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. 听My biggest decision was which shoe I liked best in the store that day. 听It is no longer this simple. 听For example, 鈥渞ecent 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.鈥漑1] Companies like Adidas need to adjust to these changing consumer expectations. 听Currently, 鈥�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.鈥漑2] 听After 18 months, the product may no longer be relevant, leaving Adidas with excess inventory and a stale brand image.
In order 鈥渢o 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.鈥漑3] Adidas has recognized this and has aligned their 2020 growth strategy around speed and digitalization. 听They endeavor to 鈥渂ecome the first true fast sports company: Fast in satisfying consumer needs, fast in internal decision-making.鈥漑4] They have done this through investing in German speedfactories and experimenting with enabling omnichannel purchasing. 听
Adidas piloted the first speed factory in Germany in 2016. 听鈥�Altogether, in 2016, around 15% of total sales were generated with products manufactured on Speed programmes. It is the company鈥檚 ambition to increase the share of 鈥榮peed-enabled鈥� products to at least 50% of net sales by 2020.鈥漑5] 听In addition to producing products quicker with reduced labor costs, these speedfactories also have the potential to increase revenue because 鈥渢he share of full-price sales with these 鈥榮peed-enabled鈥� products is targeted to be 20% higher compared to the regular range.鈥漑6] 听Additionally, 鈥渓eaving behind manual production methods will allow Adidas to come up with novel shapes and finishes鈥� and to create more customized shoes based on the specifications of customers, 鈥減erhaps even with bespoke trainers fashioned from a computer scan of how a person walks or runs.鈥漑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 鈥漜onsumers expect brands and retailers to offer a seamless shopping and buying experience in-store, online, and on mobile devices.鈥漑8] 听To test an omnichannel supply chain hypothesis, 鈥淎didas implemented a trial of click and collect in Moscow expecting that just a few consumers would choose this option 鈥� 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.鈥漑9] Adidas also showed that 鈥渄elivery costs fell and sales increased substantially.鈥漑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. 听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. 听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 鈥渢raditional boundaries between the different planning steps鈥� and would transform 鈥減lanning into a flexible, continuous process.鈥� 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. 听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? 听How does Adidas ensure that they don鈥檛 lose their brand as they move towards high speed and customization?
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[1] Alicke, Knut, et al. 鈥淪upply Chain 4.0 In Consumer Goods.鈥� McKinsey & Company, Apr. 2017, pp. 1鈥�2.
[2] 鈥淎didas high-Tech factory brings production back to Germany.鈥� 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]听Alicke, Knut, et al. 鈥淪upply Chain 4.0 In Consumer Goods.鈥� McKinsey & Company, Apr. 2017, pp. 2
[4]听 鈥淪trategy Overview.鈥� www.adidas-Group.com, www.adidas-group.com/en/group/strategy-overview/.
[5] 鈥淎didas Increases Sales and Earnings Guidance Until 2020.鈥� www.adidas-Group.com, 8 Mar. 2017.
[6]听鈥淎didas Increases Sales and Earnings Guidance Until 2020.鈥� 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]鈥淎didas high-Tech factory brings production back to Germany.鈥� 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]听Benton, Dale. 鈥淪upply Chain 4.0: Adidas and Amazon re-Write the rules of supply chain management.鈥� Supply Chain Digital, 10 Feb. 2017, www.supplychaindigital.com/scm/supply-chain-40-adidas-and-amazon-re-write-rules-supply-chain-management.
[9]听Benton, Dale. 鈥淪upply Chain 4.0: Adidas and Amazon re-Write the rules of supply chain management.鈥� 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. 鈥淪upply Chain 4.0: Adidas and Amazon re-Write the rules of supply chain management.鈥� Supply Chain Digital, 10 Feb. 2017, www.supplychaindigital.com/scm/supply-chain-40-adidas-and-amazon-re-write-rules-supply-chain-management.
[11]听Alicke, Knut, et al. 鈥淪upply Chain 4.0 In Consumer Goods.鈥� 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.