AM4U: Adidas Made For You

Analyzing Adidas Speedfactory and its implication as it redefines supply chain.

The need to redefine supply chains

In sports, competition is the name of the game and it cannot ring more true for Adidas. Its biggest competitor, Nike, had marked a revenue of $8.7 billion earlier this year[1], while Adidas remained in second-place with a revenue of around $6 billion[2]. Adidas been touted as playing catch-up with Nike and with the rise of Under Armor, the time to make quick, significant changes for Adidas is now. The urgency is amplified with the rise of a ‘buy now/wear now’ culture in customer demand catalyzed by the rise of e-commerce. To remain competitive, Adidas needs to redefine the way it does business starting from its manufacturing processes.

Nike and many other competitors are quickly leveraging technological advancements focusing particularly on increasing speed and creating more innovative designs. Nike, for instance, launched a “Manufacturing Revolution” where they partnered with supply-chain experts Flex to double up production speed and DreamWorks to design more agile and customized shoes.[3] The use of robots and 3D-printing in manufacturing have allowed companies to be more agile and creative in meeting customer’s demand. Unlike prior days, supply chains are no longer focused purely on lowering cost, it is now a key tool to increase sales by creating more value and capturing the market quickly and at scale.

A4MU: Uniquely Yours

Up until recently, Adidas has mainly produced its shoes in Asia where labor cost is relatively low. Their Asian supply chain follows a more ‘traditional’ combination of connected flow lines and batching model where steps are discreet, siloed, produced in mass and generally inflexible. Under this model, a shoe-making process starts with drawing designs on paper that are later translated into actual production through blueprints and technical specifications. Numerous iterations will then take place before the final shoe design is produced. In total, the whole process of creating a shoe from concept to finished product could take between 12 to 18 months.[4]

Things started changing in 2015 when they launched Speedfactory in Germany, birthplace of Adidas. Unlike their Asian factories, Speedfactory is mainly filled with machineries including a robotic knitting machine called Primeknit that integrate both manufacturing and assembly of the upper part of a shoe in one step.[5] With Speedfactory, Adidas claimed they can now produce a shoe in a day enabling them to offer highly tailored shoes to customers. This is further enabled by using 3D-motion capture and analysis technology called Aramis, the same technology used by NASA and Boeing to calibrate stress points on their space shuttles and planes respectively.[6] For Adidas, Aramis helps them customize shoes that are precisely tailored to fit the unique ways an individual transfers their weight as they walk, stand and run.

In fact, Adidas has launched a global campaign called AM4 (Adidas Made For….) where shoes are produced specifically for the unique lifestyle of that particular city. London (AM4LDN) was the first city, followed by Paris (AM4PAR). Future launches will take place in early 2018 into Los Angeles (AM4LA), New York (AM4NYC), Tokyo (AM4TKY) and Shanghai (AM4SHA).

Design and Data

As Speedfactory expands beyond Germany into Atlanta, USA, the following are recommended steps for Adidas to consider:

In the short-term, the company should do an in-depth analysis of its organizational structure and consider what roles ought to be integrated or restructured. We are already seeing this at Adidas Russia as it combined the role of Head of IT and Supply Chain.[7] In particular, I would suggest integrating more roles between product development and design with manufacturing. This is especially crucial given their plans of adopting 3D-printing technology in the near future. In addition, they also ought to boost their data analytics team through the launch of AM4 to better understand customer demand.

In the medium-term, Adidas should consider breaking down IT and having it permeate across all departments. Given the ubiquity of technology, to remain at the frontline of innovation in sportswear, Adidas should not centralize IT but rather empower all its staff to adopt technology as part of their job regardless of which team they are in. This is especially true as Speedfactory expand beyond the West. However, I would caution Adidas on moving into Asia too fast and ideally recommend that it only enter the region at the earliest 5 years from now. This is due to the lack of infrastructure and the ability to still utilize existing advantage of a relatively low-cost labor market.

Future of Work

Finally, two key questions for Adidas to consider are whether customization is the most scalable way to increase sales? How much are people willing to pay for customized shoes or generic models are fine?

Secondly, the company should also contemplate its responsibility lie in disrupting labor especially as it expands into Asia and starts closing down the factories there. (Word: 800)

[1] Nike, Inc. “NIKE, INC. REPORTS FISCAL 2017 FOURTH QUARTER AND FULL YEAR RESULTS”. 29 June 2017. Available at: https://news.nike.com/news/nike-inc-reports-fiscal-2017-fourth-quarter-and-full-year-results. Accessed at 15 November 2017.

