Nike seeks to reduce lead times in production

Dive Brief:

Nike is endeavoring to shrink lead times on production while increasing direct sales to consumers as retail partners dwindle, Quartz reported last week.
To achieve these goals, the company is realigning to better drive growth by committing to serve consumers in 12 cities in 10 key countries: New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan. These locations will likely make up 80% of Nike’s growth through 2020.
To further empower the realignment, the cities and key countries have been reduced from six to four regions—North America, Europe, the Middle East and Africa (EMEA); Greater China; and the Asian Pacific and Latin America (APLA).

Dive Insight:

Nike's plan reflects a larger trend among American companies to cut lead times and reduce production costs. Tesla is an extreme example: in March, CEO Elon Musk told investors that the company will not build prototypes of the Model 3 but go straight to permanent production in order to roll out the new sedan on time later this year.

G eneral Motors announced last week that the company plans to relocate 600 jobs from Mexico to the U.S. to ensure greater concentration of American-made parts in Chevrolet Suburbans and Cadillac Escalades. Should a border tax be implemented, the relocation of parts production from Mexico to Texas minimizes the risk to GM. The relocation will also streamline the production process.

In Nike's case, shrinking lead times means halving the company's previous production rate. Nike has already begun utilizing technologies that decrease time spent on prototypes, as well as investing in creation automation that builds a sneaker both more quickly and efficiently. Nike's Express Lane initiative is already moving the newest models in North America and Western Europe, and will soon debut in China, to better serve busy markets like Shanghai, Seoul, and Tokyo.

These companies recognize that consumer expectations have changed: in the world of e-commerce, consumers expect to find what they want at a relatively affordable price and get it fast. This is the Amazon effect, and in order for other companies to keep up, they need to drive down production costs and accelerate the production process so consumers can get their goods quickly for a price they're willing to pay.