Speed is Key
Adidas operates in a dynamic and fast-moving fashion industry, where speed is key. The athletic footwear industry has expanded in the broader fashion market with more focus on design and diverse offerings. Increasing technology and digitalization are transforming the traditional fashion supply chain, putting pressure on retailers to increase their speed to market. At the same time, the end consumers are driving the supply chain. To gain competitive advantage, Adidas needs to constantly provide new and relevant products by anticipating customer demands and responding accordingly.
Along with the digitalization challenge, Adidas’s global manufacturing chain has become a hindrance as it typically takes Adidas 12 to 18 months to design, produce, and deliver a finished good.  In order to cover the development and manufacturing costs, Adidas needs to produce batches of 50,000 to 100,000 of shoes for one production run.  The inability to satisfy the increasingly demanding consumers can lead to inventory risk, over-production, high level of clearance, brand damage – and ultimately lead to liquidity and financial problems.
Becoming the True Fast Sports Company
To react quickly to consumer demands, Adidas is highly committed to building innovative manufacturing technologies and to making improvements in digitalization process at every stage of the supply chain. In fact, one of Adidas’s three strategic pillars is speed. Its mission is to become the first “true fast sports company” by 2020. 
In 2016, Adidas launched SPEEDFACTORY pilot project in Germany, a smart manufacturing process via robotic automation that integrates the design and production process tailored to specific markets.  This was developed to bring production closer to the market and accelerate building relationship with the customers by responding faster to volatile trends. Traditionally, Adidas would manufacture across specialized factories in different cities and countries, but this re-designed process allows Adidas to concentrate most of the supply chain in one location. 
Adidas utilizes data analytics and 3D technology to create shoes that are customized to the fit and functional needs of consumers. The 3D technology enables more frequent and rapid virtual product iterations without need for physical samples. Adidas also leverages the motion-capture equipment and applies it to human body to monitor the walking and running movements.  Most importantly, Adidas engages consumers earlier in the process. Prototypes can be tested quickly with consumers allowing Adidas to incorporate feedback into the next design iteration without the risk of excess stock or price mark-downs.
Key differentiation points
- Shorter lead time: reduces time from design to finished good from 12 to 18 months to as little as 45 days 
- Smaller batch size: enables Adidas to reduce batch size to as little as 500 pairs (vs. 50,000 to 100,000 pairs in traditional mass production) 
- Lower production costs: requires fewer materials and components and lower transportation and logistics costs from on-shore production 
- Mass customization: customers can input their specific data to come up with a shoe that is tailored to their wants and needs
While this digitalization process is still in its early stages, Adidas will ultimately have to implement this technology and automation to the whole organization. The challenge is to continue building momentum and scale to transform Adidas’s entire supply chain. Following a successful launch in Germany, Adidas recently opened a second SPEEDFACTORY in Atlanta, U.S., with the goal of producing 500,000 pairs of shoes in 2018.  Adidas’s goal is to increase the sales driven by these speed programs to be at least 50% of sales by 2020.  Because this is such a radical change in the organization, Adidas should continue to implement a segmented roll-out in key markets where it involves customers willing to pay higher price for the value-added products and services.
In addition, Adidas is not the only one investing heavily into digital supply chains. Nike has partnered with Flex, a high-technology manufacturer to create automation and customization systems for its supply chain. Under Armour opened its “Lighthouse” lab, which uses 3D design and body scanning to create custom products for both footwear and apparel.  To stay ahead of the competition, Adidas needs to go beyond technological advances in design and manufacturing and expand its capabilities across the whole supply chain including smart warehousing and logistics. They must also find the right partners with the critical skill sets to help drive the evolution of a disruptive change in this industry.
Lastly, Adidas still relies heavily on production in Asia. Adidas stated that this SPEEDFACTORY will act as a separate business model to complement the Asia operations rather than replace them.  Adidas has established strategic partnerships with third party suppliers in Asia for years – the question is how they plan to transform the entire organization while minimizing the disruptions. Will SPEEDFACTORY eventually replace the conventional production in Asia?
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