Adidas closing its automated factories has important implications for logistics

adidas automated factories

Adidas’ experiment in automated factories has ended in qualified failure. The lessons from this failure are important for understanding the evolution of the clothing supply chain and its requirements for logistics services, as well as issues around automation.

In 2016 the German sportswear company announced the commencement of what it called a ‘Speedfactory’. Part of a wider research programme, this was a production facility in Germany that produced running shoes utilising a high level of automation technology. Adidas signalled that this could be the start of a movement away from reliance on outsourcing production of shoes to suppliers in Asia who relied large, cheap workforces to assemble the product largely by hand.

One of the core objectives of the initiative was to reduce the cycle time between the order and the delivery of the product. Batch quantities could be reduced, lowering inventory and increasing responsiveness to customer demands. By locating the production facilities in Germany and the US, Adidas hoped to shorten transport routes to major markets. Over the past two years Adidas had developed two ‘Speedfactories’; one in Ansbach in Germany and the other in Atlanta.

But it didn’t work. Adidas announced last week that both Speedfactories will close. The company did not explain why the experiment failed it is statement, however unofficial comments from Adidas managers reported in the media suggest that the technology was insufficiently flexible to adapt to the breadth of Adidas’ product line.

Adidas said that it would use the production engineering technologies developed at its Speedfactories “to produce athletic footwear at two of its suppliers in Asia”. In other words, it is sticking with its existing suppliers but will license technology to them.

This implies that the attraction of Asian locations remains great. This is generally perceived to be due to the availability other lower-tier suppliers suitable for sub-contracting and a cheaper workforce.

However, Adidas’ injection of technology into its suppliers is also in line with a trend that is seeing increasing automation in clothing production in Asia. Even in Bangladesh, which has traditionally very low wage rates, larger suppliers are beginning to make significant capital investments in production and materials handling technology. Their strength appears be that they retain a mix of what might be called ‘mid-tech’ and manual labour, giving them a flexibility that the SpeedFactories may have lacked.

Therefore, the medium-term prospect is that clothing production will remain in South and South-East Asia but these suppliers will focus on utilising new technology to deliver product faster.

The challenge for logistics service providers supporting this sector is to deliver capabilities that enable both the clothing supply chain to compress its order-to-delivery cycle whilst retaining an Asian supplier base yet serving global markets. The air freight sector – including air express – has the speed to adapt to such supply chain dynamics, however retailers are wary about the direct costs involved. They prefer the cheapness of container shipping, yet can the performance standards of shipping really deliver the responsiveness required?

Source: Transport Intelligence, November 26, 2019

Author: Thomas Cullen