Discuss about the Analyzing Supply Chain Management System of Adidas.
The report aims to discuss about the supply chain management system of Adidas by analyzing its internal operations. The key flows in supply chain would be discussed to understand the product flow, cash, flow, information flow and return flow of Adidas shoes. The report would evaluate the existing processes of the company to assess their effectiveness of operations. Further, production process would be studies to understand the scheduling process and material requirement planning process of the company. This would helps to understand how effectively the company has incorporated the production process to reduce the cost of the products and services. Lastly, different supply chain forecasting methods would be analyzed in order to identify a suitable model for supply chain of Adidas.
After performing the complete analysis of company’s supply chain management system and different forecasting methods, appropriate recommendations would be provided to improve the supply chain management process of the company. The reason for selecting the suitable forecasting model would also be justified with the appropriate explanation.
Adidas AG is a German based multinational corporation that manufacturers shoes, clothes and accessories. The company is the second largest manufacturer in the world after Nike Inc. The company is known for the production of sports and athletes wear. The company designs and produces sports shoes, running shoes, apparels and accessories for men & women (Adidas Group, 2017). Adidas has established its global sales and distribution network through strategic supplier relationship. The company has suppliers on more than sixty three countries spread all over the world (Adidas Group, 2017).
Adidas has developed an effective product flow within its supply chain management process. Demand planning and production planning ensures that an optimum number of shoes are being produced within the factories. Adidas has its factories all over the world but most of its products are outsourced from 1200 factories located in different parts of the world (Adidas Group, 2017). The major outsourcing countries are China, Indonesia, India and Vietnam. Thus, the shoes are firstly developed within one of these production factories. The finished goods are stored for sometime within the inventory of production houses. Once the consignment is complete, the shoes get transported to the large warehouses of the company. The product then moves to wholesaler’s warehouses as an inventory hold. From wholesaler’s warehouse, the product moves to the retailer’s warehouse and then gets distributed among the retail outlets of Adidas. The cross docking reduces time in retailer’s warehouse. The time interval between transportation of goods from retailer’s warehouse to retail outlets increases the sales and turnover of the company (Adidas Group, 2017).
The demand planning process of supply chain management does statistical forecasts by collecting customer specific information from the order history. The results obtained from demand planning process helps in supply planning process that comprises of production planning. Once the production planning process complete, the information moves to manufacturing process in which detailed production schedule is laid out to start the production process (Adidas Group, 2017). The information moves from manufacturing department to distribution department for inventory deployment, inventory storage and customer order fulfillment. The information flow system of supply chain management of Adidas ensures that every department receives the required information on time and the sequence of information is also being maintained. Since Adidas operates globally and has huge sales and distribution network, therefore, any single loss of information would affect the entire supply chain management (Adidas Group, 2017).
The cash flow takes place from the hands of consumer to the retailer through invoicing system that could be electronic or cash. The retailer receives an invoice from the distributor of the company and cash flows from the hands of retailer to distributor (Adidas Group, 2017). From the distributor, the cash flows to the manufacturer who has an agreement with the suppliers.
The returned products travel from the hands of consumers to retailers and are received by the company in case of any defects. Adidas has very effective return policies to ensure consumer rights are not being violated.
Sustainability is essential for a company’s supply chain process to protect environmental, social and economic laws of a country. The process of manufacturing shoes makes use of toxic chemical that pollutes the environment. Further, water is an essential component of manufacturing of shoes and if used in greater quantity could lead to scarcity of drinking water. Thus, Adidas must introduce a mechanism to reduce the carbon emission in the air and minimize the use of water in the process.
Develop products that can be recycled: The company could produce products that do not require chemicals and adhesives, thus, no waste would be liberated. (Kaye, 2013) The shoes could also be recycled repeatedly and thus, would not create threat to product disposal (Jervell, 2015).
