Inventory optimization model for NIKE's long lifecycle highly seasonal replenishment products

Currently, demand and inventory planners at NIKE Always Available (NIKE's replenishment business) experience difficulty in managing long-lifecycle highly-seasonal products like soccer equipment and fleece apparel. Very often items are either stocked out at retailers or piling up at Distribution Centers (DCs). NIKE manages inventory to a 95% item fill rate for all replenishment products. Highly seasonal products generally have unpredictable demand patterns which lead to either stock outs or excess inventory. These imbalances in inventory occur without fully understanding the cost and benefit of holding the inventory. To understand the cost and benefit of holding inventory for long lifecycle highly seasonal products, the author analyzed the current profitability, revenue, service level, and inventory position of soccer equipment, sandals, and fleece apparel. From these results, the author modeled the benefits to the above metrics of managing inventory via a dynamic service level approach that varies the service level over the season. Next, the author modeled the benefits of managing inventory via dual-sourcing. Lastly, the author modeled the profitability impact of reducing lead times for these items. These models have shown that long lead times and high seasonality are key drivers of large safety stock quantities. Also, with highly seasonal long lead time products, dynamically managing the service level by increasing the service level at the beginning of a product's life and lowering it in its last season of life offers greater profitability than managing to a static service level. Lastly, there is an opportunity to increase the profitability of these products by changing the supply chain to enable dual-sourcing or by reducing lead times.

Department dc:contributor.department

Leaders for Global Operations Program at MIT

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2015

Author dc:creator

• Kang, John H. (John Hyun-June)

Advisor dc:contributor.advisor

• Stephen C. Graves and David Simchi-Levi.

• Sloan School of Management.
• Engineering Systems Division.
• Leaders for Global Operations Program.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/99008

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/99008