 manufacturers in Gold, 1 manufacturer in Silver, 535 in Bronze, 156 manufacturers in Yellow, 77 contract manufacturers in Red. As you can see, Nike’s bar of excellence is high and Nike actively not only audits its manufacturing partners, but also helps them improve 1 .

Manufacturing Excellence

According to Nike, in order to design the future, Lean Manufacturing must be part of the solution for them. In their words,

Lean manufacturing has been a hallmark of our approach with factories and is the foundation of how we advance sustainable manufacturing. Lean manufacturing is a business system and continuous improvement philosophy that aims to deliver the highest-quality product while eliminating waste, including lost time and material. At Nike, we also believe lean can empower workers and teams. The success of the lean approach depends on the implementation of physical changes to production processes, increased leadership capabilities and the development of an empowered workforce. Lean manufacturing seeks to engage the minds of those closest to the work to solve the problems that prevent them from delivering quality product on time, every time.

As we all know, people are at the heart of any operation. Nike has spent a lot of energy in training and upskilling their contract manufacturers in Lean. From their perspective, Lean helps their people in the following ways:

• Leadership: factory leaders use Lean to drive business performance
• People: workers are engaged and enabled to drive business success through continuous improvement
• Process: factory processes are predictable and agile in response to customer demand

And, they believe that

The lean approach also seeks to engage the minds of those closest to the work to solve the problems that prevent them from delivering quality product on time, every time.

In fact, they use Jeffrey Liker’s model found in his book “Toyota Culture, the Heart and Soul of the Toyota Way” as an example of how they need to align people and strategy and lean in their training.

I have to say that this is the aspect of the Lean deployment that impresses me the most. Why? Most organizations will start Lean primarily in the Daily Management section of the model and it stays there. Most of us know this as Shop Floor Management, or even the Toyota Floor Management Development System as I know it.

But at Nike, they go deeper and higher and more broadly. In their words, this is how training is done in order to help their people – notice the level of Lean Six Sigma Training conducted 2 :

The curriculum contains 10 modules that each focus on a key area of the Culture of Empowerment Model. Each module is designed to share HRM best practices related to lean manufacturing, and contains interactive exercises that allow factory managers to assess their current state and identify improvement opportunities in areas including recruiting, selection, employee development, performance management, worker-management communication and retention. The curriculum also contains instruction and exercises on lean problem solving and planning tools including PDCA (plan, do, check, act) and A3 reports, which facilitates knowledge sharing and collaboration in a concise document. These tools are used throughout the capacity building to define follow-up projects that factory managers implement after completing the training.

And, they also take temperature checks with their people, to see if the Lean deployment is meeting their needs. In a survey conducted by an outside firm, the results seem promising and Nike has also take this data from survey results to help further improve their people operations:

And, as with most organizations that are focused on continually improving, Nike is doing that and hold themselves accountable. As of this writing, here is their assessment of their Lean journey so far:

In conclusion, I applaud Nike’s commitment to making Lean Manufacturing part of their strategy. Notice that Lean is not an end in itself, but is an aid to further progress toward meeting the Nike promise and achieving their goals  and strategy.

Here’s an older video of their fulfillment and distribution operations – a part of their supply chain. Keep in mind, this is before they started their Lean Journey. It’s interesting nonetheless.

• http://www.nikeresponsibility.com/report/content/chapter/targets-and-performance ↩
• http://www.nikebiz.com/crreport/content/workers-and-factories/3-9-1-our-approach.php?cat=hr ↩

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How Nike Does Lean Manufacturing

NIKE, Inc. is one of the premiere shoe manufacturers in the world. Its famous "swoosh" is worn by the greatest names in sports – from Michael Jordan to Lebron James, Kevin Durant to Tiger Woods and Maria Sharapova. There’s no doubt that NIKE, Inc. is a powerhouse when it comes to promotion; but did you know the company also leads the way in lean manufacturing best practices?

Due to an inheritance of immature management teams in emerging manufacturing markets, NIKE, Inc. has implemented a culture of empowerment that employs continuous improvement (CI) to deliver high-quality products, on time, at a low cost.