Adidas has vertically integrated model to manufacture its footwear. There are two stages of production named as primary and transformation stage. In primary process, the raw material is sourced from the different places such as organic cotton, recycled polyester, rubber, PVC, phthalates and leather (SGS, 2014). The procured raw material is received by the factories to start the transformation process. Firstly, the machine crushes and cuts the leather into different shapes of shoes like cookie cutters. The middle portion of shoes and shoe holder of shoe is built through cutting machine that is attached to the bottom part of shoe. After that, the sole and bottom shoe portion is attached to the upper sole portion and then it is heated using a plastic mold. Adidas has implemented cold cement construction process to develop high quality shoes. Thus, the overall process includes coupling toe-puff, back part molding, insole tacking, roughing up, toe lasting, heel/side lasting, ironing scouring/roughing, gluing, attaching and finishing (Eryilmaz, 2012).
The manufacturing process involves various stages including demand estimation, aggregated capacity planning, master operations schedule, short term re-scheduling, rough cut capacity planning and prioritizing and control (Eryilmaz, 2012). The process also involves capacity requirement and availability planning to comply with the market demands. The raw material must also arrive at an appropriate time and in appropriate quantities to meet the demand of production (Eryilmaz, 2012). Further, optimized utilization of capital, equipments and facilities is also equally important to minimize the cost of product. Adidas also maintains the inventory, work in progress along with finished goods at every location.
There are four main processes in planning and control includes scheduling, loading, sequencing, monitoring and control. This is established through an effective value chain and Enterprise Resource Planning (Roscoe & Baker, 2013).
In order to achieve low cost production process, Adidas would have to invest large amount of money into research and development to develop fully automated production process. With the emerging technology, Speedfactory has become the need of the hour through which shoes can be produced within fraction of the traditional production time of shoes (Henkel, 2016). The increasing digitalization process compiled with research and development would make the fully automatic production possible.
In order to implement automated production process, the company would have to check the availability of raw materials in the market. The process would reduce production and transportation time of products. Since with the changing market demands, the consumer do not have the patience to wait for the arrival of new products and Speedfactory would be a digitalized solution for it. Further, the process would also make the production process more flexible as the shoes would be produced at the locations that are nearby to the consumers.
Demand forecasting is a process to estimate the sales demand for a particular product using scientific methods. There are around seven methods of demand forecasting that could be applied depending upon the circumstances such as forecasting purpose, availability of data, time frame and other exterior factors. The different methods are illustrated below:
This method involves estimating the demand of product in future by directly asking the customer about their purchase intentions in the future (Lambert, 2008). This could be done through polls, survey, group interview and some other methods of data collection. The method fails to forecast the demand in many situations because the customers are unable to foretell the future demands.
This method is deployed by the salesmen of a company. The salesman interacts with the customers on day to day basis and has a better understanding of their needs and requirement (Lambert, 2008). Thus, estimates from all the salesmen are collected to forecast the future demand of consumers. The method helps to collect the data related to consumer behavior with the changing product prices and design, income distribution, purchasing power and population.
The method helps to analyze the time series and projects the trend based on time series.
The suggestions from executives of different department (marketing, finance, production & operations, HR) are gathered to project the future demand (Lambert, 2008). The method is simple and easy to implement.
This method takes into consideration construction contracts, personal income, agricultural income and automobile registration to analyze the demand for cement, consumer goods, agricultural imports, and car parts and petrol (Thomopoulos, 2014). The analyst establishes a relationship between the indicator and product sales to project the estimated future sales.
This method makes use of regression equation to determine the demand by taking one individual factor and assuming the other factors to be constant (Thomopoulos, 2014). This one single factor is applied to different markets to construe the estimates.
The opinions and suggestions of experts is considered to forecast the demand of product.