[2] Adidas Group. “ADIDAS WITH STRONG FINANCIAL PERFORMANCE IN THE SECOND QUARTER 2017”. Available at: https://www.adidas-group.com/en/media/news-archive/press-releases/2017/adidas-strong-financial-performance-second-quarter/. 3 August 2017. Accessed at 15 November 2017.

[3] Manthorpe, Rowland. “To make a new kind of shoe, adidas had to change everything”. 4 October 2017. Available at: http://www.wired.co.uk/article/adidas-speedfactory-made-for-london-trainers?lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_content%3BfYJF4NP4RwmEGhOWM6yHDQ%3D%3. Accessed at 15 November 2017.

[4] Bain, Marc. “Adidas can now make specialized shoes for runners in different cities, thanks to robots”. 4 October 2017. Available at: https://qz.com/1081511/adidas-can-now-make-specialized-shoes-for-runners-in-different-cities-thanks-to-robots/. Accessed at 15 November 2017.

[5] Manthorpe, Rowland. “To make a new kind of shoe, adidas had to change everything”. 4 October 2017. Available at: http://www.wired.co.uk/article/adidas-speedfactory-made-for-london-trainers?lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_content%3BfYJF4NP4RwmEGhOWM6yHDQ%3D%3. Accessed at 15 November 2017.

[6] Bain, Marc. “Adidas can now make specialized shoes for runners in different cities, thanks to robots”. 4 October 2017. Available at: https://qz.com/1081511/adidas-can-now-make-specialized-shoes-for-runners-in-different-cities-thanks-to-robots/. Accessed at 15 November 2017.

[7] Benton, Dale. “Supply Chain 4.0: Adidas and Amazon re-write the rules on supply chain management”. 10 February 2017. Available at: http://www.supplychaindigital.com/scm/supply-chain-40-adidas-and-amazon-re-write-rules-supply-chain-management. Accessed at 15 November 2017.

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13 thoughts on “AM4U: Adidas Made For You

  1. It is a fact that companies can always rely on technological advancements to improve their operations and time to market, but I guess the question is whether companies are able to pass the additional cost to the customers or they would have to absorb it, impacting their margins. Until the use of robots and 3D-printing in the shoe-making industry is streamlined, I imagine the manual labor option is still more cost effective in mass markets.

  2. Great post Ketty! I agree with Mohamad in regards to scalability. Having visited and utilized the GE Appliances 3D printing lab (which contains dozens of models, sizes, and types of 3D printing machines), I know 3D printing to be a rather slow process. It can take several hours to produce an item depending on the size (shoes are pretty large) and quality (I would imagine a custom shoe for a consumer would need to be higher quality/resolution so it would take longer to print). For the time being, until there are some technological advances, I do not see 3D printing being used for high volume, mass production. The huge benefits of 3D printing currently lie in the customization and speed to market of low volume items aspects. These aspects can be huge differentiators for millennial consumers since we tend to like things customized to our individual liking.

  3. This was a really interesting post, Ketty!

    While I think customization is necessary to staying on top of trends, I don’t see the entire product mix shifting to customization (at least in the short to medium term). I would assume some consumers still want to be able to go into a store and buy a product off of the shelf, which would inherently have very little to zero customization (unless one day the manufacturing process is in the back of the store!). With that said, I think Adidas should be very mindful in the types of SKUs / customization that it offers. For example, does the consumer truly value the Aramis technology embedded in the AM4 products? The reason I ask this is because I am skeptical on the need for different types of shoes for essentially large, urban cities. While customization is itself very costly, adding additional SKUs to your distribution system also adds costs, so Adidas should make sure it is producing productive SKUs in its supply chain.

  4. Great post and interesting to learn how companies are leveraging technology to speed up and customize design as well as the production process. It seems like Speedfactories are more of a job-shop model while the factories in Asia are potentially a mix of Job-shop with some parts manufactured in an assembly line. I’d be curious to know if there are any learnings and capabilities that Adidas can take from Speedfactories and apply it to their large scale manufacturing processes in Asia. Also what are product lines can this method be applied to?

  5. Thanks for the post Ketty!

    Although the new Speedfactory will reduce lead times and allow for greater customization I am still skeptical as to whether automation can lead to overall cost savings for the company – especially since costly German labor (with the proper technical expertise) will still be necessary to operate these machines. Also even though labor costs in Asia are rising, it is clear that this trend has led to large conglomerates searching for the next cheapest manufacturing destination. What started in China has now shifted to Vietnam. In a few years we might see a shift to Cambodia or Myanmar. It will be interesting to see how Adidas makes this trade off.

