How Adidas is Utilizing Industry 4.0 to Reduce Time to Market
Adidas is introducing 'Speedfactories' enabled by Additive Manufacturing to shorten its supply chain process and time to market.
It has taken on several different names. The Fourth Industrial Revolution. Industry 4.0. Regardless of debate over title, there is little doubt that the next wave of automation and digitization in production of consumer goods has arrived. It is and will continue to be increasingly essential for companies to align their supply chain processes with said advancements in order to stay competitive.
One company embracing both the challenge and opportunity created by Industry 4.0 is Adidas. Adidas is responsible for roughly 35% of revenue generated in the global athletic footwear market, which in 2015 was valued at $80 Billion. [1]
The global athletic footwear market has seen growing consumer demand for personalized shoes, as well as products embracing seasonal trends. The challenge posed to Adidas and its competitors is their products’ time to market with their current supply chain model, which relies heavily on manual labor in giant factories. In short, according to the Economist, “people want fashionable shoes immediately, but the supply chain struggles to keep up.” [2] This successive process of designing, testing, ordering of raw materials, manufacturing, and distributing can take up to eighteen months, but the majority of shoe models are then offered on sale for less than a year. As Gerd Manz, Head of Technology Innovation at Adidas, phrased it, “The way our business operates is probably the opposite of what consumers desire.” [3]
Instead of sitting back on its heels, Adidas is embracing supply chain digitization by piloting the usage of additive manufacturing, often known as 3D printing, with the goal of reducing both manufacturing and production periods, and ultimately the time to market of its footwear products. This concept was first tested in December of 2016 with the sale of a limited-edition 3D printed shoe. Impressively, the sale of this model came only four months after the product concept was first announced. [4]
In January of 2017, following the success of its first 3D printed trainer line, Adidas announced that they will be building a new smart factory in Ansbach, Germany in conjunction with local firm Oechser Motion. Embracing their ‘need for speed’ in manufacturing and production time, Adidas is appropriately calling this the Speedfactory.
Adidas is betting on the Speedfactory to shorten the most time-consuming stage of their supply chain process: prototyping. The prototyping process currently requires both suppliers of raw materials and manufacturers to physically see, try out, and return the product to Adidas. When additional changes are required, as they often are, this process is inevitably lengthened. [5]
Instead, in their new Speedfactory, prototype testing time could be shortened from several months to a few days with the integration of 3D design and 3D printing programs. In addition, the Speedfactory will allow robots to take on time consuming tasks and significantly reduce downtime in the factories often caused by the reprogramming and retooling of machinery required by the switching of product lines.
In the short term, Adidas hopes to begin 3D printing production at the Ansbach Speedfactory in 2017, with the aim of increasing production to 500,000 pairs of sneakers per year. [6] The company is also building a second Speedfactory outside of Atlanta, Georgia to pilot with their American market. In the long term, should their Speedfactories perform as anticipated, 3D printing and supply chain digitization will undoubtedly continue to appear both in existing factories and in additional new ones around the world. The potential opportunity is massive. According to Forbes, smart factories will enable a 7X increase in overall productivity and have the potential to add between $500 Billion and $1.5 Trillion in value to the global economy by 2022. [7]
Adidas management is clearly placing a high priority on driving commercialization through supply chain innovation. In their 2016 Proxy Statement, they highlighted Manufacturing Innovation, and the Speedfactories specifically, as one of their “Five Pillars of Innovation.” [8] On top of steps they are already taking, I would actively seek to monitor the supply chain digitization initiatives of their competitors, seek out best practice learnings from exemplars in smart factory utilization, and look for opportunities for acquisition of additive manufacturing and robotics companies to enhance the scaling of these practices.
Ongoing questions regarding additive manufacturing at Adidas include: What are the IT and data security threats, particularly regarding proprietary production and product knowledge, aggravated by the digitization of Adidas’ supply chain? On a macro-economic level, what is the effect of the loss of human jobs to such automations? Will this drive further societal inequality? Finally, will the process integrity of factories such as those Adidas is creating be able to remain intact with reduced human oversight?
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[1]“Athletic Footwear Market Analysis, Market Size, Application Analysis, Regional Outlook, Competitive Strategies and Forecasts, 2016 to 2024,” Grand View Research, 2016, {http://www.grandviewresearch.com/industry-analysis/athletic-footwear-market}. Accessed November 2017.
