Adidas “Speedfactory”: Delivering what customers want, when and where they want it
Adidas, the giant sportswear manufacturer with more than $ 19.0 Billion in revenues, sold 360 million pair footwear in 2016 and produced 97% of total footwear volume in Asia. [1] However, “Speedfactory” project that Adidas initiated under the umbrella of German Government’s “Autonomic for Industry 4.0” program seems that it will innovate supply chain operations in sportswear industry soon. [2]
In last years, with the increased penetration and higher service level of e-commerce customers in consumer goods market has become more used to expedited deliveries. Change in customer expectations does not only affect delivery operations, but also increased the pressure to manufacture faster and adopt to changes in customer demand more quickly. Furthermore, competition in fast moving fashion market incentivized companies to offer customized products, which required complex inventory management and production processes, to differentiate. At the end of the day all of these challenges led companies to focus more on supply chain operations.
A pioneer technology and process design
Adidas, who appeared to be the first player in sportswear market to come up with a solution to rapidly changing trends and long supply chain processes, developed “Speedfactory”, a new plant design, to manufacture footwear in local markets with robots and additive manufacturing such as 3D printing to enable speed, precision and responsiveness. [3] “Speedfactory” has multiple advantages. First, it decreases setup time significantly by eliminating retooling of conventional machines and instruction of manual workers in design changes. [4]. Secondly, it decreases number of units kept in inventory because “Speedfactories” will be located in local markets and will eventually shorten shipping time. Today even for a popular design in the market it can take two or three months to replace inventories in stores. [4] Third, “Speedfactory” project includes a digital virtual a computer model to simulate footwear’s production in order to speed up production preparations. Therefore, “Speedfactory” will allow Adidas to customize faster and smaller batches of products and offer customers a broader product range. [5] For example, Mi Adidas, online sales channel which allows product customization, currently requires 4-6 weeks for delivery and Adidas targets to decrease delivery to 4-5 business days with “Speedfactory”. [6]
Journey to create a network of connected “Speedfactories”
In October 2017, Adidas announced its first product series AM4, which would be produced in first “Speedfactory” facility in Ansbach, Germany. [3] In an industry where shipping of a new footwear design from the initial design sketches might take up to 18 months Adidas plans to release individually designed and manufactured shoes in six key cities around the world in 2018. [4][5] Paul Gaudio, Adidas Global Creative Director, defines “Speedfactory” as an enabler to co-create unique product solutions based on individual athlete needs and desires, delivering what they want, when and where they want it. [3] In short term another “Speedfactory” facility will be opened in Atlanta, US in 2017 as a next step and each facility will have production capacity up to 500,000 pairs of footwear per year. [1] According to the current information in the market Adidas plans to use “Speedfactories” to complement current production facilities instead of replacing them. [4] On the other hand, in an interview Gerd Manz, senior innovation director in Adidas, stated their vision to create a network of connected “Speedfactories” in key markets to integrate information exchange in terms of production techniques, local trends, material or capacity availability. [7]
Footsteps of an innovation or disruption
Regarding the role of current manufacturing facilities in Asia and product development cycles in the market there are two key concerns which should be addressed by Adidas management. One concern is the effect of new manufacturing methodology on company’s internal processes and the other concern is effect of rapid manufacturing on first mover advantage and barriers to copy a product. To begin with company’s internal processes, first the transition from current manufacturing methodology and plants requires a detailed transition plan and the most challenging issue is to make this transition without a disruption in operations. Secondly, giving too many customization opportunities to customers might create an undesired confusion in customers and lead to decrease in sales. Third, effect of using robots and additive manufacturing on variety of materials which can be used in production should be evaluated. On the other hand, Adidas should seek ways to protect itself from copy cats when automated manufacturing methodology becomes ubiquitous in the market in the long run.
