Supply Chain Management: The Adidas Story - Essay Example

?Supply Chain Management: The Adidas story Introduction Supply Chain Management is an integrated set of complex operations needed for a business to succeed in a competitive atmosphere. Efficient supply chain management functions practiced by a company help it in achieving several business objectives. It helps in reducing the cost of operations, improving the quality of the products and services rendered and in maintaining efficient delivery system. Moreover effective supply chain management practice promotes the system of spontaneous innovation taken by a concern. Effective supply chain management helps in the augmentation of the value and quality of products through proper forecasting of market demand and thereby making necessary replenishment (Wisner, Tan & Leong, 2008, pp. 10-11). The global sportswear brand Adidas maintains a key strategic outlook to its supply chain management imperative to become globally competitive in the sportswear industry. The supply chain management practiced in Adidas entails outsourcing its supplying operations to a large number of countries around the world. Outsourcing the supply chain operations helps Adidas in lowering the operation cost through regional procurement of manpower and resources. This helps the company in achieving higher business profits. (Weizsacker, Young & Finger, 2005, p. 339). Adidas or Adidas Solomon AG operates in the sports fashion industry through a wide assortment of products. However the firm is increasingly facing huge changes in consumer demand due to the spontaneous development of the economic standards of the people. This requires Adidas to generate newer designs through spontaneous innovation while maintaining the required quality and functionality of the products to satisfy the consumers (Berger & Piller, 2003, p.42). The Adidas group operating on a plethora of sportswear segments mainly functions on the basis of some key brands like Maxfii, Adidas Body, Reebok, Taylor Made Adidas Golf, Adidas Sport Style and many others (Plunkett, 2006). The Adidas Group operating through a network of over 150 subsidiaries are governed from its Headquarters based in Herzogenaurach, Germany. Operating on a global basis the Adidas group hosts around 31,344 personnel spread along different regions of the world (Wong, 2008, p.223). While operating on such a global scale Adidas faces key strategic problems in maintaining an efficient supply chain system spread along different countries. Supply Chain Management-A Key Business Function The Supply Chain Management methodology followed by a company consists of a systematic process of several interrelated functions. Thus the entire process of supply chain management in a company consists of various activities like maintaining effective relationship with the different suppliers, managing the demand for the products and services generated, focusing on the satisfactory meeting of orders obtained, maintaining the flow of manufacturing activities and finally maintaining a strong relation with the different consumers in meeting their growing demands. The firm has to effectively maintain a strong and effective relationship with both the suppliers and customers to generate the right product in the market, which would help in meeting consumer demand, and generate profit for the company. Supply Chain Management helps a company to make forecasts of future market demand through which the firm can streamline its operations to produce the right quantity and quality of the product. It also helps in reducing the time taken to deliver the products to the final consumers satisfying the objective of order fulfillment. Thus, through effective practice of supply chain management the firm can maintain total control on the inventory and thus reducing the chances of stock piling and stock out situations (Lambert, 2008.p.55, 69, 87,105,121). The Supply Chain Management at Adidas The supply chain management practiced in Adidas earns due complexity for being spread along a wide geographical area spread along different countries. Estimates reveal that Adidas operates through the combined operation of around 570 factories spread along a global basis. The outsourcing of the manufacturing operations by Adidas based on a global network helps the company in reducing the operational costs of producing sports equipments and garments on a large scale. However, the firm’s dependency on wide scale outsourcing ventures for maintaining an effective supply chain generates possible threat for the business firm also. It is because Adidas has to strictly work out methods through which it ought to govern the different operational and manufacturing hubs spread along a worldwide basis. This turns out to be a key strategic outlook for the supply chain management function of Adidas. To address the strategic problem Adidas ventured to generate some policy measures like the ‘’standards of engagement’’. The body of standards generated gives general guidelines, which have to be followed, by the different group of business partners like contractors, sub-contractors and the total group of different suppliers operating on a global basis. Through the body of standards created Adidas Group looks forward in promoting the idea of self-governance among its different partners, business groups and different suppliers operating on a global basis. Thus the company reflects a feeling of independency among the supporting partners while working for the Adidas Group. To render effectiveness in the supply chain management system followed by Adidas Group the company in the initial stage conducts an effective internal audit to judge the position of the future supplier. The internal audit carried out by Adidas group judges the potency of the supplying and the foreign business community based along the standards set by the company in its ‘’standards of engagement’’ policy directions. After conducting the internal audit the different foreign business partners and supplying groups of Adidas have to sign in an agreement stating that they would abide by the company rules. However, Adidas Group also conducts significant monitoring practices, which can be made on an annual basis. Frequency of such monitoring activities is increased based on the needs and training programs are generated to reduce shortcoming if any. Such monitoring activities conducted by Adidas Group helps the company in judging the needs and demand of its suppliers and make necessary changes based on the situational analysis made. The Adidas Group not satisfied with a dealer’s or supplier’s performance can simply withdraw its candidature from its