Author: Dr. Theo Notteboom
Nike, one of the world’s leading sportswear companies, operates a large Main Distribution Center (MDC) in Belgium. In this case study, we apply the theoretical discussion on distribution centers presented in chapter 1.4 to Nike’s European Logistics Campus.
Nike made a major change in its distribution system (level 1) in Europe in 1994. Nike Inc., founded in 1972 in Oregon, is a well-known world-leading company in the sports industry. Nike originated from Blue Ribbon Sports (BLS), a company founded in 1964 through an investment of $500 each by Phil Knight and Bill Bowerman. The company has evolved from being an importer and distributor of Japanese specialty running shoes to becoming one of the world-leading companies in the design, distribution, and marketing of athletic footwear. Before opening the European internal market in 1993, Nike – just like many other international companies – had national DCs to serve different European countries. In 1994, Nike built one EDC of operations and logistics to serve all European countries at Laakdal in Belgium. The Nike European Logistics Campus (ELC) coordinates all the logistical activities between 700 factories (mainly in Asia) and 25,000 customers. All the Nike shoes, clothing, and accessories found in stores in Europe, the Middle East, and Africa (the so-called EMEA region) pass either virtually or physically through the facility in Laakdal. The term ELC refers to the fact that the facility focuses on distribution and delivers VALS to the goods passing through.
The distribution system of Nike in Europe is thus based on a centralized configuration with the goods passing through the ELC also reaching parts of the Middle East and Africa. While Nike operates the ELC in Laakdal, distribution centers of large customers (such as Footlocker and Decathlon) are acting as some sort of ‘external’ RDCs which mainly involve cross-docking. By changing from 32 decentralized DCs prior to 1994 to 1 EDC, Nike realized big savings on inventory costs and close-outs after each season. The savings on warehousing and transportation costs were more limited. While deciding whether to build one centralized distribution center, Nike took into account a trade-off between the product life cycle and demand variability. With a short product life cycle and high demand variability, it is better to have one centralized distribution center. If the product life cycle is long and demand is stable, the company can decentralize its products at low risk. The main logistics characteristics of Nike apparel and footwear are a short product life cycle (typically three months due to seasonality), unpredictable customer demand, a high product profit margin, and a distribution focus on service. The strong seasonality and high demand variability were strong incentives for Nike to build one centralized distribution center at Laakdal.
In terms of location choice (level 2), Nike opted for Laakdal in Belgium. The Laakdal facility is located along the Albert Canal about 45 km east of the port of Antwerp and adjacent to a large inland container terminal. In the early 2010s, the facility underwent a major expansion by the realisation of a new building for storing and handling equipment. The project comprised an automated high warehouse for storing goods, a low warehouse across three floors for handling goods, an office block with social amenities, a technical block with offices and technical facilities. The focus was entirely on using sustainable materials and energy-efficient operations in order to restrict the installations’ energy consumption and make them as efficient as possible. The decision of Nike to set-up the ELC in Laakdal in 1994 and to further expand the facility was mainly based on the following rationale:
- Central location: Laakdal is located in the south-eastern part of the province of Antwerp in Flanders. About 60% of European purchasing power is within 300 miles of Flanders. Being located in the central part of the ‘blue banana’ of Europe, the Nike ELC is well positioned to reach any part of Europe within 4 days.
- Infrastructure – The infrastructure support for intermodal transportation near the Nike facility in Laakdal is very good. Some 96% of Nike’s inbound flow is over water via regular container barge services coming from the ports of Antwerp, Rotterdam and Zeebrugge. The ELC is very close to the highway E313 which connects Antwerp to Germany. The cargo airport of Brussels and Liège are within a 100 km distance. In March 2007, Nike welcomed its first inbound container delivery via rail. The addition of rail makes that the Laakdal facility has a trimodal access to the gateway ports in the Benelux and the European hinterland.
Other important location factors identified by Nike relate to the co-operation with local authorities, the availability of an educated work force and the integration process within Nike Belgium.
The last level relates to the VALS (level 3) performed at Nike ELC. Products of Nike can be delivered to their European customers via three different supply chain models: directly from factory to the customer (one container/one customer); from factory to the customer via a deconsolidation centre (one container/multiple customers); from factory to the customer via the ELC in Laakdal. The main VALS activities in the Laakdal ELC are related to quality control, cross-docking, product labelling, shoebox labelling, the application of security tags, outer carton labelling, palletizing, final packaging, and order picking for parts of the Nike store online orders. Depending on customers’ requests, the activities of the Nike ELC can also include the transfer of loose shirts, T-shirts and pants onto hangers to make the products shop ready. About 30% of the products are sent to the customers directly without repacking, while the remaining 70% of the products are processed on an item basis in the facility. Big customers with a massive order volume, such as Footlocker, receive the products directly from the Laakdal ELC without repacking. For repacked goods, the logistics system in the ELC is aimed at deconsolidation and reconsolidation. On the inbound side containers are deconsolidated into cartons and then to individual product items. After order picking the individual items is reconsolidated into cartons, followed by the palletization of these cartons and outbound shipment via truck (in a few cases also by trailer on rail). Some other value-added services are performed at the source in the country of export. For example, one of the factories in Vietnam has a separate line for producing customized Nike footwear. Customers order customized shoes on the Nike store website using a NikeID, and the factory in Vietnam takes customized orders and produce the products accordingly. Finally, in some cases Nike operates its VALS in a local 3PL close to the customer at customers’ requests. Nike uses a number of criteria when deciding where to perform VALS such as (a) complexity and capabilities of factories, EDC, RDC or 3PL;(b) speed to market – lead times; (c) integration with the customers; (d) cost comparison between different options. Furthermore, Nike only executes the product value-added services or customized packaging at factory if there is a direct link between the purchase order and the customer’s sales order. In other cases, the inventory is only being allocated to the sales orders after receipt at the EDC. This criterion is by far the most important one.