Nike (NYSE:NKE) hosted its 2017 Investor Day at the end of October and covered key details on how it expects over the next five years to drive revenue growth in the high single digits, expand margins, and create earnings-per-share growth in the midteens. A key enabler for the sneaker and sporting apparel company is its "triple-double" strategy, which focuses on driving growth in three areas where it expects to double its performance: innovation, speed, and direct (to consumer). Eric Sprunk, Nike's chief operating officer, took the stage at the event to discuss how innovative materials, expanding automation, and scaling up near-region manufacturing is driving "2x speed" for the company.
Traditional cut-and-sew techniques for producing footwear are labor-intensive, slow, and prone to slight differences in each pair manufactured. Nike has engineered two materials -- Flyknit and Flyleather -- to improve the manufacturing process and the performance of its footwear. Flyknit is made up of strands of yarn knitted together to make the upper part of the shoe. The knit can be a tighter weave where athletes need more support and a looser weave where breathability and flexibility are important. Flyleather is an engineered leather made of 50% "reclaimed leather fibers" made into a roll for easy feeding into an automated production process. The resulting material is 40% lighter and five times more abrasion-resistant than full grain leather, according to Nike.
In addition to improving the performance of the products made with these materials, they enable footwear uppers to be produced using automated processes, which improves the speed and consistency of the manufacturing. Shoes using these materials are already available for customers and taking 12 weeks out of the traditional manufacturing process. Because Nike has a Flyknit footwear manufacturing facility in Mexico, it enables consumers in the U.S. to fully customize a shoe on Nike.com and have it delivered in three to four days.
Nike is also working with its Asia-based strategic footwear partners to automate factories. Currently, the Air Jordan XIII has 11 new automated processes in its production process, five of which enable a 30% reduction in labor and a 50% boost in pairs made per hour. The company is aggressively transitioning to automated processes and by the end of the fiscal year will have more than 1,200 automated machines that will help make 1,500 different models of footwear.
While implementing automation is a capital-intensive and time-consuming process, Sprunk said Nike is seeing significant benefits in the production processes:
Today, we are building a scalable solution capable of delivering a pair of midsoles and outsoles, the bottom, on average, in 2.5 minutes, compared to more than 50 in the past. Our new process uses 75% less energy, 50% less tooling cost and has a 60% reduction in labor.
Today, 94% of Nike's footwear is manufactured in three countries: Vietnam, China, and Indonesia, but Nike is working to change that, too. Shipping manufactured product from the factory to where the product is sold adds time and cost to the supply chain process. Nike is working with a footwear manufacturing partner in Mexico, Flex, to build over 3 million pairs for North America in the current fiscal year. These shoes will be fulfilled through Nike's direct-to-consumer channel, cutting precious time out of the delivery process. Sprunk said this strategic relationship with Flex "allows us to take our standard time from just manufacturing to market from about 60 days to 10 days or less."
As part of getting desired products to customers faster, Nike is working with a digital printing process that enables it to created customized apparel quickly. So, say your team wins a championship. You can quickly order and receive customized gear.
Sprunk wrapped up his presentation saying that "we're digitizing our end-to-end supply chain and creating a model with shorter lead times to deliver what consumers want, when they want it, where they want it." These innovations allow Nike to increase the speed in serving its customers, with less inventory and cost, and that's a win for customers and investors.