Isolationism and the apparel supply chain
Since the global financial growth meltdown of September 2008, protectionism has become a growth industry, with numerous nations opting for various direct and indirect barriers to trade .
Adidas, the largest sportswear manufacturer in Europe, is with its global and multi-layered supply chain particularly exposed to political risk surrounding multilateral trade agreements. Since it has outsourced most of its production to over 1000 factories in 63 countries, restrictive measures could lead to higher sourcing costs, restriction of sales to the producing countries, and higher tariffs . These factors could significantly impact the company’s future market share, revenues, and profitability.
While many global apparel and footwear manufacturers show increasing concern about possible changes in existing trade policies, Adidas CEO Kaspar Rorsted claimed not feeling too much pressure from a potential border adjustable tax (BAT). Instead, he views higher taxes due to protectionist policies as just another macroeconomic challenge global companies have to confront and argues that BAT would hit almost every global manufacturer evenly since approximately 80% of the sporting goods industry’s products are made in Asia .
Despite these claims, Adidas seems to be currently investing in new supply chain and manufacturing standards from which the company would largely benefit in case protectionist adjustments on trade agreements.
SPEEDFACTORIES and 3D printing
Starting a new era of footwear creation, Adidas is moving local and has announced the creation of “SPEEDFACTORIES”, in which customized sports shoes are manufactured with new production techniques and robots. These highly automated SPEEDFACTORIES reduce lead times, increase speed to market, allow customization to specific markets, and reduce transportation costs ,,.
In these SPEEDFACTORY, Adidas is driving flexibility in customization to extremes through 3D printing. It has launched Futurecraft 3D, the first sneaker based 3D printed midsole in 2016 and is releasing in December 2017 the new Futurecraft 4D, a 3D printed running shoe midsole that is intended for larger scale production (100’000 pairs by the end of 2018) .
The pilot SPEEDFACTORY in Ansbach, Germany, is the testing ground for this new manufacturing model and is since mid 2017 fully operational. A second SPEEDFACTORY facility is to be opened this Fall in Georgia, Atlanta. Even if the production of these SPEEDFACTORIES are still a small percentage of the total worldwide production, by 2023, nearly 20% of Adidas shoes would come out of automated factories .
Adidas’ new ways of manufacturing not only address cost efficiencies and new trends in the retail business but they also help Adidas build resilience to possible adjustments in trade agreements. Moreover, these innovations provide Adidas with significant competitive advantage that could boost revenues, with more direct sales, reduce discounts, improve margins and reduce operational risk . This may be the reason why its CEO seems to be relatively unconcerned about the possibility of a BAT…
Other ways of mitigating political risks
As previously mentioned, around 80% of the production will still be outsourced by 2023. These new technologies will thus by far not suffice to mitigate the risk of changing trade agreements. To address the issue of increasing uncertainties in global trade policies, Adidas should also focus on (1) analyzing where the vulnerabilities in the supply chain are localized (e.g. manufacturing locations that are more prone to political instabilities) and (2) concentrate the production of Adidas’ more established product lines (as the Adidas Originals) in these countries. For these established product lines, future demand can more easily be forecast, allowing for supply chain optimizations and cost efficiencies (for example through lower inventory levels). These cost savings could help offset possible import tariffs that could compromise the profitability or demand for these products.
Not everyone is better off
While some high-skilled jobs may be returning to developed economies as Germany and the United States, automation and re-locating factories increases unemployment in the developing countries from which Adidas has for decades largely benefited.
Does Adidas now have the social responsibility to help find sustainable ways of relocating jobs that will be eliminated with a highly automated production? Or does this issue fall among the responsibilities of local governments?
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