supplier list (Neef, 2004.pp.188-189). Strategic Outlook to the Supply Chain Management problem in Adidas The operational procedure of Adidas Group depends on the production of huge number of products based on different categories. Moreover the group’s operation being spread along different regions reflects different types of demand emanating from different societies. Adidas Group observes that the development of the economic situation of the different regions led the people to become increasingly aware of newer designs and enhancement of the features pertaining to quality and functionality. This led to major shifts in consumer demand along the different regions. The development of the economy led to the growth of purchasing power of the people dwelling along the different regions. These people focused on purchasing products, which would enhance their personality. To meet the increasing demands of the newer generation Adidas Group had to resort to the generation of mass scale production of products spread along different product categories. This feature of the production process of Adidas Group made the demand forecasting function all the more complex. The failure of demand forecasting which ought to be a principal feature of the supply chain management system led to the piling of stock creating pressure on the working capital of the company. Piling up of the stocks at the different retail outlets of Adidas Group affected the brand image of the company. It also had immense effect on reducing the profit margins of the company for need of promotions and discounts to liquidate such. This posed to render a strategic problem to the supply chain management function of the company. Thus Adidas Group decided to alter their production mechanism. It stated that production of the commodities would change from generating different variants to satisfying the orders obtained. Adidas’ venturing of generating products based on customer orders focused on the development of the process of ‘Mass Customization’. Through the process of ‘mass customization’ Adidas Group focused on the development of products based on the customer’s preferences of the design, style and fit parameters of the products made. These products created were first offered at certain test markets during the period of 2001. During the period of 2002 these customized products gained wider acceptance in key retail markets of the world. Price of the products was fixed at 30 percent more than the normal products. The supplying factories based in the region of Asia became the producers of these customized products. Adidas Group fixed delivery period of the customized products at three weeks. The process of ‘mass customization’ practiced by Adidas Group helped the company to generate huge customer loyalty and thereby increased the profits of the company. Adidas Group through the use of ‘mass customization’ process created a platform for effective interaction with the consumers through the use of Internet. This helped in generating proper feedbacks of the goods produced and marketed. Moreover the retail outlets spread along the different regions can make quicker orders to the manufacturing units through the use of internet which in turn reduces the lead time for the products (Berger & Piller, 2003.pp.42-44). Generating immediate response from the customer’s viewpoint of the products produced and marketed specially focusing on their needs depend on a process known as ‘quick response system’. During the period of 2001 Adidas Group in looking forward to generate customized products focused on the development of ‘mi Adidas’ a process, which would help in satisfying the special needs of the customer. Products developed based on the specifications received from the customers were dispatched to them within a time period of three weeks. Thus the program focused on reducing the delivery periods and in enhancing customer satisfaction (Cheng & Choi, 2010.p.15). Features of Supply Chain Management system of Adidas The supply chain management system of Adidas Group is composed of different types of supplying categories. Different supplying groups of Adidas consist of contractors, sub-contractors and other sourcing companies based on a regional basis. Each of these different groups shares a distinct relationship with the Adidas Group while performing to generate needed supplies. Contractors operating in supplying segment of the Adidas Group share a direct contractual relationship with the company. The Adidas Group through auditing practices based on set operational and working standards strictly administers these groups of suppliers. Failure to abide by the said company rules amounts to the withdrawal of the contract by the company. The second group listed is the set of sub-contractors who are duly appointed by the first set of contractors acting for the Adidas Group. Henceforth, these people do not share a direct relationship with the Adidas Group. The third group, which consists of regional sourcing companies mainly, divulge in sourcing raw materials and producing products to satisfy the demands of the regional base. These groups of suppliers do not cater to the satisfaction of global demand of the Adidas Group. However, these people also agree to the terms and conditions of the Adidas Group before commencing their due operations. Further, the Adidas Group also practices the system of Vertical Integration through which it acquires potential companies like Reebok operating in the same arena. Adidas being a further strong brand than Reebok acquired the same during the period of 1997 (Neef, 2004, p.188; Gillespie, 2007, p.206). Adidas countering problems in Foreign Locations The outsourcing of the supply operations helped Adidas in a number of respects in the generation of competitive business strengths in respect to its competitors. Firstly, the set up of regional supplying units in key business areas reduced the operational costs of the company. Secondly, the focus on international markets helped Adidas to transform its production operations from depending on huge variance to satisfying needed orders of the modern customer race. This led to the activities like huge scale promotion of innovation activities relating to design, size, comfort and fit which attracted the attention of the potential consumers based in international markets. Thirdly, the happening of the above mentioned activities led the Adidas Group to incur huge amount of financial revenue, which was previously drained off due to clearance activities of accumulated inventory. However, despite such positive effects the setting up of manufacturing and distribution centers in foreign markets held