In a perhaps new to the world strategy, sports apparel giant Nike has signed a contract with giant private equity firm Apollo Global Management to create a new generation supply chain, including production facilities, in the Americas.
Supply Chain Digest Says... |
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| Private equity firms historically buy companies, they don't develop supply chain networks that will operate as a contract provider to others. |
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Details are still rather limited at this point, but the partnership is designed to build domestic manufacturing infrastructure, pivoting Nike's long time strategy of having most of its products made in Southeast Asia.
As a result of the new supply chain, Nike hopes to get products to customers quicker, including more rapid support for a planned increase in customized merchandise.
Terms of the partnership weren't disclosed. Nike has $32.4 billion in annual revenue. Apollo has some with $186 billion in assets under management.
"We are excited to be working with Apollo to rethink a new supply chain model to revolutionize apparel manufacturing in the Americas," said Eric Sprunk, Nike's chief operating officer, in a news release.
As part of the partnership, Nike and Apollo have formed a new supply chain company. It has acquired existing apparel suppliers in North and Central America. The company also will invest in new technology and likely acquire additional companies, with a goal of creating "a more vertically integrated apparel ecosystem." The new business has already acquired apparel maker New Holland as well as embellishment, warehousing and logistics business ArtFX.
"The new company, under Apollo's leadership, is committed to embedding sustainability and transparency into the business, investing in new technology, vertically integrating critical elements of the supply chain and delivering the best Nike performance product to our retail and sports partners," Sprunk said, in the release.
Nike isn't the only sportswear company investing in domestic manufacturing. Adidas recently said it will open its first U.S. factory near Atlanta in 2017. Rival Under Amour is building production capabilities in the Baltimore area right near its headquarters that will include very automated factories.
The new Nike facilities are also expected to be largely automated and allow it and perhaps other apparel firms to get products to consumers quicker and cheaper than shipping merchandise from Southeast Asia. Nike, Adidas and Under Amour all believe that automation can overcome the much higher labor rates in the US versus Southeast Asia.
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For Apollo, the investment is a bet on the rising demand for apparel and also on US domestic manufacturing.
 "We see a tremendous opportunity to meet the rising demand for responsive apparel manufacturing to serve increasing consumer expectations for products delivered when and where they want them," Josh Harris, co-founder of Apollo, said in a press release. "We intend to work with management to develop a regional supplier capable of servicing the needs of a wide variety of customers, and we are particularly enthusiastic to be working with such an iconic brand as Nike," Harris added.
The Wall Street Journal reports that in the past couple of years retailers have been complaining of late shipments by Nike. The company opened a new 2.8-million-square-foot distribution center in Memphis in June 2015.
So what appears to be the case here is something very different. A well-finance financial firm is committing to designing full supply chain capabilities including manufacturing and logistics which is will operate as a outsourced third-party to Nike and it appears other apparel companies as well.
Nike signs a contract committing it to use this new Apollo supply chain service for enough years that Apollo can feel confident enough to make the big investments needed to make it work. Jointly, Nike and Apollo design this new network, including factory automation, in a series of steps and phases.
It is not clear if Nike will have actual ownership in the new supply chain company being created here.
"I don't think we've ever really seen anything like this," says SCDigest editor Dan Gilmore. "Private equity firms historically buy companies, they don't develop supply chain networks that will operate as a contract provider to others. And outsourcers typically have been reluctant to invest in automation because of the short term nature of most contracts. That must not be the case here."
If successful, will this model bring a whole new paradigm into current supply chain thinking? Will it lead to a resurgence in US manufacturing - even if it will involve much fewer workers than in the past?
These are some of the key question from this innovative arrangement.
What do you think of this unusual Nike arrangement? What will be the challenges? Let us know your thoughts at the Feedback section below.
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