In my opinion one important question to answer about “Speedfactory” is how to position it in supply chain operations both to create a competitive advantage today and preserve it when this technology becomes ubiquitous in the market tomorrow. (748 words)
[1] Adidas AG, 2016 Annual Report, p 65-68, https://www.adidas-group.com/media/filer_public/a3/fb/a3fb7068-c556-4a24-8eea-cc00951a1061/2016_eng_gb.pdf, accessed November 2017
[2] Adidas AG, “Speedfactory/Future of Manufacturing”, https://www.adidas-group.com/media/filer_public/2013/11/27/adidas_speedfactory_factsheet_en.pdf, accessed November 2017
[3] Adidas AG, “Adidas Launches AM4 Project in Landmark Moment for Speedfactory Facility”, https://www.adidas-group.com/en/media/news-archive/press-releases/2017/adidas-launches-am4-project-landmark-moment-speedfactory-facilit/, accessed November 2017
[4] “Adidas’s High Tech Factory Bring Production Back to Germany”, The Economist, January 2017, https://www.economist.com/news/business/21714394-making-trainers-robots-and-3d-printers-adidass-high-tech-factory-brings-production-back, accessed November 2017
[5] Stephanie Pandolph, “Adidas Uses Speedfactory to localize Shoe designs”, Business Insider, October 2017, http://www.businessinsider.com/adidas-uses-speedfactory-to-localize-shoe-designs-2017-10, November 2017
[6] Man Mohan S. Sodhi and Christopher S. Tang, “Supply Chains Build for Speed and Customization”, MIT Sloan Management Review, June 2017, http://sloanreview.mit.edu/article/supply-chains-built-for-speed-and-customization/, accessed November 2017
[7] “Interview to Gerd Manz, Adidas Group: Customers want to be part of creation process, Sustainable Brands Madrid, http://sustainablebrandsmadrid.com/blog/interview-gerd-manz/, accessed November 2017
This is a very interesting Cenk, as many other companies making products will face a similar challenge in the coming years. First, as customization is trend becoming more trendy every day, I do believe that Adidas will have a competitive advantage by being the first to address this issue. In fact, not only Adidas will be able to offer a customized product faster, but they will also reduce costs, from inventory up to labour costs. To answer the question you’re asking, there are 2 things to consider: the first one is to really understand where Adidas finds today a competitive advantage: is it by reducing the labour cost in its factories? not having to ship products worldwide? or delivering faster the product to the customer? I believe their biggest advantage is the responsiveness they are able to provide for any given product: if a product is not well received by the market, they are able more quickly to adjust it and deliver the products its customers want. Regarding the expansion of the technology in the future, Adidas will have to come up with more exclusive and limited edition product that Speedfactories will make profitable to produce.
Thank you for this article Cenk, really enjoyed reading about an application of 3D printing that was less obvious to me. I generally agree with your concerns around (i) a smooth transition towards a speed-factory model, (ii) possible consumer confusion due to ‘over-customization’ and (iii) the impact on raw material choices. I would like to add one more concern and slightly push back on your fourth concern (risk for copy cats if automated production picks up speed). One additional concern is that Adidas needs to build a sound business case to pressure-test the assumed financial gains of its speed factory model – machines or suitable raw materials might be very costly to procure. Second, I feel that the risk of copy cats is present regardless of the technological manufacturing platform: even without access to advanced automation, it is feasible to counterfeit Adidas and other fashion wear in a low-cost manner. In the European Union alone, the fashion industry loses around 28 billion USD annually to counterfeited clothing and footwear. [1]
‘Fighting the $450 Billion Trade in Fake Fashion’, The Business of Fashion, https://www.businessoffashion.com/articles/intelligence/fighting-the-450-billion-trade-in-fake-fashion, accessed December 1, 2017
Really interesting article Cenk. This “Speedfactory” will certainly help Adidas to better serve the increasingly changing customer demands in a more quickly way, creating a differentiating competitive advantage in this age of fast fashion. On the other hand, I agree that it could build a cost advantage in terms of labor and handling lower inventories. Your concerns on the internal impact and the potential consequences at the customer level make a lot of sense, too.
Nevertheless, I wonder to know if this capital-intensive model would be profitably scalable. Considering that Adidas’ intention is to develop several Speedfactories in local markets, I am skeptical about the real savings this project could deliver to Adidas as a whole company (transportation costs and labor are typically much lower than this kind of technology).
My other concern is how Adidas will maximize the connectivity between these automated factories and the customers’ demand. While e commerce is a well developed distribution channel in the US, I am not so comfortable with this model to attend lower develop economies, such as Latin America and SE Asia, where internet and electronic payment methods have little penetration. Likewise, how Adidas will manage this issue with current distributors and retailers in a market where product trial and touch and feel is so important?