Nike: Manufacturing and Real Options

Nike does not have the overhead that comes with owning ad operating its own manufacturing facilities.  Instead, Nike chooses to contract its manufacturing out to specialists, saving enormous amounts of money.  The decision to do so is both financial and strategic.

Financially, Nike is not responsible for the day-to-day operations of the plant.  They don't directly pay the employees.  Nor do they pay for the purchase and maintenance of the equipment involved in the manufacturing process.  This frees up money for the most important of Nike sustaining its competitive advantage - innovation.

By employing the option to contract, Nike does not have to physically mass produce the products and can spend more time developing new or improved technologies and products.  They are also not tied to a plant if there is an advance in manufacturing technology that would allow them to produce their products more efficiently, or even push the envelope of what can be done.  The headache of shutting down a plant and opening a new and improved plant does not exist.  This is where Nike exercises its flexibility.

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