How Supply Chain Improvements are Enabling Growth At Adidas
How Adidas is reorienting their supply chain around speed and digitalization to grow.
Some of my fondest memories from my childhood are going shoe shopping with my dad. My biggest decision was which shoe I liked best in the store that day. It is no longer this simple. For example, “recent online trends have led to growing service expectations combined with much more detailed orders. Also, a definite trend toward further individualization and customization is driving strong growth of and constant changes in the SKU portfolio.”[1] Companies like Adidas need to adjust to these changing consumer expectations. Currently, “from the first sketch of a completely new pair of trainers to making and testing prototypes, ordering materials, sending samples back and forth, retooling a factory, working up production and eventually shipping the finished goods to the shops can take the industry as long as 18 months.”[2] After 18 months, the product may no longer be relevant, leaving Adidas with excess inventory and a stale brand image.
In order “to build on these trends, cope with changed requirements, and enable a wide range of new technologies, supply chains need to become much faster and much more precise.”[3] Adidas has recognized this and has aligned their 2020 growth strategy around speed and digitalization. They endeavor to “become the first true fast sports company: Fast in satisfying consumer needs, fast in internal decision-making.”[4] They have done this through investing in German speedfactories and experimenting with enabling omnichannel purchasing.
Adidas piloted the first speed factory in Germany in 2016. “Altogether, in 2016, around 15% of total sales were generated with products manufactured on Speed programmes. It is the company’s ambition to increase the share of ‘speed-enabled’ products to at least 50% of net sales by 2020.”[5] In addition to producing products quicker with reduced labor costs, these speedfactories also have the potential to increase revenue because “the share of full-price sales with these ‘speed-enabled’ products is targeted to be 20% higher compared to the regular range.”[6] Additionally, “leaving behind manual production methods will allow Adidas to come up with novel shapes and finishes” and to create more customized shoes based on the specifications of customers, “perhaps even with bespoke trainers fashioned from a computer scan of how a person walks or runs.”[7] These first steps towards automating their supply chain show how embracing digitalization could lead to reduction in production times, increases in revenue, and a better aligned buying experience for customers.
Another way in which Adidas is working to increase speed in their supply chain is through enabling omnichannel purchases. Adidas recognized that ”consumers expect brands and retailers to offer a seamless shopping and buying experience in-store, online, and on mobile devices.”[8] To test an omnichannel supply chain hypothesis, “Adidas implemented a trial of click and collect in Moscow expecting that just a few consumers would choose this option – to buy on-line and collect the product at a store. They expected around 10 to 20 orders per week, but consumers embraced the idea and orders reached 1,000 per week.”[9] Adidas also showed that “delivery costs fell and sales increased substantially.”[10] Improving the speed by which consumers receive their products, Adidas has leveraged their supply chain to meet consumer preferences and increase their profits.
Adidas has taken the first couple steps to increase the speed in their supply chain but they still have a long way to go. They should continue with their current strategy and further expand speedfactory production and enable omnichannel purchasing and delivery in more locations. To get to the next level of speed in a digitalized world, Adidas should go a step further and incorporate machine learning and big data. Adidas can leverage big data across their entire product development cycle to cut down on the 18 month lead times. They can combine the online marketing data they collect with the supply chain data to get a holistic picture of their demand and customer preferences as early as possible. They can even predict where products will need to be delivered and when in order to reduce delivery times. A data driven, interconnected system would allow them to disrupt the “traditional boundaries between the different planning steps” and would transform “planning into a flexible, continuous process.” With quicker turnaround times to get highly customized and relevant products in the hands of the customer Adidas can become the leader in retail.
The path to a digitalized world looks achievable, but along the way Adidas will have to answer important questions. For example, is there still a place for creative directors and brand teams to drive a creative vision or will Adidas move towards a world where they build shoes automatically based on customer preferences? How does Adidas ensure that they don’t lose their brand as they move towards high speed and customization?
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[1] Alicke, Knut, et al. “Supply Chain 4.0 In Consumer Goods.” McKinsey & Company, Apr. 2017, pp. 1–2.
[2] “Adidas high-Tech factory brings production back to Germany.” The Economist, 14 Jan. 2017, www.economist.com/news/business/21714394-making-trainers-robots-and-3d-printers-adidass-high-tech-factory-brings-production-back.
[3] Alicke, Knut, et al. “Supply Chain 4.0 In Consumer Goods.” McKinsey & Company, Apr. 2017, pp. 2
[4] “Strategy Overview.” www.adidas-Group.com, www.adidas-group.com/en/group/strategy-overview/.
[5] “Adidas Increases Sales and Earnings Guidance Until 2020.” www.adidas-Group.com, 8 Mar. 2017.
[6] “Adidas Increases Sales and Earnings Guidance Until 2020.” www.adidas-Group.com, 8 Mar. 2017, www.adidas-group.com/en/media/news-archive/press-releases/2017/adidas-increases-sales-and-earnings-guidance-until-2020/.
[7]“Adidas high-Tech factory brings production back to Germany.” The Economist, 14 Jan. 2017, www.economist.com/news/business/21714394-making-trainers-robots-and-3d-printers-adidass-high-tech-factory-brings-production-back.
[8] Benton, Dale. “Supply Chain 4.0: Adidas and Amazon re-Write the rules of supply chain management.” Supply Chain Digital, 10 Feb. 2017, www.supplychaindigital.com/scm/supply-chain-40-adidas-and-amazon-re-write-rules-supply-chain-management.
[9] Benton, Dale. “Supply Chain 4.0: Adidas and Amazon re-Write the rules of supply chain management.” Supply Chain Digital, 10 Feb. 2017, www.supplychaindigital.com/scm/supply-chain-40-adidas-and-amazon-re-write-rules-supply-chain-management.
[10]Benton, Dale. “Supply Chain 4.0: Adidas and Amazon re-Write the rules of supply chain management.” Supply Chain Digital, 10 Feb. 2017, www.supplychaindigital.com/scm/supply-chain-40-adidas-and-amazon-re-write-rules-supply-chain-management.
[11] Alicke, Knut, et al. “Supply Chain 4.0 In Consumer Goods.” McKinsey & Company, Apr. 2017, pp. 8.
Interesting article. Addressing your questions, I do think there is space for creative directors and creative visions because I personally think that customisation can be limited to certain features of the products. For example, the shoe sole can be personalised depending how someone runs/walks while the exterior of the shoe, the fabric, and the colours can still be decisions of a designer. Limiting customisation to certain features also helps the brand to stay true to their core “style” and protect their brand image.
Very interesting! I applaud Adidas’s initiative to increase the speed and efficiency with which they deliver products to consumers. However, I think in a trend-driven industry like shoes, there will always be a place for creative directors. Adidas’s goal should not necessarily be to increase speed to increase customization, but to adopt a Zara-like model of decreasing turnaround time between design and delivery to ensure that they are able to deliver the latest trends in athletic-wear to consumers.