By M Dana Baldwin, Senior Consultant
Very recently we heard that Nike, Inc. signed a long term agreement with Apollo Global Management, a private investment group, to establish manufacturing in the United States as well as complete logistics operations. The goal of this arrangement is to improve deliveries, to shorten lead times and to improve Nike’s ability to respond to market demands with new products and quick turn-arounds at a cost competitive with or lower than their current supply chain from Southeast Asia.
It is unusual for a private equity firm to establish a long term relationship with another company. Usually, private equity firms purchase companies to operate and improve them, then sell them to obtain their financial returns. Here, Apollo has signed a long term agreement with Nike to supply them with US-made apparel. Jointly, they have plans to develop a complete logistical chain with the goal of enabling Nike to speed up deliveries to stores and customers and to allow Nike to move more into customized designs of apparel for its markets. Apollo has already purchased apparel maker New Holland as well as warehousing and logistics business ArtFX.
While this is highly unusual, it may be an indicator of things to come in certain industries. Adidas has recently committed to building a new US-based manufacturing operation near Atlanta, which will open in 2017. Under Armour is building its own manufacturing operation near its headquarters in Baltimore. Each of these operations will be highly automated to help offset the higher cost of labor in the US.
These companies believe that the high level of automation, quicker turn around, and shorter supply routes will allow them to effectively compete with cheaper labor costs in Southeast Asia. It also could allow them to provide an enhanced level of custom products very quickly. Today, with the length of transportation lines from Southeast Asia, lead times are, at times, an impediment to supplying variations of their standard offerings in acceptable lead times.
All of this is aimed at improving customer service and responsiveness. Despite the higher costs in the USA, these companies believe they can provide quicker turn-around, better service, all at a total cost lower than they currently are obtaining from their operations in SE Asia.
Responsiveness and a willingness to re-examine every aspect of their businesses should result in better customer service, faster-to-market products and higher customer satisfaction. This type of creative problem-solving is indicative of thinking outside the box to reach an effective solution for the benefit of customers and the companies involved.
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M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached by email at: email@example.com
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