[2]“Adidas’s High Tech Factory Brings Production Back,” The Economist, July 14, 2017, { https://www.economist.com/news/business/21714394-making-trainers-robots-and-3d-printers-adidass-high-tech-factory-brings-production-back}. Accessed November 2017.
[3] Ibid.
[4]Young, Joseph, “Adidas Launches Smart Factory Run by 3D Printers & Robots in Germany,” 3DPrint.com, January 19, 2017, {https://3dprint.com/162252/adidas-smart-factory-3d-printing/}. Accessed November 2017.
[5] Ibid.
[6] “Adidas’s High Tech Factory Brings Production Back,” The Economist.
[7] Columbus, Louis, “Smart Factories Will Deliver $500B in Value by 2022,” Forbes, July 30, 2017, {https://www.forbes.com/sites/louiscolumbus/2017/07/30/smart-factories-will-deliver-500b-in-value-by-2022/#17c2c54f2d22}, accessed November 2017.
[8] Adidas, 2016 Annual Report, p. 71-72, {https://www.adidas-group.com/media/filer_public/a3/fb/a3fb7068-c556-4a24-8eea-cc00951a1061/2016_eng_gb.pdf}. Accessed November 2017
Additional Sources:
Marr, Bernard, “What Everyone Must Know About Industry 4.0,” Forbes, June 20, 2016, {https://www.forbes.com/sites/bernardmarr/2016/06/20/what-everyone-must-know-about-industry-4-0/#5ed2fee4795f). Accessed November 2017.
Klaus Schwab, “The Fourth Industrial Revolution: What it means, how to respond,” World Economic Forum, January 14, 2016, { https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/}. Accessed November 2017.
Really interesting article! I see how 3D printing can have a huge impact on a company like Adidas. From a TOM perspective, the company can drastically improve their factory’s capacity and churn out significantly more shoes in one day than they used to be able to do. The flip side is that for retail companies that pride themselves on their brand and quality (like Adidas), 3D printing can have a negative impact as well. With the spread of 3D printing, will Adidas shoes become commodified? And at that point, how can a company like Adidas continue to differentiate itself as a unique retail brand?
Adidas’ implementation of 3-D printing within product manufacturing has the potential to yield dramatic reductions in their time to market. Given the fervent appetite sneakerheads have demonstrated for new releases, I wonder how long customers will be satisfied with this improvement. As the design-to-distribution timing normalizes, I wonder which components of the product development cycle will be identified as the bottlenecks in the future. If the amount of time spent ordering raw materials is challenged, Adidas may be tempted to limit their raw materials list to simplify their inventory and eliminate that step in the process. Doing so would create tension with another pillar of future success: the company’s ability to develop new technology in conjunction with their sponsored athletes. If Adidas has limited their feedstock to certain raw materials, product innovation may be hindered.
Really interesting article. I do see a huge upside in leveraging 3D printing to reduce the time to adapt to latest fashion but my Biggest concern with using economies of scale to become further cost efficient would be – how do you predict the quantity you are manufacturing with a level of confidence to ensure you don’t over produce and incur the cost of excess unsold inventory. The reason why I think predicting the quantity is difficult because this is fashion we are talking about and we all have seen no one can assure how good a new design or model will do.
This is a really insightful article, Sarah. Initially, Industry 4.0 in manufacturing related to process automation, data integration and usage of Internet of things (IOT) to improve cost, product quality and process integrity. Its interesting how manufacturing innovations in prototyping, product development can impact supply chain responsiveness and become a competitive advantage in industries such as fashion.
One concern as factories use external automation or digitization tools such as 3d printing is the dependency on external manufacturers and dilution of competitive advantage in manufacturing. For example, in Adidas’ case, its 3d printer supplier/manufacturer can have access to prototyping methodology and design principles of Adidas which can be transferred to other competitors of Adidas. I feel it is imperative for big companies to invest in not only adopting industry 4.0 technology, but also developing and establishing their own platforms whether it is digital infrastructure or process automation technology to create strong barriers for competition.
Another factor would be the perceived and actual difference in quality and performance of product when this technology is used for bulk manufacture. Surely, Adidas must evaluate any such tradeoff if there is, given its brand reputation of superior functionality and performance of its footwear range.