Adidas Value Chain Analysis

Founded in 1949 by Adi Dassler, Adidas has grown into a global shoe business with a strong presence across all continents. The company celebrated its 70th anniversary. However, while supply chain shortages continued to affect Adidas during 2019, the company still managed to grow its net sales to 23.6 billion Euros. The company experienced impressive growth in the Greater China and North American markets. However, e-commerce also emerged as a true driver of growth for Adidas during 2019.

Ecommerce sales of Adidas grew 34% in 2019 compared to the previous year. The company continued to grow its sales in Greater China at an impressive rate. For the fifth year in a  row, its sales in Greater China grew at a double-digit rate. The top line of Adidas was driven by growth across all the market segments including Europe, the domestic market of Adidas that returned to growth in 2019. 2020 has brought drastic changes and the spread of Coronavirus has affected businesses in nearly all industries. There has been a severe impact on the revenue of the company during the first quarter of 2020. This is a time when the resiliency of the supply chains of all major businesses is being put to test. Moreover, the impact of Coronavirus is expected to last into 2021. While markets have started opening up in the United States, the impact of the pandemic might continue into the second and third quarters of fiscal 2020.

The shoe industry in the United States and Europe depends on a  global supply chain. A large portion of the supplier network of the shoe industry is located in the Asian markets like China. While the Coronavirus has disrupted supply chains to a very large extent, it is mainly the resilience of the supply chains of companies like Adidas and Nike that will help them manage the financial impact of the pandemic to a significant extent. In this post, we will analyze the value chain of Adidas and how it contributes to the success of the company. 

What is the value chain?

The concept of the value chain was given by Michael E Porter of Harvard Business School. The value chain includes a range of primary and support activities. The primary activities are directly related to production and value creation whereas the support activities mainly support the primary activities in the value chain. The value chain analysis helps companies analyze how each of these processes is optimized and where higher optimization down the value chain will help the company create superior value and maximum profits. Optimizing the value chain helps reduce operating expenses and apart from that it helps bring higher agility to the processes involved. There are several areas in the value chain that need to be optimized with a careful focus in order to grow efficiency and to minimize costs and expenses. 

Value Chain Analysis of Adidas.

Primary activities in the value chain of Adidas:

Inbound logistics:

Each of the leading players in the shoe industry including Nike and Adidas depends heavily on external manufacturers for the production of shoes. Adidas has outsourced nearly all of its manufacturing to external suppliers in order to reduce costs and keep prices competitive. However, the company has also established a strong network of distribution centers in its leading markets at various locations throughout the globe to receive completed products from the suppliers. During 2019, the company continued to optimize its distribution network where it focused its efforts mainly on the leading markets including the United States and China. Apart from supplying the store network of Adidas in those markets, these distribution centers also support e-commerce sales.

The company built a new distribution center in Pennsylvania in 2019. The company also has a distribution center at West Coast owned by a third party that Adidas expanded during 2019. The company has its biggest distribution center in Rieste, Germany and in 2019, Adidas successfully integrated its extension. 

Here are the locations of leading distribution centers of Adidas (2019 data based on Adidas Health and Safety Report).

• Langensteinach, Germany.
• Scheinfeld 2, Germany.
• Uffenheim, Germany.
• Rieste, Germany.
• Caspe, Spain.
• Dettwiller, France.
• Manchester, United Kingdom.
• Moscow, Russia.
• Obukhiv, Ukraine.
• Kibutz Hafez Haim, Israel.
• Colon, Panama.
• Greenfield, USA.
• Spartanburg, USA.
• Brantford, Canada.
• Embu, Brasil.
• Pudahuel, Chile.
• Tultitlan-Blokk, Mexico
•  Tianjin, China 
• Suzhou, China
• Bangkok, Thailand. 
• Shatin, Hong Kong.
• Pyoengtaek-si, South Korea.

The products that the company receives from its suppliers worldwide are stored at its distribution centers from where they are delivered to the stores or sent to customers shopping from e-commerce channels. The company has focused on the use of digital technology and advanced inventory management software for managing its supply chain and inbound logistics.

Operations:

Adidas started its operations in 1949. It was founded by Adi Dassler. The company is headquartered at Herzogenaurach, Germany. However, it has maintained a strong global footprint through its network of stores, offices, warehouses as well as distribution centers and e-fulfillment facilities. The company has established an unrivaled network of consumer touchpoints that include 2500 company-owned retail stores, more than 15,00 mono-branded franchise stores as well as more than 150,000 wholesale stores. Through its network of company-owned branded stores, resellers, and franchisees as well as e-commerce channels, the company has managed its global presence efficiently. 

