Nike blames financial snag on supply chain project

Footwear maker Nike Inc. disclosed Tuesday that installation problems involving a new set of supply-chain management applications are playing a big role in an expected profit shortfall in the company’s fiscal third quarter, which ends tomorrow.

Although the financial results warning didn’t cite the specific problems involved or identify the software vendor that Nike is working with, a spokeswoman at Dallas-based i2 Technologies Inc. confirmed that its applications are the ones in question. There have been issues with the implementation, but the problems “are behind us,” she said.

Philip Knight, Nike’s chairman and CEO, said as part of Tuesday’s warning that the company “experienced complications arising from the impact of implementing our new demand and supply planning systems and processes.” Those complications resulted in shortages of some products and excess amounts of others, “as well as late deliveries,” he said.

Knight also cited weakness in U.S. footwear sales for the flat year-to-year revenue that Nike is now expecting to report for the third quarter. The weak sales and the software problems will likely lead to profits coming in between 34 cents and 38 cents per share, down from the company’s previous expectations of 50 cents to 55 cents per share.

Nike executives “are disappointed by the impact” that the software installation problems are having, Knight said. “[But] we believe that we have addressed the issues around this implementation and that, over the long term, we will achieve significant financial and organizational benefit from our global supply chain initiative,” he added.

The i2 spokeswoman said the company’s software modules only account for about 10 percent of a US$400 million enterprise resource planning (ERP) project that’s ongoing at Nike. The installation was a very large and unusually challenging project that required specialized customization work requested by the footwear maker, she added.

The customized applications then had to be linked with other ERP and back-end systems, according to the i2 spokeswoman. The wide number of footwear products that Nike sells in a multitude of sizes and styles also led to further difficulties in mapping the supply-chain software to the company’s internal business processes, she said.

“Think of all the possible permutations and it becomes a complex and challenging job to get the system implemented,” the spokeswoman said. Despite the problems, though, she said the two companies still have “a strong partnership.”