{"id":25415,"date":"2017-11-15T20:13:02","date_gmt":"2017-11-16T01:13:02","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/how-digitalization-is-supporting-adidas-expand-the-reach-of-fast-fashion\/"},"modified":"2017-11-15T20:13:02","modified_gmt":"2017-11-16T01:13:02","slug":"how-digitalization-is-supporting-adidas-expand-the-reach-of-fast-fashion","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/how-digitalization-is-supporting-adidas-expand-the-reach-of-fast-fashion\/","title":{"rendered":"How digitalization is supporting Adidas expand the reach of Fast Fashion"},"content":{"rendered":"

How can Adidas achieve sustainable growth in such competitive market as the sport sector? For many years, Adidas bet in its R&D capabilities and brand strength. However, after declining sales in 2013 and 2014, it was time for a change: the company shifted from product to a customer-centric strategy, investing in product customization[1]<\/sup>. Adidas is trying to adapt the wide-known Zara\u2019s strategy to the sport industry. However, this requires fundamentally transforming the company\u2019s supply chain with two purposes: (1) drastically shorten the time-to-market \u2013 today, it takes up to 18 months to deliver a sneaker[2]<\/sup>\u00a0from design to shelf, and (2) increase flexibility to make the production of customized \u2013 and usually smaller \u2013 batches economic feasible.<\/p>\n

Supply chain digitalization is a wide-spread trend and is one of the main enablers for Adidas to \u201ctransform\u201d into fast fashion. Potential solutions include: data-driven design, IT integration with suppliers and retailers, real-time planning, automation of manufacturing facilities, among others. It is also important to highlight that shortening the supply chain may also imply in physically bringing together all the elements of the chain, which directly ties to the isolationism trend. Adidas outsources almost 100% of its production to independent third-party suppliers, primarily (roughly 80%) located in Asia. Bringing the chain closer to the customer would fundamentally change the production footprint: in 2016, Asia represented 36% of Adidas\u2019 sales[3]<\/sup>.<\/p>\n

In the short term, Adidas has been testing digitalization concepts in each of the steps of its supply chain: design, manufacturing and distribution. Scaling the digitalization up is certainly the company\u2019s long-term goal. However, it still seems unclear how it plans to achieve this.<\/p>\n

On design, Adidas is investing in data-analytics to decrease the design time while increasing accuracy. In 2015, it acquired Runtastic, a mobile fitness startup, getting access to data of 70 million users[4]<\/sup>. Also, the recently launched AM4 series has been developed based on athletes\u2019 data and an open-source co-creation[5]<\/sup>.<\/p>\n

\"\"
Adidas’ Speedfactory<\/figcaption><\/figure>\n

On manufacturing, Adidas is testing \u201cSpeedfactories<\/em>\u201d. The first plant, with a small capacity of 500,000 pairs of trainers a year, was built in Germany, while more than\u00a090% of the company\u2019s trainers\u2019 production is mostly manual and located in Asia[3]<\/sup>. Adidas built its\u00a0s<\/em>peedfactory<\/em> with highly automated and flexible machines, wide use of 3D printing machines and near to the end customer[6]<\/sup>. While replenishing an existing design through Asia\u2019s facilities may take two to three months, Adidas is targeting to decrease the time to less than a week[2]<\/sup>.<\/p>\n

On distribution, Adidas focused on omni-channel initiatives\u00a0through its e-commerce and own-retail stores. The company is investing in technology, such as RFID, to allow online buyers tocheck stores inventory, purchase online and collect in store[3]<\/sup>. Also, in India, the company used tablets to give access for the stores\u2019 customers to the full range of products in the e-commerce platform[7]<\/sup>. Through this, Adidas minimizes the occasions the consumer is not able to find the product. In Russia, the company also started the \u201cShip from Store\u201d initiative, transforming points of sale in small distribution centers, reducing the distance to consumers and decreasing delivery time[8]<\/sup>.<\/p>\n

