Nike says profit woes IT-based

Supply-chain vendor i2 says problems resolved

Footwear maker Nike Inc. said installation problems involving a new set of supply-chain management applications are largely to blame for an expected profit shortfall in the company's third fiscal quarter, which ended last week.

While the financial results warning didn't cite the specific problems involved or identify the software vendor Nike is working with, a spokeswoman for Dallas-based i2 Technologies Inc. confirmed that that company's applications are the ones in question. There have been difficulties with the implementation, but the problems "are behind us," she said

Philip Knight, Nike's chairman and CEO, said as part of last week's warning that the Beaverton, Ore.-based 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 weak U.S. footwear sales for the flat year-to-year revenue projection. The weak sales and software problems will likely lead to profits of 34 cents to 38 cents per share, down from the company's previous expectation of 50 cents to 55 cents per share.

Nike executives "are disappointed by the impact" 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.

Overcoming Challenges

The i2 spokeswoman said the company's software modules account for only about 10% of a $400 million enterprise resource planning (ERP) project that's ongoing at Nike. The installation was particularly large and unusually challenging, requiring a high degree of customization work, she added.

In any case, Knight didn't mask his displeasure with the situation. "I guess my immediate reaction is, 'This is what we get for $400 million?' " he said.

The customized applications had to be linked with other ERP and back-end systems, according to the i2 spokeswoman. The wide range of footwear products 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, the two companies still have "a strong partnership," she added.

But for i2, the damage may have been done.

"This creates a serious public relations problem for i2, as potential customers question the company's applications," said Mike Trigg, a commentator on Alexandria, Va.-based The Motley Fool Inc.'s Web site, which deals with finance-related issues.

"Nike apparently felt it had no choice but to disclose the problems, but this isn't the first time a company has attributed an earnings mishap to new software," Trigg said.

Copyright © 2001 IDG Communications, Inc.

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