Nike ERP Implementation

What are the failure factors for the first NIKE-12 ERP-SCM implementation? All ERP implementations have risks associated that can lead to failure situations. The complexity of ERP systems together with demanding business environment, represent big challenges for companies when implementing an ERP. In the case of Nike, the situation is even more challenging because of the worldwide ERP deployment, and the large and complex scope of the project.Inevitably, and like all ERP implementations, Nike-i2's project faced complications at the different stages of he implementation cycle but those complications could have been minimized if the so called â€Å"Critical Success Factors† (CSF)I had been planned and managed properly. Using the 5 stages structure proposed in the report â€Å"Drawing Competitive Advantage through Successful ERP Implementation Projects†2, the failure factors are analyzed in detail in the following sections.First stage of implementation (project preparation ): One of the failures in the Nike-i2 ERP implementation was the lack of Formalized project plan/schedule. Feeling the market pressures, Nike did not commit to a isciplined plan and rushed up ERRS implementation, by â€Å"began to input data for its forthcoming Spring 2001 line when the system was still to stabilize†3 , giving reason to the opinions that projects cannot be driven by external deadlines4.Industry experts also warned about the boomerang effect (tight and unrealistic deadlines would come back in low quality results in the future) but Nike felt â€Å"12 technology was smaller and therefore easier to implement†. The result was the project failure and a financial storm (reduced profits) in the following financial periods. The executive eam as the responsibility to define the mission and scope of the project by analyzing the project business benefits and goals, and aligning them with strategic business goals.It is clear that in this case, Nike's executives wer e too ambitious by trusting blindly in a forecast system that was not completely adequate to Nike's business model (model was order based and not demand forecast oriented). As stated in Cnet â€Å"12 had past success projects with big clients such as Boeing, Nortel Networks, Raytheon and WalMart.. proving that 12 software is not perfect, but if implementation s done correctly, with proper planning, investment and scheduling, it will work well. â€Å"5 Implementing software is not a goal by it itself, remaking the business with the help of software is.Nike business goal was to create an efficient global supply chain by reducing inventory and manufacturing cycle, and this was a large and complex goal, thus, the software implementation could not be taken as simple and easy as Nike's executives toke it, failing to give Sustained management support to the project. In the second stage of implementation (Business Blueprint) the failures were: Nike elied too much in the (supposed) power o f the forecasting technology and underestimated its impact on the business processes changes such as orders processing, raw materials purchasing, fabric production, and demand management.That impact also affected the way employees and partners used to work. Anytime companies changes employee's working habits, it can get difficult to them to adapt to the new reality, thus, an Effective organizational change management is critical. Nike tailed ensuring that this complex change got the right results by not integrating properly people, process and technology. Nike's business context was very complex (120000 SKUs, operations in all continents, four seasons product turn over and product life cycle very short), thus, a deep knowledge of this industry was critical when implementing new business processes and ERP systems.Despite previous supply chain applications were troublesome Nike hired 12 that was inexperienced in the footwear industry. This situation could have been avoided if Nike had appropriately used consultants by integrating third-party specialists with industry experience in the project's team. By not managing this factor, Nike took a big risk and ncreased the probabilities of failure. Nike's business requirements were too complex and over detailed (like footwear's forecasting for styles, colors, sizes).If Nike had appropriately used consultants and also had promoted User involvement and participation, those experts could had shared their know-how in the definition of business requirements more realistic and aligned with the real organizational needs. The failures in the third stage of implementation (Realization) were: â€Å"i2's software did not offer all the required functionalities†6. Usually, ERP systems do not provide all the functional requirements nd 12 system is not an exception. That's why, ERP vendors offer interfaces to communicate with third-party products.The problem with Nike implementation was that there was not an Critical Success F actors is a concept presented in the report â€Å"Drawing Competitive Advantage through Successful ERP Implementation Projects†, by Jos © Esteves – Instituto de Empresa (Spain) and Joan Pastor Universitat Internacional de Catalunya, Barcelona (Spain) 2 ibid 3 SCM and ERP Software Implementation at Nike – From failure to success 4 http://www. cio. com/article/32335/Five_Lessons_Learned_from_Nike_s_i2_Debacle 5 ttp://news. cnet. om/i2-Nike-fallout-a-cautionary-tale/2100-1017_3-253829. html 6 SCM and ERP Software Implementation at Nike – From failure to success 1 adequate infrastructure and interfaces prepared in advance and tested before going live. The result was that the â€Å"Demand application and its planner did not integrate easily†¦ â€Å"7. Nike's demand for high customization was one of the main failures in this project. To Avoid ERP customization, Nike could have appropriately used consultants to reduce the need of very detail level forec asting (style, color, size).Consultants ould have brought also an experienced business vision, focus on ERP processes really needed to run Nike's business, alignment between Nike's requirements and ERP functionalities, and ERP best practices (including ‘2's recommendations and methodology) Forth stage (final preparation) is critically important to ensure the quality of the results, Nike's tailures were: To ensure that the ERP accomplishes the business requirements defined at the beginning of the project a Formalized testing plan is mandatory.In theory, this test plan should cover functional tests, data flow between ystems, user testing and performance tests. Nike did not