NIKE, Inc.'s Culture of Empowerment Model

NIKE, Inc.'s culture of empowerment model is three-pronged: attract, develop, and empower. Most importantly, the people of NIKE, Inc. are seen as its ultimate value stream. This model is not unique to NIKE, Inc.; it originated at Toyota and has been adapted at a multitude of companies striving for lean manufacturing and continuous improvement.

"Our work with manufacturers to promote lean manufacturing is part of our fundamental shift away from monitoring and toward building manufacturing capacity for self-management. We believe this will ultimately be a more successful and sustainable approach to stimulating systemic change and improving the lives of workers." – NikeBiz

Human Resource Management (HRM) is an important tool for lean manufacturing at NIKE, Inc. By surveying workers for insight into key issues and seeking out opportunities for positive change, NIKE, Inc. is utilizing continuous improvement best practices to become a leader in lean manufacturing practices.

According to an article in Industry Week , most organizations succeed at establishing some form of standardized CI. "The big differences shows up in how projects and initiatives are linked to strategy, competence development and auditing activities within organizations."

In the same article, Industry Week provided three types of standardized CI:

• Quality award programs: useful for providing a set of criteria and motivating employees for CI; focused on project-based quality.
• Institute improvement programs: training focused on lean and Six Sigma to provide employees with the skills they need to integrate continuous improvement.
• External benchmarking programs: provide an objective comparison for identifying improvement opportunities, pinpointing internal best practices, and establishing a performance-focused culture.

NIKE, Inc.'s Scoring Card

"No other capacity-building program in our industry integrates HR and support of lean manufacturing in this way, addressing both the needs of the factories and workers, as well as the business. This is a new standard of factory self-governance." - NikeBiz

NIKE, Inc. has more than 1 million workers manufacturing 500,000 different products around the world. To ensure everyone is performing at NIKE, Inc.'s standards, the company has developed a scoring system for their contract factories. The Manufacturing Index (MI) they utilize scores each factory in terms of lean, labor, health and safety, energy and carbon, and sustainability. This allows NIKE, Inc. to determine where they need to spend more attention and resources and where they can allow factories to operate autonomously. It also incentivizes factories to raise the bar in all areas of their manufacturing. NIKE, Inc. requires partners below the bronze level to pay for 3rd party audits. Partners above the bronze level are rewarded with audits paid by NIKE, Inc.

There’s no doubt; NIKE, Inc. is creative and strategic in developing lean manufacturing techniques. They utilize traditions, such as the culture of empowerment model, but they have also revolutionized how they interact with their global partners. These methods are what make NIKE, Inc. a company worth taking note.

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Nike: An Innovation Journey

• First Online: 29 November 2017

Cite this chapter

• Michelle Childs 5 &
• Byoungho Jin 6  

Part of the book series: Palgrave Studies in Practice: Global Fashion Brand Management ((PSP:GFBM))

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Nike is an American multinational company that has evolved to become a global leader in athletic wear with annual sales exceeding $21 billion in 2016, more than half of which is attributed to international markets. Since its inception in 1964, Nike has been an innovation leader in product development, marketing and consumer experience. Due to a dedication to continuous innovation, Nike has been able to sustain a competitive advantage within the athletic apparel and footwear marketplace. This case highlights key points in Nike’s journey of innovation and examines how Nike has successfully emerged as a global champion within the athletic wear industry. Based on these analyzed strategies, this case provides implications that are relevant for practitioners and academics.

• Athletic wear
• Product development innovation
• Marketing innovation
• Consumer experience innovation

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Childs, M., Jin, B. (2018). Nike: An Innovation Journey. In: Jin, B., Cedrola, E. (eds) Product Innovation in the Global Fashion Industry. Palgrave Studies in Practice: Global Fashion Brand Management . Palgrave Pivot, New York. https://doi.org/10.1057/978-1-137-52349-5_4

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Nike Reports Lean Production Success

ONLINE EXCLUSIVE: Nike Reports Lean Production Success

Nike Inc. highlighted its lean manufacturing milestones in the recently released “FY10-11 Sustainable Business Performance Summary.”

The Beaverton, OR-based company unveiled its new factory rating system, the Manufacturing Index, which looks comprehensively at a contract factory’s total performance and includes a deeper look at how a factory approaches sustainability, This index elevates labor and environmental performance alongside traditional supply chain measures of quality, cost and on-time delivery.

