With a minimalist design, this German factory features robotic arms, multi-layered particle machines, laser cutting robots and 3D printers – no, this is not an electron particle laboratory, this is Adidas’ new “Speedfactory”, a factory designed to disrupt the sneaker supply chain. Why has Adidas increased their R&D spend by over 35% to build state-of-the art sneaker manufacturing factories ?
Shifting Consumer Demand
The rise of social media has led to a “see now, buy now culture”, where consumers are accustomed to instant gratification, driving demand for “fast fashion” products . Additionally, a growing number of customers are pushing for customized products, creating a market for Mass Customization, the process of producing customized products for satisfying individuals with the efﬁciency of mass production .
Goldman Sachs mapped the correlation between supply chain lead times and like-for-like sales growth :
This chart illustrates an inverse correlation, with fashion brands like Boohoo and Asos capitalizing on market demand. Additionally, according to BCG, brands that create personalized experiences by integrating advanced technologies and proprietary data for customers are seeing revenue increase two to three times faster than those that don’t .
Fast + customized is the winning formula for consumer facing brands. For Adidas to capitalize on these trends, it is critical they invest in innovative manufacturing and supply chain processes.
The Rise of Fast Footwear
In response to consumer demand for customized products with shorter lead times, Adidas is determined to lead the fast footwear category. In the short-term Adidas is moving away from pre-season product development to in-season development. Pre-Season refers to predicting trends and building inventory while in-season refers to quickly reacting to trends, ensuring in-demand products are delivered just in time. The benefits of in-season development include:
- Fresher and more desirable products
- Reduced risk of overbuying
- Lower levels of excess inventory
By 2020 Adidas estimates they will generate 50% of sales through speed-enabled channels, increasing their share of full-price sales by 20% .
The Automation Experiment
This shift towards reactive, in-season manufacturing is table stakes for Adidas to compete in an increasingly automated market. Adidas’ main competitor, Nike is in the process of near-shoring production to North America and creating a responsive manufacturing model. Nike has partnered with supply chain and logistics innovator, FLEX to manufacture 25% of their shoes on a responsive model, reducing manufacturing to market times by ~85% . Nike is also investing in automated manufacturing equipment and plans to install 1,200 new machines across their Asian facilities .
For Adidas to remain innovative, the company must continue to invest in their Speedfactory project in the medium term. In 2015 Adidas opened their first Speedfactory one hour outside of their German headquarters. This automated facility utilizes additive manufacturing and smart planning to create high-performance footwear. The 3D technology enables the company to easily create digital mock-ups and quickly print prototypes, transforming concepts into sneakers at a pace commensurate with consumer demand. In addition to speed and creativity, the automated equipment is reducing the number of laborers needed per facility by more than 70% .
Though still in its infancy, the Speedfactory project seems to be showing early signs of success. Less than a year after construction, the German Speedfactory released its first sneaker – the Futurecraft MFG.
Adidas opened their second Speedfactory outside of Atlanta, GA. This 74,000 square foot facility partnered with Silicon Valley additive manufacturing start-up Carbon to integrate Carbon’s technology to produce unique SKUs of 3D printed sneakers. Adidas and Carbon released 5,000 pairs of the Futurecraft 4D in January 2018 to much fanfare .
Though Adidas has two Speedfactories, management forecasts the combined annual output will be one million units globally, or less than 0.3% of total volume of Adidas sneakers . This raises a few questions:
- Are Speedfactories just an expensive marketing ploy?
- Is there a path to commercial viability?
- Should Adidas continue their partnership with Carbon?
One commercially viable use for the factories is rapid prototyping and market testing. Adidas has distinguished themselves as innovators in footwear design, and the Speedfactories enable them to produce limited quantities to test new product designs.
The Speedfactories also enable the company to test new production methods and institute their findings across other facilities. This sharing of best practices should reduce manufacturing times across the global footprint while reducing costs.
The investment in Speedfactories is not an imminent threat to traditional sneaker manufacturing but is a critical R&D expense, instilling a culture of innovation. The company should build-out their speedfactories in targeted geographies while continuing to expand their reactive manufacturing processes, further reducing lead times. The Company should also expand their partnership with Carbon, adding to the hype generated by the Futurecraft 4D release. These initiatives should bolster Adidas’ leadership position in the fast footwear category.
(Word Count: 794)
 Adidas AG (2017). Annual Report. [online] Available at: https://www.adidas-group.com/media/filer_public/a3/fb/a3fb7068-c556-4a24-8eea-cc00951a1061/2016_eng_gb.pdf [Accessed 10 Nov. 2018].
 Berg, A. (2018). Faster fashion: How to shorten the apparel calendar. [online] McKinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/faster-fashion-how-to-shorten-the-apparel-calendar [Accessed 11 Nov. 2018].
 Yeung, Ho-Ting & Choi, Tsan-Ming & Chiu, Chun-Hung. (2010). Innovative Mass Customization in the Fashion Industry. 423-454. 10.1007/978-3-642-04313-0_21.
 O’Byrne, R. (2018). Traditional to Fast Fashion Retail: Supply Chain Transition. [online] Logisticsbureau.com. Available at: https://www.logisticsbureau.com/traditional-to-fast-fashion-retail/ [Accessed 12 Nov. 2018].
 Abraham, M. (2018). Profiting from Personalization. [online] https://www.bcg.com. Available at: https://www.bcg.com/en-us/publications/2017/retail-marketing-sales-profiting-personalization.aspx [Accessed 10 Nov. 2018].
 Adidas AG (2016). Annual Report. [online] Available at: https://www.adidas-group.com/media/filer_public/a3/fb/a3fb7068-c556-4a24-8eea-cc00951a1061/2016_eng_gb.pdf [Accessed 10 Nov. 2018].
 Sprunk, E., Nike COO (2017). 2017 NIKE, INC. INVESTOR DAY.
 Bain, M. (2018). A German company built a “Speedfactory” to produce sneakers in the most efficient way. [online] Quartz. Available at: https://classic.qz.com/perfect-company-2/1145012/a-german-company-built-a-speedfactory-to-produce-sneakers-in-the-most-efficient-way/ [Accessed 09 Nov. 2018].
 Digital Trends. (2018). Adidas’ Futurecraft 4D DLS Shoe Goes On Sale January 18 for $300 | Digital Trends. [online] Available at: https://www.digitaltrends.com/outdoors/adidas-futurecraft-4d-jan-18/ [Accessed 12 Nov. 2018].