perform any of those tests activities and the catastrophic results were: â€Å"System could not process large amounts of info. It was very slow and crashed†, â€Å"System could not handle thousands of variables to generate forecasts†, â€Å"Demand application and its planner did not integrate ea sily because different data formats. , â€Å"System sent inaccurate orders to manufactures and errors were not detected†8 In this phase, User involvement and participation, Adequate training program and Preventive troubleshooting are critical to guarantee that: the technical staff and end- sers know how to use the system; to prepare users to perform tests; and to prevent unexpected situations.These activities were not performed and under-evaluated by Nike as confirmed in the case: â€Å"it would work with requiring a pilot test†; â€Å"12 application was smaller†9; No communication between forecasting and inputs from sales and marketing; and no super users used in training. Data migration and data testing are crucial activities before system go-live because data is what really gives competitive advantage to a company and data is the core foundation for all business decisions, thus, an Adequate data migration process s essential. Analysts raised questions about a dequacy of information that Nike input into the system. â€Å"10, this means that Nike did not planned in advance the data activities (migration, conversion, cleaning, etc. ) and in the end the result was â€Å"Input data was estimated and didn't reflect the business reality, thus, forecasts could never be accurate†ll For the final stage (go live) Nike failed in: 0 Not giving sustained management support since â€Å"Executives did not hold review meetings, neither analyzed forecasting results†12.This transmitted a sense of no wnership and no own involvement to employees, resulting in no encouragement of system usage. From other point view, Nike also failed on the study of vendor's evaluation criteria: 0 According to the â€Å"six-stage model of the buying process for ERP software†13, one evaluation criteria is â€Å"Association with or the availability of third party vendor/ partners† and other criteria is â€Å"Qualifications, experience, and success i n delivering solutions to organizations of a similar size, complexity, and geographic scope†.It was clear that 12 did not had experience on the footwear industry and was not prepared or Nike's business complexity, so Nike should had decided for another vendor with industry knowledge or as an alternative to integrate 12 with a specialized third-party. 0 Nike seemed to desire the best-of-breed for each application area, ex: SAP for ERP, 12 for planning SCM, Siebel for CRM, etc. , which is not always the best option.As for 12, Nike knew that there were many disadvantages to choose this vendor, such as: 12 technology could not met all business requirements; data models were different between i2's demand and planner application raising integration problems with egacy systems; high effort was necessary to customization; there were 2 development and delivery cycles at the same time (one for 12 and other for SAP); and 12 had no experience in industry. A better option would have been t o integrate planning SCM with SAP from the very beginning, which turned out be what exactly happened atter the 12 Conclusion M project tailure.Nike-i2's ERP implementation failed in all stages of implementation on several CSF and also on the evaluation of the vendor. The failures were related mainly to project management and organizational factors proving that success is much related to eople and process and not Just technology. 7 SCM and ERP Software Implementation at Nike 10 11 12 13 – From failure to success ibid â€Å"A six-stage model of the buying process for ERP software† by Jacques Verville and Alannah Halingten 8 9 2.How do you evaluate the role of 12 in this process? Many factors which Nike failed to manage can also be applied for 12, resulting in a shared responsibility for the project failure. 0 12 did actually recommended Nike to â€Å"minimize customization to 10-15% of the software†14 but at the same â€Å"Nike and 12 worked together to incorpora te the desired hanges†. 1 5 This means, 12 agreed to do the changes when Nike insisted on high level of customization, thus, 12 also has responsibilities on the high customization failure.Responsibility could be different if the level of customization was written in the contract to be limited by 10%, and above that, 12 would not offer product guarantee. 0 The project did not have formal plan and no realistic deadlines. 12 as company, cannot be Just a software vendor, it must participate on the plan definition and monitoring. By accepting Nike's deadlines, 12 was also responsible for the delays nd for the low quality of the delivered software. 0 Nike began to input data while the system was not yet stable but 12 did not force Nike to stop this.A vendor must deliver his product when it is ready and according to negotiated deadlines. 0 12 did not have footwear industry knowledge but accepted to be part of the project, taking a big risk and being too ambitious like Nike was. The r esult was that 12 became overwhelmed with the business complexity and in the end the forecasts did not worked out as expected. 12 should had analyzed better Nike's business and industry, nd sub-contracted a third-party specialist in that industry. Nike did not use ‘2's implementation methodology; executives did not hold review meetings, neither analyzed forecasting results; there was no pilot test and no training. A vendor must also be part of the project management team to: define and negotiate formal deadlines, implementation phases, methodologies, tasks, roles, test plans, risk management plans, performance goals, etc. A vendor must assure that the contract is clear about: who owns the project; who is responsible for what; what resources will e available during the project; what are the expected benefits and results. 3.Describe the main problems associated with ERP software modification (short-term and long-term) Short-term 0 More time to implement a modified ERP compared w ith the time to implement an original ERP. 0 Higher costs during project's implementation to pay analysts to define customized business processes and to pay programmers to customize the new functionalities on the system. 0 Higher costs to run additional tests to guarantee customized functionalities work as expected and do not affect the original system apabilities. 0 Additional costs to train end-users on the customized functionalities.