Within its overall Manufacturing Index, Nike’s Sourcing & Manufacturing Sustainability Index (SMSI) assesses contract factory performance on sustainability measures, including measures of lean, environment performance (e.g., water, energy, carbon, waste), health and safety, and labor management factors, according to the report. Following two years of development and piloting the program, the company has rolled the SMSI out across its global supply chain.

By adopting a “better manufacturing” or lean approach as part of the sustainability initiative, Nike has reduced material waste and production time, allowing the company’s supply chain to operate more efficiently.

The report stated that contracted factories that adopted Nike’s lean approach experienced defect rates 50 percent lower than facilities that didn’t. Delivery lead times from lean factories were about 40 percent shorter. Lean factory productivity increased 10 percent to 20 percent; and the time to introduce a new product to a factory was reduced by 30 percent. 

“Sustainability at Nike means being laser-focused on evolving our business model to deliver profitable growth while leveraging the efficiencies of lean manufacturing, minimizing our environmental effect and using the tools available to us to bring about positive change across our entire supply chain,” Nike CEO and President Mark Parker said in a statement.

In some areas, including the reduction of excessive overtime at contract factories, progress was slower than expected. Nike also changed its approach to some targets, including carbon emissions, based on a deeper understanding of the challenges and to improve alignment with business strategy, according to the report. Incremental progress against several targets was a key driver for the company to redesign its factory evaluation and sourcing criteria to improve performance in the long-term.

Nike worked with Business for Social Responsibility to engage a panel of external reviewers with expertise across broad areas, including representatives from non-governmental organizations and academia to business, students and open-data advocates. The group assessed the company’s reporting and discussed the sustainability targets. Massachusetts Institute of Technology Professor Richard Locke, whose current research focuses on improving labor and environmental conditions in global supply chains, was one reviewer who said the process was well organized, rigorous and transparent.

“I have been impressed by Nike’s willingness to engage in constructive debate about what is feasible and what is aspirational,” Locke said. “This is a company that takes a leadership position and has clearly learned the value of partnership and that collaboration is a business opportunity, not a risk.”

In conjunction with the release of its report, Nike launched an interactive web experience at www.nikeinc.com enabling users to explore the company’s value chain and learn more about its progress and commitments against each impact area.

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Nike reduces lead times through lean manufacturing

Nike has reaped the benefits of moving to ‘lean’ manufacturing with shorter lead times and fewer product defects in its supply chain.

The sportswear brand’s FY10/11 Sustainable Business Performance Summary, explained by adopting a lean approach – which it described as ‘better manufacturing’ that reduced wasted materials and time – the company’s supply chain has operated more efficiently. The report explained the company had worked to eliminate waste, lost time and lost material from its processes as part of its sustainability agenda. The report said contracted factories which adopted the lean approach showed defect rates 50 per cent lower than those that didn’t. It also revealed delivery lead times from lean factories were, on average, 40 per cent quicker. Productivity increases of 10 to 20 per cent and a reduction in the time taken to introduce a new model by 30 per cent were also reported from lean factories.

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LEAN MANUFACTURING AND INNOVATION: HOW DOES NIKE DO IT?

Nike’s reputation for producing cutting-edge footwear across the planet is second to none. However, not many people understand the very disciplined and methodical approach that Nike has embraced to be a market leader. Nike’s commitment to driving flawless and innovative product execution is impressive. To design and manufacture at a consistently high-level Nike has been able to integrate profoundly ingrained lean workplace principles with innovation that is the cultural norm within the organisation.

Nike has two overarching goals or pillars:

• Make Today Better (Lean)
• Design the Future (Innovate)

Make Today Better is Nike’s lean philosophy, which is evident in every facility where they have a presence. Lean manufacturing has long been an integral part of their approach within factories and how they advance sustainable manufacturing practices. At Nike, lean manufacturing is viewed as both a business system and a continuous improvement opportunity aimed at producing the highest quality product while eliminating waste. Employees are trained in the power of teamwork as a key to improving operations. Employees closest to problems are encouraged to try to solve them.

