NIKE: Designing the world鈥檚 best running shoe
Through designing a brand new manufacturing process, Nike has decreased cost, increased revenue and bolstered their overall brand image.
Introduction
Nike has long been the market leader in sports apparel focusing on inspiration and innovation targeted to the athletes. In 2012, Nike made a leap forward in shoe innovation called 鈥淔lyknit鈥� that represents significant value creation through the alignment of Nike鈥檚 business model and its operating model. Through this innovation, Nike is a clear example of a highly effective organization.
Operating Model
Description: At its core, Flyknit is a brand new way to design and manufacture shoes. There are two key parts of a shoe design, the 鈥渓ower鈥� part which includes the sole / cushion and the 鈥渦pper鈥� part which includes the primary logo design and surrounds the foot. Nike鈥檚 new innovation allows the upper part of the shoe to be designed and stitched with a completely computerized system that uses one lightweight piece of fabric.
Benefits: The benefits of this innovation on Nike鈥檚 operating model are as follows:
- Materials: Traditionally, the upper part of the shoe was stitched together with multiple pieces of fabric. This cutting and stitching process creates significant waste from the leftover fabric. By using one piece of fabric to stitch the entire upper part of the shoe is estimated to decrease Nike鈥檚 overall material costs by up to 20% (1)
- Labor: Shoe stitching was a traditionally labor intensive process with one or more employees needed to stitch the multiple pieces of fabric together. With a completely computerized process, analysts estimate that Nike鈥檚 labor costs will decrease by up to 50% (1)
- Time: The decrease in materials and labor for the manufacturing process leads to a significant decrease in cycle time allowing Nike to produce shoes much faster making the company much more nimble. (2)
Business Model
This new manufacturing process creates significant value for Nike customers which Nike is able to capture for its shareholders. The benefits are as follows:
Benefits to the customer
- Light: The shoe is now almost 50% lighter than previous models. For runners, this innovation means more speed and a more comfortable running experience. (2)
- Customized: Nike aimed to create a 鈥渟hoe that replicates a sock鈥� and over time the shoe molds to fit the customers foot which enhances comfort. Some are predicting that the computerized manufacturing process will lead to a future where the customer can design their own shoe in a Nike store to fit their own foot perfectly and also will allow the customers to pick design and thread colors. This will allow each customer to have a truly unique shoe. (2)
Benefits to Nike
- Price: Nike captures this value to the customer through a nearly 60% price increase (relative to a similar model). As Nike transitions more of its shoes to be produced through this technology, they can continue to command a higher price premium and bring in additional revenue. (2)
- Marketing: Through utilizing this process that decreases material waste, Nike underlines its commitment to sustainability which builds its overall brand equity as not just an innovative company, but also a good global聽citizen. (3)
Conclusion
This innovation will likely revolutionize the entire shoe industry and potentially can be expanded into apparel. Nike has found an process that decreases costs, increases revenue and builds their overall brand image through their commitment to corporate responsibility. Through exploring this innovation, one can clearly see why Nike is the market leader.
Sources
(1)听丑迟迟辫://飞飞飞.产耻蝉颈苍别蝉蝉颈苍蝉颈诲别谤.肠辞尘.补耻/苍颈办别-蝉补惫别蝉-尘辞苍别测-辞苍-蹿濒测办苍颈迟-2014-9
(2)听丑迟迟辫://飞飞飞.产濒辞辞尘产别谤驳.肠辞尘/产飞/补谤迟颈肠濒别蝉/2012-03-15/颈蝉-苍颈办别蝉-蹿濒测办苍颈迟-迟丑别-蝉飞辞辞蝉丑-辞蹿-迟丑别-蹿耻迟耻谤别#辫1
(3)听丑迟迟辫://飞飞飞.苍颈办别.肠辞尘/耻蝉/别苍冲耻蝉/肠/产别迟迟别谤-飞辞谤濒诲/蹿濒测办苍颈迟
Interesting post! I am curious about the durability of the shoe in comparison to other Nike offerings as well as the comfort and the health aspects of this shoe in terms of odor control and whether this has been widely adopted by athletes outside of the realm of paid sponsorships.
It’s interesting that this new “one piece” technology in the upper part of the shoe is a selling point. In apparel, higher-end clothes typically fit better because they are stitched from more pieces of fabric and are thus more flexible/contour better. I wonder how Nike gets around the quality downsides of using less pieces of fabric with FlyKnit and would be curious to learn more.
I also believe Nike is a great example for this assignment because their main value proposition, which is innovation to the customer, forces them to upgrade their operating models every time they make drastic changes to their product line. And in this case, it was fascinating to read how they managed to decrease their labor costs with computerized processes. The decrease in materials and labor costs increases the company margins and probably leaves them more space to innovate – R&D costs.