Supply Chain management at Adidas

 Adidas Supply Chain and Distribution Network 

Adidas is one of the leading players in the sports shoe industry with a large market base and a strong sales and distribution network spread worldwide. The brand is a leading competitor of Nike and has continued to grow its market share through focus upon product quality and marketing. Adidas has made several important changes to its business operation, marketing and supply chain strategies during the recent years. These changes have resulted in rising sales and revenue for the sports shoes, apparel and hardware brand. However, excellent marketing only works when you are committed to quality, have an excellent supply and distribution chain, great production capabilities as well as a deep understanding of market trends. The brand has formulated a great supply chain strategy that ensures high quality standards, higher availability as well as timely delivery at competitive costs.

Its Global Operations function covers three major areas – Product development, sourcing and supply chain management.  Adidas has set clear priorities for its global operations and the focus is on bringing supply chain agility  and improving efficiency. Keeping the customer at the centre, ‘Global Operations’ tries to make the products available to the customers at the right place at the right time and at the right cost.

An agile supply chain is like the backbone of a global company and in case of Adidas which has kept increasing its number of customer touch points over years, its supply chain plays the role of a central pillar of business driving speed and performance. Adidas has been able to improve its supply chain efficiency through its Global Operations functions making it highly competitive which is absolutely essential to survive the tough competition from the nearest and biggest competitor Nike. A large and agile supply chain helps you satisfy your customers’ demands better and in this regard Adidas has proved itself innovative and smart.

Global Operations Function overlooking smart supply chain management

There are three main areas of strategic focus for Adidas that its Global Operations function is delivering against. They are:

• Becoming the first fast sports company which means speeding things up manifold.
• Creating a seamless consumer experience because consumer is at the centre of everything.
• Transforming the way Adidas creates and manufactures.

The Global Operations function of Adidas while focusing on these three strategic priorities uses infrastructure and process efficiencies to ensure a highly competitive digital ecosystem and supply chain.  The brand uses a non financial KPI (Key performance Indicator) to measure its delivery performance called OTIF or One Time in Full. In 2017, it successfully delivered 78% of its Adidas and Reebok products ‘One Time and in Full’. The target it had set before itself was that of 80% and the brand was successful at reaching very close to its target. It expects to achieve more in the coming years. In 2018, it expects to extend OTIF to the markets which were out of scope in 2017 when it got to measure only 74% of the net sales against the OTIF.

ADIDAS SUPPLY CHAIN FIGURES for 2017.

• Adidas number of total suppliers in 2017 – 800
• Number of suppliers that Global Operations Function worked with – 296
• Number of strategic suppliers (more than 11 years old) – 109

Strategic Suppliers total	Footwear	Apparel	Hardware
109	34	60	15

Region	Asia	Europe	Americas	Africa
Supplier %	79%	9%	11%	1%

The target of Adidas is to become a fast sports company. It has made speed a strategic priority and its global Functions Operation is a key facilitator helping it bring fresh ideas to the market faster. Faster movement of products and ideas across its wholesale, retail and e-commerce channels is essential if Adidas wants to retain its competitive position against market leader Nike. Majority of the production of Adidas products takes place through independent suppliers. Most of these suppliers, around 80 percent are in Asia. Adidas has outsourced its production nearly 100 percent to the independent third party suppliers.  It provides its suppliers with the detailed specifications of productions and delivery. However, the suppliers are able to produce high volume good quality footwear cost efficiently. Adidas selects the suppliers that have excellent expertise in this area. It has also formed close and strong relationships with its suppliers and its products are made at 109 manufacturing facilities worldwide.

As of 2017, close to 50% of its existing suppliers have worked with Adidas for more than ten years and around 15% for more than 20 years.  Adidas has set specific criteria for its suppliers and its Global Operations function regularly measures their performance against these criteria. However, apart from these suppliers, Adidas also has a few assembly sites in U.S., Canada and Germany.  Both at its suppliers’ facilities and its own factories, the brand has enforced strict controls and inspection procedures. This is done in order to ensure that the factories meet the standards the customers expect. Quality and material claim procedures are used to constantly measure the effectiveness of product quality standards. Adidas also measures the social and environmental performance of its suppliers using ‘C’ and ‘E’ KPI tracking system. The brand promotes social and environmental standards and ensures adherence to them.

In 2017, the Global operations function of Adidas worked with 296 independent suppliers or manufacturing partners. This was one less than the previous year. The largest part of Adidas’s supply chain is located in Asia. 79% of Adidas’ manufacturing partners are found there. In 2016, 80% of them were in Asia.  Apart from it 11% of the supply chain is located in Americas, 9% in Europe and 1% in Africa.

Footwear Production:

In 2017, 97% of the total footwear volume of Adidas was produced in Asia. Europe and Americas together accounted for 3% of the entire footwear volume. Largest part of footwear production took place in Vietnam. Its share was 44% in 2017 followed by Indonesia at 25% and China at 19%. The total footwear production in 2017 equalled 403 million pairs which was 43 million pairs higher than the previous year. 11% of the entire volume in 2017 came from a single largest factory. China and the Asia region have become the preferred destination of brands for sourcing raw materials.

Apparel Production:

Asia again played a major role in the production of Apparel for Adidas in 2017. China is the biggest supplier country for apparel, supplying almost 23% followed by Cambodia at 22% of the entire apparel volume.  Vietnam remained the third largest supplier supplying for 18% of the volume. The total production in number of units was 404 million units of apparel which was 22 million units higher than the previous year. A single factory produced the highest volume which was equal 10% of the entire volume.  In terms of apparel production also, the Asia region has the biggest collection of suppliers because of the cost efficiency it offers based on low labor costs and lower costs of raw material.

