The footwear industry supply chain has been described by analysts as \u201cslow, low tech, and highly labor intensive\u201d [1]. In recent years, this has become a major concern for Adidas, a large footwear and apparel company headquartered in Germany, which recognizes that companies that do not adapt to change risk their survival. Clarifying the underlying problem, Adidas\u2019 head of technology innovation has asserted that \u201cthe way our business operates is probably the opposite of what consumers desire\u201d [2].<\/p>\n
Apparel industry analysts have also claimed that customers \u201cwant three things: they want custom product, they want it fast, and they want innovation\u201d [3]. Across industries, customers are increasingly asking for more convenience and quicker delivery. According to an Adidas executive, \u201cspeed is all around us\u2026it\u2019s essential to our consumers who live in a world of immediacy\u201d [4]. Customization has generally been difficult to do at a reasonable cost because of the high fixed costs involved in production runs. The first company to figure out how to make a shoe fit every person\u2019s unique desires will have an important first mover advantage. Furthermore, if apparel companies are not constantly understanding and reacting to changing tastes, they risk losing customers. For the reasons above, Adidas felt it was critical to invest in digitalization technologies including automation, digital design, and 3D printing, which are all part of a new movement called Supply Chain 4.0 [5].<\/p>\n
Historically, production processes have consisted of a design phase followed by a manufacturing phase. Adidas\u2019 design process has become faster because it can be done digitally through virtual prototyping instead of creating molds and making physical samples [6]. Manufacturing time has decreased because of significant investments in automation and 3D printing. As a result, some think that \u201clead times could be cut from 18 months to just four\u201d [7]. Just as important is the fact that \u201cdesign and manufacturing are no longer separate processes; they now happen simultaneously\u201d [8]. This automated linkage improves efficiency because the company can switch to producing another SKU without stopping production to set up machines or train workers [9]. This provides a competitive advantage because Adidas can react quickly to changes in consumer preferences.<\/p>\n
The improvements in design and manufacturing have also made it cheaper to produce shoes. Morgan Stanley estimates that the new production model may be 10% cheaper than the traditional model [10]. Moreover, fixed costs have fallen significantly since less tooling and fewer samples are needed. When fixed costs decline, it becomes much more economical to make smaller runs of shoes. As global consulting firm Deloitte puts it, \u201cwhen less capital is required, the minimum efficient scale comes down\u201d [11]. Adidas is taking advantage of this by offering customization to its customers. In effect, customers will be able to order shoes that appeal to them more, whether that\u2019s a better fit or a unique design.<\/p>\n
In the medium term, Adidas plans to build additional production facilities closer to the customer [12]. This will enable them to understand local trends better and deliver to the customer faster. They also want to continue driving towards mass customization in the next ten years. In fact, Adidas\u2019s CIO, Michael Voegele, has said that \u201cthe capabilities we\u2019re building\u2026are geared toward lot size one\u201d [13].<\/p>\n
While I think that Adidas is doing well, there are a few additional steps they should take. One is that their Supply Chain automation experts should travel to other facilities to train employees just like Toyota sent its employees to American facilities. At the same time, I would recommend that Adidas be cognizant of the local environments in which they open new factories. We have seen that if foreign companies come in and impose their management style on those who are not used to it, there can be backlash. I would also suggest that they pilot their new approaches before rolling them out fully to the public. For instance, it would be unfortunate if customization was rolled out and Adidas could not fulfill orders within a reasonable time frame. Finally, I would caution Adidas that factories are very expensive, so they should be sure they have the demand for products before they commit capital.<\/p>\n
One concern I have is whether it is indeed possible to get to a run size of one and still be at a reasonable cost to the consumer. For that to happen, fixed costs would need to be quite small and I\u2019m not sure how feasible that is. I am also concerned about Adidas\u2019 ability to identify and adapt to consumer trends as quickly as is needed. Some trends seem to be over almost as soon as they start \u2013 even with the improvements they have made, could Adidas really capitalize on a trend before it dies?<\/p>\n
(788 words)<\/p>\n
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1<\/sup> Laura Berman, \u201cNike and Adidas Could Be on Verge of Unleashing Something Financially Game-Changing,\u201d TheStreet, June 7, 2017, https:\/\/www.thestreet.com\/story\/14168547\/1\/nike-and-adidas-could-be-on-verge-of-unleashing-something-financially-game-changing.html<\/a>, accessed November 2017.<\/p>\n 2<\/sup> \u201cAdidas\u2019s High-Tech Factory Brings Production Back to Germany,\u201d The Economist<\/em>, January 14, 2017, https:\/\/www.economist.com\/news\/business\/21714394-making-trainers-robots-and-3d-printers-adidass-high-tech-factory-brings-production-back<\/a>, accessed November 2017.<\/p>\n 3<\/sup> Marc Bain, \u201cAdidas Can Now Make Specialized Shoes for Runners in Different Cities, Thanks to Robots,\u201d Quartz Media, October 4, 2017, https:\/\/qz.com\/1081511\/adidas-can-now-make-specialized-shoes-for-runners-in-different-cities-thanks-to-robots\/<\/a>, accessed November 2017.<\/p>\n 4<\/sup> \u00a0\u201cAdidas Will Open Atlanta-Based Facility to Make Shoes in America,\u201d Adidas press release (Portland, OR, August 10, 2016).<\/p>\n 5<\/sup> Stefan Schrauf, \u201cDigitizing the Supply Chain,\u201d October 10, 2017, webinar, 性视界 Business Review<\/em>, https:\/\/hbr.org\/webinar\/2017\/10\/digitizing-the-supply-chain<\/a>, accessed November 2017.<\/p>\n 6<\/sup> Marc Bain, \u201cA Revolution is Coming in the Way Your Sneakers are Designed and Manufactured,\u201d Quartz Media, June 8, 2017, https:\/\/qz.com\/1000737\/a-revolution-is-coming-in-the-way-your-sneakers-are-designed-and-manufactured\/<\/a>, accessed November 2017.<\/p>\n 7<\/sup> ibid.<\/p>\n 8<\/sup> Marc Bain, \u201cAdidas Can Now Make Specialized Shoes for Runners in Different Cities, Thanks to Robots,\u201d Quartz Media, October 4, 2017, https:\/\/qz.com\/1081511\/adidas-can-now-make-specialized-shoes-for-runners-in-different-cities-thanks-to-robots\/<\/a>, accessed November 2017.<\/p>\n 9<\/sup> \u201cAdidas\u2019s High-Tech Factory Brings Production Back to Germany,\u201d The Economist<\/em>, January 14, 2017, https:\/\/www.economist.com\/news\/business\/21714394-making-trainers-robots-and-3d-printers-adidass-high-tech-factory-brings-production-back<\/a>, accessed November 2017.<\/p>\n 10<\/sup> Marc Bain, \u201cA Revolution is Coming in the Way Your Sneakers are Designed and Manufactured,\u201d Quartz Media, June 8, 2017, https:\/\/qz.com\/1000737\/a-revolution-is-coming-in-the-way-your-sneakers-are-designed-and-manufactured\/<\/a>, accessed November 2017.<\/p>\n 11<\/sup> Adam Mussomeli, Doug Gish, and Stephen Laaper, \u201cThe Rise of the Digital Supply Network,\u201d Deloitte Insights, December 1, 2016, https:\/\/dupress.deloitte.com\/dup-us-en\/focus\/industry-4-0\/digital-transformation-in-supply-chain.html<\/a>, accessed November 2017.<\/p>\n