After studying various types of forecasting methods, the appropriate method for Adidas supply chain management would be trend projection so that a demand driven supply chain could be established. The trend projection method would help the company to forecast the demand which is adequate to meet the demand of customers. The demand driven method helps to slow down the production method when the forecasted demand is low as compared to previous year (Lipton, 2013). Alternatively, the production process becomes faster and the number of quantity of products is increased when the demand forecasted is high. The method would help the company to provide real time demand figures so as to meet the demand of the consumers. Visibility, coordination, infrastructure and optimization are the four pillars of demand driven process. Visibility helps to develop a transparent business process, infrastructure support flexible production process to meet the demand of consumer, coordination among the team members ensure effective operations and optimization ensures satisfying the customers through great customer services (BCG, 2017).
Conclusion
The report has thus, successfully analyzed the supply chain management process of Adidas. The company has an effective product flow beginning from the production process to the hands of consumer. The product is manufactured by considering the demand forecast and planning process of supply chain to meet the demand of the consumers. The information flows from one process to another process to ensure connectivity within the processes. The history of customer is taken to forecast the demand for future. The information flows effectively from demand planning process to production process to produce the appropriate quantity of Adidas shoes. Cash flows from the hands of consumers to hands of manufacturers. In order to improve the overall process, the company must incorporate sustainable practices. The recommended sustainable practices were reducing carbon emission and toxic waste by developing recycled products.
The company has implemented cold cement construction process that includes coupling toe-puff, back part molding, insole tacking, roughing up, toe lasting, heel/side lasting, ironing scouring/roughing, gluing, attaching and finishing tasks. There are four main processes in planning and control includes scheduling, loading, sequencing, monitoring and control that is established through an effective value chain and Enterprise Resource Planning. The recommendations were to use fully automated production system to reduce the overall cost of production.
Trend projection forecasting method was suggested to the company to develop demand driven supply chain system. This was evaluated to provide real time figures to the company through its four pillars of visibility, coordination, infrastructure and optimization.
References
Adidas Group. (2017). Supply Chain Structure. Retrieved from: https://www.adidas-group.com/en/sustainability/compliance/supply-chain-structure/
BCG. (2017). Demand driven supply chain. Retrieved from: https://www.bcgperspectives.com/content/articles/supply_chain_management_sourcing_procurement_demand_driven_supply_chain/?chapter=2
Eryilmaz, M.S., Kusakci, A.O., Gavranovic, H., & Findik, F. (2012). Analysis Of Shoe Manufacturing Factory By Simulation Of Production Processes. Southeast Europe Journal of Soft Computing, 1(1), 120-127.
Henkel, R. (2016). Adidas Speedfactory: Fully Automated Shoe Production. Retrieved from: https://www.ispo.com/en/trends/id_77829550/adidas-speedfactory-fully-automated-shoe-production.html
Jervell, E.E. (2015). Adidas Moves to Address Environmental Worries. The Wall Street Journal. Retrieved from: https://www.wsj.com/articles/adidas-moves-to-address-environmental-worries-1443075134
Kaye, L. (2013).Adidas Implements New Strategies to Lead in Supply Chain Transparency. Sustainable Brands. Retrieved from: https://www.sustainablebrands.com/news_and_views/supply_chain/adidas-implements-new-strategies-lead-supply-chain-transparency
Lambert, D.M. (2008). Supply Chain Management: Processes, Partnerships, Performance. US: Supply Chain Management Inst.
Lipton, M. (2013). Demand-Driven Supply Chains Are In Demand. Industry Week. Retrieved from: https://www.industryweek.com/supplier-relationships/demand-driven-supply-chains-are-demand
Roscoe, S., & Baker, P. (2013). Supply chain segmentation in the sporting goods industry. International Journal of Logistics Research and Applications, 17(2), 136-155.
SGS. (2014). Hazardous Chemicals In Footwear Manufacturing. Retrieved From: Http://Www.Sgs.Com/En/News/2014/06/Hazardous-Chemicals-In-Footwear-Manufacturing
Thomopoulos, N.T. (2014). Demand Forecasting for Inventory Control. Illinois: Springer.
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