While a lot of companies these days fault the U.S. economy for earnings shortfalls, Nike took a different tactic this week when it laid the blame for its weak profits on i2 Technologies' supply-chain management software.
Nike says it will take the company six to nine months to work its way through installation snags that led to excess inventory and order delays, which in turn reduced sales.
The sportswear maker Monday warned that it will miss expectations for its fiscal third-quarter earnings by a long shot -- at least 28%. Analysts were expecting the company to earn 53 cents a share, but Nike said it now expects that figure to fall between 34 cents and 38 cents a share. The company did not disclose how much it expected to report in revenue for the quarter ended February 28.
The news tripped the stock prices of both companies. On Tuesday, Nike shares fell 19.5% to $39.60, and i2 shares fell 22.4% to $27.56.
Nike CEO Philip Knight said in a statement that the company was anticipating "a flat, year-over-year third quarter largely because of weakness in our U.S. footwear revenues." What the company did not anticipate were glitches in supply-chain software deployment that disrupted inventory in Nike's footwear division. "During the quarter, we also experienced complications arising from the impact of implementing our new, demand-and-supply planning systems and processes which resulted in product shortages and excesses as well as late deliveries," Knight said.
In a conference call Monday evening, Knight was a little more direct. "I guess my immediate reaction is, 'this is what I get for our $400 million, huh?'"
In its statements, Nike did not identify i2 as the vendor responsible for its supply-chain applications. But an i2 spokesperson confirmed the company's applications were the ones in question.
I2 CEO Sanjiv Sidhu said in an interview with CNBC that "i2 software is extremely powerful, and had it been implemented properly, it would have helped them overcome these problems."
Tom Harwick, Giga Information Group research director for supply-chain management, also stresses the importance of proper implementation.
"Implementing a supply-chain management solution is like crossing a street," Harwick says. "High risk, if you don't look both ways, but if you do it right, low risk." Doing it right means taking a few precautions, he says, such as appropriating adequate resources, understanding how a system will improve business processes, and managing expectations.
He points out that i2 has numerous successful implementations. "When you have a software vendor whose product works in most places it's installed, you have to wonder if the implementation is to blame."
As for who is responsible for the poor installation, Harwick says: "A client can delegate responsibility to a software vendor or a systems integrator, but ultimate responsibility has to lie with the client."
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This story, "Nike says i2 hurt its profits" was originally published by Network World.