some specific problems for the group. The first main problem countered by Adidas while operating in foreign markets like Asia is the increase in the time of delivery of the products from the Asian manufacturing centers to the customers based in United States and other European markets. Due to the long period of lead time Adidas Group failed to capitalize in the foreign markets in the initial stage. The total time needed for dispatching the goods from the Asian manufacturers to the consumers based in America took around a fortnight for which demands could not be met readily. To counter spontaneous changes in the fashion industry Adidas Group is strongly focusing on reducing the lead-time of its products to grab the attention of the foreign consumers. To make a strategic move in that direction Adidas Group is closely interlinking itself with foreign retailers to reduce the delivery period and even resorting to means like generation of the ‘auto replenishment system’ to cater to quicker demands. Secondly, Adidas Group operating in the foreign countries also counters severe employment problems owing to foreign employment standards. To ensure effectiveness in the supply chain system Adidas Group needs to evaluate the different rules and regulations pertaining to the working and employment conditions. The main issues, which crop up are related to child labor, discriminatory practices in wage and employment conditions and other health and safety issues. The Adidas Group in Asian markets like Pakistan and Vietnam face large number of child labor problems where it worked with non-governmental organizations to help resolve such problems. Moreover, the political and environmental conditions in the foreign locations also severely affect the work of companies like Adidas Group (Holliday, Schmidheiny, Watts, 2002, p.119; Schwarz & Hunter, 2008, p.186; Covell, Walker & Siciliano, 2007, p.62; Hartman, Arnold & Wokutch, 2003, p.197). Information Systems and Adidas- A revolution in the Supply Chain Management Initiative One of the segmented brands of the cover brand Adidas, TaylorMade Adidas has made increased use of Information Technology to strategize its supply chain operations on a global scale. The use of a planning and implementation software program ‘i2’ has helped Taylormade Adidas to revolutionize is supply chain operations. Use of ‘i2’ software by the firm has helped it making effective planning of the market demand to which the supplying functions can be streamlined to promote competency (Monczka, Handfield, & Giunipero, 2008, p.20). Further, Adidas Group also incorporated the Tibco software to help the company to conduct wholesome integration of its business processes. Further the use of Tibco software also helped Adidas Group to conduct the automation of its business environment. This operating software also helped the several operating units of the company to carry on with their flexible approach in meeting desired goals and departmental needs. The incorporation of the Tibco software through proper planning functions further helped the Adidas Group in reducing the delivery times of the products from manufacturing to retail units (Haag, n.d., p.274.). Conclusion Supply Chain Management is essentially an integrated part of the business machinery of a firm, which helps it in meeting its desired goals of customer satisfaction and profit maximization. Proper and effective supply chain management entails maintaining a better relation with the suppliers and lending a probing look at the market conditions. An effective supply chain management tool helps a firm to make forecasts on the demand situation of the product in the market which in turn would also help in streamlining its resources to meet adequate supplies of the same. Scientific practice of supply chain management also helps to reduce the events of stock piling and stock out and thereby helps the firm to focus on several innovative activities. The Adidas Group one of the world’s biggest brand of sports commodities and equipments has made a wonderful mix of supply chain operations by opening up of manufacturing and distributing units around several parts of the globe. This strategy has helped the company in reducing the operational costs and in helping it to focus on regional markets more effectively. The supplier groups consisting mainly of contractors, sub-contractors and other regional supplying bodies are governed by the Adidas Group through the development of standardized set of policy measures and internal regulations. The supplying community needs to put their assent to such agreements before commencing business. Internal audits carried out by Adidas Group further strengthen the governance over the suppliers. However, Adidas Group operating in foreign markets faces problems like increased lead-time and other cultural and employment problems, which are being effectively addressed by the company. References 1. Wisner, J., Tan, K., & G. Leong. (2008). Principles of Supply Chain Management. Cengage Learning. 2. Weizsacker, E., Young, O. & M. Finger. (2005). Limits to privatization: how to avoid too much of a good thing: a report to the Club of Rome. Earthscan. 3. Berger, C. & F. Piller. (2003). Customers as Co-Designers. Manufacturing Engineer. Vol.82, no.4, pp.42-45. 4. Plunkett, J. (2006). Plunkett's Sports Industry Almanac 2007 (E-Book): Sports Industry Market Research, Statistics, Trends and Leading Companies. Plunkett Research, Ltd. 5. Wong, G. (2008). The comprehensive guide to careers in sports. Jones & Bartlett Learning. 6. Lambert, D. (2008). Supply chain management: processes, partnerships, performance. Supply Chain Management Inst. 7. Neef, D. (2004). The supply chain imperative. AMACOM Div American Mgmt Assn. 8. Cheng, T. & T. Choi. (2010). Innovative Quick Response Programs in Logistics and Supply Chain Management. Springer. 9. Gillespie, A. (2007). Foundations of Economics. Oxford University Press. 10. Holliday, C., Schmidheiny, S., & P. Watts. (2002). Walking the talk: the business case for sustainable development. Berrett-Koehler Publishers. 11. Schwarz, E. & J. Hunter. (2008). Advanced theory and practice in sport marketing. Butterworth-Heinemann. 12. Covell, D., Walker, S. & J. Siciliano. (2007). Managing sports organizations: responsibility for performance. Butterworth-Heinemann. 13. Hartman, L., Arnold, D., & R. Wokutch. (2003). Rising above sweatshops: innovative approaches to global labor challenges. Greenwood Publishing Group. 14. Monczka, R., Handfield, R., & L. Giunipero. (2008). Purchasing and Supply Chain Management. Cengage Learning. 15. Haag. (n.d.). Business Driven Tech. (W/Cd) 2E. Tata McGraw-Hill. Read More