Adidas has clear rollout goals in the medium term. The company aims to increase the participation of low time-to-market products from 15% of sales in 2016 to 50% in 2020[3]<\/sup>. It\u00a0also expects to increase own-retail stores sales from 40% in 2014\u00a0to 60% in 2020[9]<\/sup>. The main challenge for Adidas, however, is how to make such a significant shift from outsourcing to in-house manufacturing and increase direct-to-consumer distribution without disrupting operational and financial performances.<\/p>\n

For manufacturing, Adidas should consider two business units: \u201cfast fashion\u201d\u00a0and \u201ctraditional\u201d. The latter would comprise standardized products with more predictable sales. These products\u2019 production would be kept under the third-party suppliers in Asia while the new speedfactories<\/em> would be located in markets with the highest demands for fast fashion. \u00a0The \u201ctraditional\u201d unit should also be used to minimize the risk of disengagement of the current suppliers for expecting the termination of contracts. Adidas could stimulate \u201cpeer pressure\u201d to motivate the suppliers to improve service so to guarantee that they will be the ones chosen for the \u201ctraditional\u201d production.<\/p>\n

For distribution, relying most on own-retail stores may either be very capital intensive or decrease the overall number of points of sale, creating opportunities for competitors. Instead, Adidas can increase control of sales by targeting the own-retail stores to its key customer markets and making partnerships with large retailers in other markets to implement a more tailored purchase experience. One potential solution, for example, is to invest in stores-within-a-store.<\/p>\n

The next years will represent a major transformation for Adidas. In such context, one may ask: can Adidas sustain \u201cfast fashion\u201d as a competitive advantage? Is the company able to react to competitors trying to follow the same approach?<\/p>\n

(Word count: 800)<\/p>\n

 <\/p>\n

Sources:<\/p>\n

[1] F. Piller, E. Lindgens, and F. Steiner, \u201cMass Customization at Adidas: Three Strategic Capabilites to Implement Mass Customization\u201d (Jan. 29, 2012)<\/p>\n

[2] The Economist<\/em>, \u201cAdidas\u2019 high-tech factory brings production back to Germany,\u201d (Jan. 14, 2017)<\/p>\n

[3] Adidas Annual Report (2016)<\/p>\n

[4] Reuters<\/em>, \u201cAdidas buys fitness tracking app maker Runtastic,\u201d (Aug. 5, 2015)<\/p>\n

\n

[5] Adidas\u2019 Speedfactory website, https:\/\/www.adidas.com\/us\/speedfactory<\/a><\/p>\n

[6] Bloomberg<\/em>, \u201cAdidas brings the fast shoe revolution one step closer\u201d (Oct. 5, 2017)<\/p>\n

[7] Economic Times Retail<\/em>, \u201cAdidas bets big on omni-channel play in India\u201d (Se
\np. 06, 2015)<\/p>\n

[8] Supply Chain Digital<\/em>, \u201cSupply Chain 4.0: Adidas and Amazon re-write the rules on supply chain management<\/p>\n

[9] Fortune<\/em>, \u201cAdidas aiming for faster sales and profit growth from 2016\u201d (Mar. 26, 2015)<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Adidas strategy to grow is “to be the first fast sports company in the sporting goods industry”. The company is digitalizing its entire supply chain – from design to distribution – to achieve this goal. Can Adidas be successful in this endeavor? What does it take to become the “Zara of the sport industry”?<\/p>\n","protected":false},"author":9759,"featured_media":25416,"comment_status":"open","ping_status":"closed","template":"","categories":[1740,2122,3235,597,3239,220],"class_list":["post-25415","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-adidas","category-data-analytics","category-digital-supply-chain","category-fast-fashion-uncategorized","category-isolationism","category-omnichannel","hck-taxonomy-organization-adidas","hck-taxonomy-industry-apparel-and-accessories","hck-taxonomy-country-germany"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nHow digitalization is supporting Adidas expand the reach of Fast Fashion - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/how-digitalization-is-supporting-adidas-expand-the-reach-of-fast-fashion\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How digitalization is supporting Adidas expand the reach of Fast Fashion - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Adidas strategy to grow is "to be the first fast sports company in the sporting goods industry". 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