Changing the Sole of Adidas: Stepping into the Future with a Digital Supply Chain

Move over, Zara and H&M, there’s a new name in fast-fashion: Adidas.

Through bold moves including 3D printed shoes produced in the US and the EU, as well as aggressive changes to its supply chain, Adidas is aiming to become the world’s first “fast sports” company [1], vowing that 50% of its sales will be “speed-enabled” by 2020 [2].

Historically, shoe production takes 18 months from concept to shelf [3]. To capture the fast sports market Adidas has been rapidly reshaping its supply chain to improve its speed to market.

Impetus for Digitization

Adidas has been focused on improving speed to market through a digitized supply chain since at least 2015 when the company included it as one of three strategic pillars [4]. Three market trends make the digitized supply chain a strategic imperative:

(1) Inability to Respond to Consumer Trends Quickly. Adidas’s historical long lead time from concept to shelf makes it difficult to capture in-season trends and leads to product waste and discounting resulting from long lead time production decisions. The trend towards fast fashion further favors companies with rapid supply chains.

(2) Customization. Consumer trends favor unique, custom products, delivered quickly. A more flexible supply chain increases service by delivering customers a custom or small batch product quickly. [5]

(2) Cost Trends. The costs of labor across Asia are rising, making Asian production less attractive [6]. What’s more, the Asian production model is conditioned on high batch sizes – typically 50,000 to 100,000 or more which makes this model incompatible with the trends towards customization [7].

The long-term vision for Adidas is a flexible supply chain delivering a bespoke product. CIO Michael Voegele says, “The capabilities we’re building and trying to build are geared toward lot size one.” [8]

The Speedfactory

Adidas’s most ambitious bet involves moving production back to the western world. The company recently opened two highly automated “Speedfactories” in Germany and Atlanta. These factories produce shoes with just 160 workers using 3D printed soles and other high-tech manufacturing processes. [9]

These Speedfactories hold the promise of lowering inventory and warehouse costs while bringing products to market faster and with lower batch sizes [10]. While the Speedfactories produce just one million shoes per year today (.5% of total production [11]) they are key to the company’s long-term strategy.

Other Digital Supply Chain Initiatives

In concert with its Speedfactory initiative, Adidas has taken steps to digitize its entire supply chain. For example, Adidas has reduced its time to market by implementing rapid prototyping enabled by 3D printing. A process that used to take four to six weeks and require a dozen technicians can now be done in just a day or two by employing 3D printing technology and computer simulations. [12]

The company made another notable effort in Russia where it tracks inventory through in-shoe RFID chips. This inventory system allows customers to purchase online and pick up in store, or have shoes shipped directly from local stores. The move has proved popular and 70% of Adidas’ sales in Russia are now through “click-and-collect” sales. [13]

Capturing Supply Chain Value: The Need for Consumer Engagement

The long-term promise of Adidas’s supply chain – localization and personalization – will be dramatically more valuable with an engaged user base anxious to personalize their shoes. While Adidas has succeeded in releasing on-trend products recently, it needs to improve mobile and online customer engagement to capture the value of its supply chain in the longer term. If the value of its supply chain is in customization, Adidas may not be as successful pushing its products through existing channels.

Perhaps recognizing this, Adidas released its first ever dedicated mobile shopping app in the US and the UK in early November [14]. To continue to gain ground on Nike, Adidas will need to create more ways for consumers to take advantage of its digitized, bespoke supply chain through new ordering systems and improved delivery capabilities.

Creating a Sustainable Competitive Advantage

If Adidas has its way, one day soon running pros, sneakerheads and athleisure aficionados will be able to order a custom 3D printed shoe and have the sneakers delivered within a day or two. It’s an impressive customer promise facilitated by a digitized, nimble supply chain.

And yet, the very technologies Adidas is producing may threaten many of the market advantages Adidas possesses. If shoes can be produced in small batches economically, how will Adidas fend off a new wave of footwear entrepreneurs? Will the Warby Parker’s of the world make inroads into athletic shoes? How can Adidas use its digitized supply chain as a competitive edge against established players like Nike or likely entrants like Amazon?

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Student comments on Changing the Sole of Adidas: Stepping into the Future with a Digital Supply Chain

  1. Bespoke shoes and apparel are phenomenal concepts for the active wear retail space. When paired with rapid fulfillment for the customer this long term vision at Adidas is fascinating! Adidas, while small in market capitalization compared to Nike, is a worldwide brand with a strong following. Leveraging their existing network and expanding to new markets with this capability will be integral to their success.

    I am concerned, however, with the ability for Adidas to scale this model given their current supply chain structure. Program supporters have claimed that these “speed factories” will complement their current network of suppliers in Asia [1], but inevitably this will lead to an erosion of the supply networks they have built in the region. The new factories would then have to not only source additional raw materials to subsidize production from the older factories, but also have the capacity to produce their mass-market lines in the same facilities.

    I also see logistical difficulties with this model in transporting the finished goods to the consumer. Distribution and fulfillment networks are not naturally occurring or inexpensive and it will be a challenge for Adidas to grow both its factory operation to scale and its distribution network before players such as Amazon are able replicate it [2].

    I am excited to see how quickly Adidas will scale this business and whether or not it cannibalizes its current supply chain to embrace digitalization through 3D printing – if they can scale both the supply chain and fulfillment networks simultaneously they may not have to compete head to head with Nike, Amazon, or others for the fast fashion active wear market.

    [1] Various, “Adidas’s high-tech factory brings production back to Germany,” The Economist, January 14, 2017 (print edition).
    [2] John Newman, “Amazon Launches 3D Printing Services”, Supply Chain 24/7, July 30, 2014.

  2. One question I have after reading this is: to what extent should Adidas be identified as fast-fashion and be compared to the likes of H&M given the difference in price point and customer promise of quality? Said a different way, when I invest in a good quality pair of shoes from Adidas I expect them to last at least a year. I wonder if that plays a factor in the frequency with which this product is bought and therefore the value of becoming the fast sports company, especially at the risk of entrepreneurial competition you described.

  3. The thought of buying a 3D printed show is a fascinating one. I think that 3D printing technology will completely change the way manufacturers interact with consumers and how they think about supply chain. Adidas is absolutely right in taking this initiative to lead this transformation. Would you rather be the one leading the disruptive innovation or the one being disrupted. The choice is clear. If Adidas can be successful in this endeavor, then it will unlock a world of opportunities for itself to expand this technology to other areas of its business or even move into other industries with its 3D printing expertise as the competitive edge. I think that we might one day be eating 3D printed foods that we download into our homes let alone a pair of sneakers. I think that day will come sooner than we think.

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