Apart from the headquarters of Adidas, there are several more key locations that the company uses to manage its global operations. These locations play a central role in managing Adidas global operations. Here is a list of these major offices:

• Adidas Corporate headquarters and European headquarters: Herzogenaurach, Germany.
• Reebok Headquarters: Boston, Massachusetts, United States.
• Adidas North America: Portland, Oregon, USA.
• Adidas Asia Pacific: Shanghai, China
• Adidas CIS: Moscow, Russia.
• Adidas Latin America: Costa del Este, Panama.
• Adidas Amsterdam: Amsterdam, Netherlands.
• Adidas Emerging Markets: Dubai, United Arab Emirates.
• Adidas Sourcing: Island East, HongKong.
• Adidas International Trading AG: Switzerland.

Outbound logistics:

The company has established a distribution network that includes large warehouses and distribution centers worldwide in key locations. These distribution centers, warehouses, and e-commerce facilities play a key role in managing inbound and outbound logistics for the brand. The products received from the suppliers are stocked at these facilities from where they are sent to the stores or to customers. Apart from that, the Adidas stores also act as fulfillment centers for e-commerce shoppers. 

Marketing and Sales:

The international shoe industry is marked by heavy competition and therefore the shoe brands focus heavily on marketing and promotions to stay competitive and to drive sales. Adidas utilizes various forms of promotional channels to attract customers. However, the company has grown its focus on digital marketing and sales channels for growing sales and revenue in recent years, digital is driving a lot of growth for the brand and e-commerce channels have proved to be a great marketing and sales channels for the brand. The company has experienced faster growth in e-commerce sales in the last few years. Sales from e-commerce channels grew 34% in 2019 as compared to the previous year.

Adidas spends a large amount each year on marketing and promotions. The marketing and point of sales expenses were flat for the year 2019 compared to the last year. For both the years, the marketing and point of sale expenses of Adidas remained at around 3 billion Euros. The marketing expenses of the company are mainly related to sponsorship contracts with teams and individual athletes as well as to advertising, events, and other communication activities. The company uses paid online advertisements as well as events and other forms of promotions to reach its customers and fans worldwide. Athletic shoes and apparel brands like Nike and Adidas also use social media for promotions and to run campaigns as well as for customer engagement and to drive sales and revenue growth. The company is also growing its focus on CSR, sustainability, and customer experience in order to strengthen its reputation and market position.

Products and services:

Adidas is a globally renowned maker of sports shoes, apparel, equipment, and accessories. Apart from the Adidas brand, it also owns Reebok. While Nike is the market leader in the sports shoe industry, Adidas rules across many product segments. Compared to Nike, Adidas is still a lot smaller but it is the leading challenger before Nike across several product segments. For example, in the sneakers segment, it is Adidas that seems to be winning the game against Nike. 

The net sales of the company grew to 23.6 billion Euros in 2019 compared to 21.8 billion Euros in 2018. Most of the company’s net revenue comes from the sale of Footwear. During 2019, footwear drove 57% of the net sales of Adidas AG. Apparel accounted for 38% of the net sales of the company whereas hardware accounted for around 5%. The company experienced growth in sales across the footwear and apparel categories. 

Support Activities in the value chain of Adidas:

Technology:

Technology has proved to be the real driver of business growth for Adidas AG. The company has been experiencing consistent growth in net sales from e-commerce over recent years. Investment in digital technology has helped the company grow its operational efficiency, return on investment in marketing as well as the overall productivity and performance of the brand. The company is also developing technologies internally to grow the pace at which products are manufactured and brought to stores. Speedfactory is one of the technologies that the company has deployed to grow manufacturing speed. 

Apart from that, the company is also investing in digitalization and IT. The company is also adopting several other technologies to grow the quality of manufacturing like 3d technology as well as direct to textile digital printing. Through the use of digital technology, the company has also achieved several more milestones in the areas of consumer relationships as well as customer experience. 

HRM:

The human capital of large enterprises is also a key driver of competitive advantage in the industry. Brands like Nike and Adidas have been growing their focus on managing their human capital strategically in order to grow the competitive advantage they derive from their human resources. The total number of employees working for Adidas grew to 59,533 in m2019 compared to 57,016 in 2018. The company invests a lot in its human capital including their reimbursements and perks. Apart from that, it has introduced several programs related to employee engagement and talent management. It has also introduced several training and education programs that are focused on helping the employees find faster career growth.

Procurement:

Adidas sourcing has its main office in HongKong. The company believes in forming long term relationships with its suppliers in order to maintain a constant source of raw material. Its suppliers are mainly located in Asia. However, the global operations team of Adidas is also constantly looking for next-generation raw material to produce shoes and apparel made from sustainable materials. The company is heavily focusing on making products from environmentally safe products to grow their popularity and sales.

Firm Infrastructure:

Adidas AG follows a mix of divisional and functional organizational structure to support its global operations. The CEO of the company is Kasper Rorsted. The company has a head of global operations, global sales, and global HRM, and so on. However, apart from that, the company’s operations are also divided on the basis of geographical markets like North America, Greater China, and Europe. Each of the geographical divisions of the company has presidents to lead them.