Design the Future through innovation is absolutely essential to Nike’s ongoing success and market leadership. With around 785 contracted manufacturers, over 1 million factory workers, and over 500,000 unique products, Nike understands the importance of innovating on a grand scale. Under the Design the Future, Nike has a specific goal: unleash innovation! The key commitments linked to the unleash innovation goal are:

• Build sustainable innovation capabilities across the business to drive a disruptive innovation agenda
• Develop and prototype an index to drive and measure how sustainability is integrated into our innovation portfolios
• Develop tools, processes, and systems to establish metrics to measure the impact that can be shared as a part of the index, without compromising the competitive nature of innovation

While it would be commendable for any organization to have a focus on either a lean or innovation strategy, what is so striking with the Nike story is that the company has found a sustainable way to integrate both lean and innovation methodologies. It’s built a workforce and culture that encompasses all that a lean manufacturing environment embraces and it drives disruptive product innovation. Employees everywhere within Nike understand and feel personally vested in the connection between lean practices and innovation. The Nike approach drives both built-in quality and disruptive innovation, all while paving the road for Nike to run by their competition for years to come.

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Not just the bottom line: Lean manufacturing may help workers too

Brian Eastwood

Sep 1, 2016

Businesses tend to adopt lean manufacturing in order to streamline production and improve efficiency, but recent research from a new MIT Sloan professor suggests lean principles can help alleviate poor conditions for factory workers as well.

A study  of the adoption of lean manufacturing by factories within Nike Inc.’s supply chain found that lean adoption was linked to a 15 percent reduction in noncompliance with labor standards such as wages, benefits, and time off.

“The assumption people have is that good business and treating workers well are in fundamental conflict,” said study co-author Greg Distelhorst , who joins MIT Sloan this fall as an assistant professor of global economics and management. “The pretty significant positive impact [of lean manufacturing] we saw in our research was a pleasant surprise. It suggests a way to align business interests in the supply chain with worker well-being.”

Engaging workers a big commitment Amid concerns about delivery time, product quality, and working conditions, Nike began securing commitments from long-time suppliers to implement lean manufacturing in 2002. While mass manufacturing focuses workers on a single task, the lean manufacturing principles popularized by Toyota teach line workers to complete several different tasks. In an apparel factory, this could mean having the skills to sew an entire shirt instead of a single seam, Distelhorst said. Lean also encourages workers to take responsibility for quality control and find ways to improve overall production. In turn, this makes workers more valuable and more important for the factory to retain.

Some prior research connected lean manufacturing to a more engaged and satisfied workforce, but those papers had only focused on a handful of factories. Distelhorst and his co-authors examined audits of more than 300 factories in Nike’s supply chain in 11 countries. About one-third of the factories were in Southeast Asia; another half were in China.

Lean manufacturing was a big commitment for the factories. They needed to appoint managers responsible for lean transformation and send them to Nike’s training facility in Sri Lanka. In some cases, the physical layout of the factory had to change—moving the sewing line and the pressing line onto the same production floor, for example.

This was a major investment by Nike as well, involving a dedicated training facility and years of engagement from its in-house lean staff. “Just going up to the factory door, yelling ‘Lean management,’ and walking away isn’t going to produce the change that you want,” Distelhorst said.

Two years after certifying their first lean manufacturing line, factories on average scored more than half a letter grade higher on their audits than those that had yet to adopt a lean line. This amounted to the 15 percent reduction in labor noncompliance.

The impact was not universal, though. While conditions improved in most countries—namely India, Malaysia, Thailand, and Vietnam—they did not improve in China. The lack of improvement in China is consistent with previous research , also co-authored by Distelhorst, which examined compliance in Hewlett-Packard’s electronics supply chain.

It is not yet understood why Chinese lean-adopters failed to improve, but Distelhorst noted that China’s high rate of worker turnover may reduce the benefit of investing in training, while the country’s dominance of the global clothing industry may make factories in smaller countries more willing to commit to new ideas. Sri Lanka also showed little improvement in Distelhorst’s analysis, but that’s because factories there were already largely compliant with Nike labor standards.

Impacting workers worldwide Distelhorst joins MIT Sloan from the Saïd Business School at the University of Oxford, United Kingdom, where he was an associate professor of international business. He holds a bachelor’s degree in cognitive science from Yale University and a PhD in political science from MIT, with a concentration in Chinese politics. His management research explores business models that are simultaneously profitable and have a positive impact on labor and environmental conditions where trade unions are weak and environmental regulations are lax.

He is particularly committed to China, where he lived and worked for more than five years. “When we find ideas that work, I want them to work in China,” he said.

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