The advent of additive manufacturing, also known as 3D printing, has opened the door for rethinking supply chain management and process improvement within the footwear industry. Adidas, one of the largest footwear companies in the world, has emerged at the forefront of innovation with the Futurecraft 4D, the first mass marketed shoe to incorporate 3D printing. The shoe has a 3D printed midsole, while the remainder of the shoe was created through traditional manufacturing processes. Through its partnership with Carbon, a 3D manufacturer, Adidas launched its initial Futurecraft 4D line in 2017, manufacturing and selling 5,000 pairs. The company’s goal is to increase production and sell 100,000 pairs in 2018.
With this trend, Adidas can eventually capitalize on several operational benefits:
- Manufacturing processes can be greatly condensed, reducing labor needs and costs and minimizing the product development time to market
- On-demand creation of products can lower the required levels of inventory held by Adidas, eliminate holding costs, and allow the company to move to smaller facilities
- The ability to provide custom shoe production services would change the way footwear selection is offered today, while reducing lead times to the customer
However, the technology and scale required for such benefits are far away, as additive manufacturing is still a relatively nascent technology. To be successful, Adidas must overcome certain hurdles.
In the near term, the company needs to figure out how to limit the costs of production. Additive manufacturing processes are much more expensive than traditional manufacturing processes and has been typically used for prototyping, not mass production. As a result, Adidas’ first line of Futurecraft 4D were priced highly at $333 per pair; even at this price, the first run was disclosed to have been unprofitable . However, while additive manufacturing is expensive, increased production could make more economic sense in a scaled supply chain . Ramping up production to 100,000 pairs would increase utilization of the 3D printing machines and reduce the costs per unit of output.
Longer term, Adidas will need to think about shaping its business model. This includes the possibility of offering wholly customizable shoes. Creating this market will begin reducing inventory levels down to zero as the demand for stocked items declines. On average, footwear holding costs can account for over 20% of inventory value, so the shift to customized solutions would also help offset the increase in costs from using 3D printing manufacturing. On the other side, additive manufacturing can eventually help create shoe blueprints that can be stored digitally on servers for pennies . The ability to store designs allows for an endless combination of specifications and for Adidas to optimize the structure of the shoe for different body types and uses . Adidas has already started looking into other shoe parts that 3D printing can be incorporated into and has expanded its usage into other shoe lines, such as its Y-3 line of high-end sneakers .
I believe there are several additional actions that Adidas can implement to address some of these concerns. First, Adidas can look to acquire an additive manufacturer such as Carbon and vertically integrate operations. As demand for 3D printing increases, consolidating the supply chain will streamline the process and make operations more cost effective and quicker . An acquisition of Carbon could prove to be a synergistic addition for Adidas, who participated in Carbon’s $200 million Series D fundraise in December 2017 through its venture capital arm, Hydra Ventures . Second, the company can centralize its additive manufacturing operations into fewer facilities and invest in specializing employees to operate the sophisticated machinery required. The company can then benefit from labor economies of scale—having one specialized worker in charge of operating ten machines would be cheaper than ten less experienced workers producing the same product at ten different facilities . Lastly, Adidas must find ways to minimize its post-processing costs, which can account for up to 70% of manufacturing costs. Post-processing steps include separating the printed product from its support structures and finishing the product with solvents and conventional machining—processes that altogether can take ten or more steps . Specializing employees can also help with making this process more efficient.
As Adidas looks ahead to the future of footwear, there are a couple of open questions that are still yet to be answered:
- What is the most effective way to transition the traditional footwear model towards a stockless, made-to-order model? What are the merits and considerations of having multiple additive manufacturing facilities throughout the U.S. to minimize customer lead times versus consolidating operations to minimize costs?
- Did Adidas benefit from being a first mover in the industry, or will competitors such as Nike and Under Armour, who have both begun to invest in additive manufacturing practices, reap the benefits by analyzing Adidas’ setbacks?
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 Dillet, R. (2018). How Adidas and Carbon are changing the sneaker supply chain. [online] TechCrunch. Available at: https://techcrunch.com/2018/09/07/how-adidas-and-carbon-are-changing-the-sneaker-supply-chain/.
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