  6. This is an interesting topic, Ketty! I can see the customer appeal of more customized products, and the benefits of the shortened and more nimble supply chain with the Speedfactory, but I wonder what the impact of these changes are on costs. Is Adidas able to produce at an even or lower cost, or at least pass on the increased costs to the final customer?

  7. Thanks for the post, Ketty!
    I am not as worried about the cost in the long run, given 1) people are willing to pay extra for any personal customization, and 2) many of the changes you have raised would be capital intensive, but the labor costs will be reduced, so it shouldn’t be too much of a cost increase as a whole.

    While I love the idea of the Aramis technology and the individual customization it provides, I do not think it is for everyone. Even in the future where customization is cheap and accessible, there will still be “trendy items” in the market because people will still like to own what his or her friends (or celebrities) own. We will surely see the gradual shift towards customization in the future, but I wonder if Adidas can precisely address such shift, and ensures its products, supply chains (including Asian Factories and SpeedFactory in Germany) and labors are ready to produce the output to match the shifting demand in the market. I believe failure for Adidas to adapt to the changing market will significantly reduce its market share (and lose the competition against Nike)..

  8. I found your post extremely interesting, Ketty. As both an avid sneaker and 3-D printing enthusiast, the concept of 3-D printing shoes has piqued my interest recently. The concept of mass cusomtization is reaching the shoe industry and can be seen as Adidas (as you mentioned), Nike (http://footwearnews.com/2017/focus/athletic-outdoor/nike-3d-printing-sneakers-prodways-368238/), Under Armour (https://www.sporttechie.com/armour-scales-3d-printing-efforts-footwear/), and New Balance (http://fortune.com/2016/04/11/new-balance-3d-boston-marathon/), to name a few, are experimenting with the burgeoning technology. I am of the opinion that 3-D printed sneakers will remain a novelty item in the short- and medium-term, but I can envision a scenario in which mass customization of sneakers becomes prevalent as 3-D printing technology improves in the longer term. Thank you for the thoughtful post.

  9. You have highlighted that speed of delivery and customization is now the name of the game between Nike and Addidas. I like how this new concept to have a special task force to quickly introduce new products by drastically reduce product development and manufacturing cycle. The company can then consider migrating the new design to its existing Asian mass production factories. My concern would be that Addidas essentially didn’t upgrade their overall supply chain structure. This could mean that this special factory is just reaction instead of a solution to Nike’s strategy. Maybe we will see how Nike respond.

  10. Great piece! Interesting trend – bringing manufacturing back to developed countries. I wonder whether this is going to mean the end of low cost manufacturing in developing countries – it would be great to find out how fast 3D printing is bringing manufacturing costs down in the developed world and if it poses a real threat to manufacturers in developing countries.

  11. Ketty, as an avid runner I have to say that I was extremelly excited when I read your article. I don´t think that customization is a new trend on this market, NIKE has been doing that for many years on their “ID” project. What is pretty unique in this case is the production process (3D printing) and the features ADIDAS is now allowing customers to choose. The company is not only giving customers the capability to choose the colors of the shoes but it also specifically designs the product to meet the dimensions of client´s feet and optimize the distribution of weight. There are two points that were already mentioned here that would be of my concern: introduction of new technology to this business model and scalability. I can definitely see a time where you can get your shoes “printed” from a local distribution center in a matter of minutes, but it is difficult to understand how new materials and design changes could be applied on this model. Scalability concerns come from the fact that these printers today are still running at very low pace, and it would require significant improvements to meet global demands from ADIDAS. I´m interested to see what the future of this industry will be.

    Thanks for sharing!
    Thiago

  12. This was a very interesting article Ketty – nice job! The evolution of a supply chain driven by the changing manufacturing process seems an inevitable part of the future. It will be interesting to see new organization structures emerge to support the change. I do agree with integrating IT across all levels of the org. That said, my current concern is the potential higher cost of custom manufacturing and if consumers value the customization enough to pay top dollar. Only time will tell!

  13. Hi Ketty!

    Thanks for sharing your thoughts on this. I found it really interesting that you think that supply chain is at the core of Adidas current competitive issues against Nike and Under Armor. Even though Adidas and other athletic shoe brands are technically “fashion brands” I do not think that most consumers typically make this association or consider the high expectation they have for these brands to meet current fashion trends. To this degree, decreasing the time it takes to ideate, produce, and get a new shoe design to market is definitely going to serve as a competitive advantage in the future. With this short production cycle, my main concern is how the company is going to able to accurately forecast demand. Especially when considering a highly customized shoe like the AM4 designs – I am doubtful that the quick production of these shoes will produce a supply that accurately meets demand in a shorter lifecycle shoe market that it’s driving.

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