Hardware Production:

Asia again accounted for the largest share of hardware production (like balls and bags) supplying 82% of hardware production in 2017 which was slightly higher than the production level of 2016 (79%). 16% of the production took place in Europe and 2% in the Americas. China was again the biggest supplier supplying 40% of the entire volume.  Pakistan and Turkey supplied 18% and 15% of the volume respectively. Total volume of hardware sourced by Adidas in 2017 equalled 110 million units which was 1 million units higher than the previous year. One single factory in Adidas’ supply chain accounted for 10% of the total production.

Technological Innovation and sustainability

The Global Operations function of Adidas focuses on several things apart from quality standards. It also takes care of social responsibility, sustainability and innovation. It has focused on changing the traditional models of production and created new models that deliver fresh products to the market at faster speed. Its role in terms of improving the brand’s operational efficiency is critical. To mitigate costs, it has focused on material and packaging consolidation. It constantly looks for next generation of sustainable raw materials for which it has focused on knitted footwear and direct to textile digital printing.  

Adidas is a founding member of the ‘Parley for the Oceans’, a network of creators and thinkers that focus on preventing the destruction of oceans and raise awareness about their fragile situation due to being made a dumping ground. Adidas has also focused on digital creation for improvement of its product creation process and to bring fresh products faster from the product to shelf.  Using 3d software tools, it is better able to understand and cater to the consumers’ expectations.  The use of 3d technology reduces the need for physical samples allowing for faster experimentation with product ideas.  Several of its business units have already started using the 3d technology solutions to improve the product creation process.

The modular approach taken by the Global Operations function ensures costs are minimized, consumers’ brand experience is more consistent and production lead times are reduced.  Incorporation of digital creation tools into its modular approach has helped the Global Operations function further speed up the creation process and leverage automation opportunities. Digital creation and automation are two important focus areas for Adidas. It is focusing on auto cutting and auto stitching to reduce its dependency on manual labor.

Speeding things up through Speedfactories

Moreover, the brand is moving production facilities closer to the target market and has started the ‘Speed-factory’ initiative for this purpose.  The speed concept of Adidas is built on three pillars that are:

• Never out of stock – Continuous reproduction and replenishment to ensure that its most desired products are available to its consumers all the time.
• Planned responsiveness – responding to seasonal demand with shorter lead times by reading demand signals through point of sale trends.
• In season creation – Creating product ranges during the season by capturing latest trends and thus maintaining freshness.

First Speedfactory opened in Ansbach Germany in 2015 which uses smart manufacturing in place of centralized production to bring production closer to the consumer. A second speedfactory was opened in Atlanta, U.S. to bring production closer to the U.S. consumers. The Speedfactories combine cutting edge technology with the art of shoe making to create products that are unique and suit the demands and choices of the consumers. This combination of smart production and distribution will enable faster expansion for Adidas in the coming years. In 2018, it has planned to speed things up at these two factories.

Distribution Network:

To succeed in a highly competitive business environment like that in the 21^st century, brands should have both a fast supply chain and a superb distribution network. Adidas is a consumer focused company and has managed a large and well synchronized distribution network. It has improved this network a lot in the recent years to reduce its production lead times and bring fresh products faster to the shelves.  Moreover, Adidas’ target to become the first Fast sports company cannot be achieved without having a great distribution network. In 2017, the focus was on optimizing the distribution network for gaining speed and to gear up for future challenges. Optimizations down the distribution network allow Adidas to get closer to its customers and cater to demand more efficiently.

 The brand opened two new distribution centres in China and Germany at Rieste and Sozhou respectively. These centres are expected to go live in 2018 and apart from these two the construction of a new distribution centre in Pennsylvania US. The brand expects to find faster growth in North America in future for which it has started expanding its west Coast facility. In future, Ecommerce and its own retail businesses are going to drive the brand’s growth in North America. It is also planning the addition of a new e-commerce facility in UK in order to improve its level of customer service there.  Continuous improvement of the distribution network can help survive much of the competitive pressure when supported by an agile, advanced and modern supply chain.

Adidas owns more than 2,500 retail stores. Apart from them it sells through close to 13,000 mono branded franchise stores as well as nearly 150,000 wholesale stores. This large network of consumer touch-points is a key strength for Adidas enabling faster delivery and thus a seamless consumer experience. Its e-commerce channel caters to the needs of consumers in over 40 countries. A large, strong and well organized distribution network helps the brand maintain a strong global presence. Last year, it also introduced its app in Western Europe and US.

In order to create a seamless consumer experience Adidas has also focused on several other things –

• Inventory check that allows the shoppers to check availability of products in store.
• Click and collect – order online and collect it from a local store.
• Ship from store which turns stores into distribution centres allowing faster shipping of products ordered online.
• Buy online return to store allowing customers to return products at nearby stores and get refunds or find new products.
• Partner program which allows the online products to be allowing the online products to be available to larger consumer groups through wholesale partners.
• Endless aisle that allows instore visitors to access a fuller range of products through the e-commerce channel.
• Adidas shopping app for a premium shopping experience.

Adidas aims to be omnipresent and cater to customer demand better. Therefore, it is continuously innovating its supply chain and distribution network with a focus on creating highest level of customer satisfaction.

Sources:

Adidas Annual Report 2017 (Adidas investors website)