The mi Adidas Case Study Mass Customization - Essay Example

The ‘mi Adidas’ Case Study Mass Customization History and background to Adidas: Three Guiding Principles1920 Adi Dassler followed three guiding principles in his development work, driven by his passion for sports and shoemaking: (1) to produce the best shoe to serve the needs of the sport; (2) to protect the athlete from injury; (3) and to make the product durable (Adidas, 2011, pp 1-26). A Designer and a Salesman: 1924 at the age of 23, Adi convinces his brother Rudolf to join the business. On July 1st 1924, they register their small enterprise as Dassler Brothers Shoe Factory, Herzogenaurach. The brothers opposing personalities complement each other well: Adi the quiet, pensive designer, and Rudolf the extrovert salesman (Adidas, 2011, pp 1-26). Adidas shoe: 1932 German athlete Arthur Jonath wins the 100m bronze medal at the 1932 Olympic Games in Los Angeles, wearing Dassler shoes. This marks the first major Olympic success for the Dassler brothers and fuels the further development of their already thriving company (Adidas, 2011, pp 1-26). A Second Factory: 1938 Adi Dassler buys his second factory in the centre of Herzogenaurach. By that time, the company produces 1,000 pairs of shoes a day. Three Stripes: 1948 Adolf and Rudolf Dassler part with Rudolf founding Puma. Adi introduces Adidas as the official company name, by combining his nickname and last names. At this point, Adi also gives his shoes the unmistakable trademark of the Three Stripes (Adidas, 2011, pp 1-26). The Olympics in Helsinki: 1952 Adidas is the most worn German sports shoe brand at the Olympic Games and track shoes with removable spikes are used for the first time. Emil Zatopek wins three gold medals – for the 5,000m, the 10,000m and the marathon - all in one week, wearing Adidas shoes, an achievement that has not been repeated since (Adidas, 2011, pp 1-26). 1960s Adidas shoe: 1960 Short-distances-spikes, worn by Wilma Rudolph (“Black Gazelle”), winner of three Gold Medals during the Olympic Games 1960 in Rom - 100m/ 200m/ 4 x 100m. Wilma suffered from Polio as a child, and it was thought she would never walk. Lightest Shoe Ever Made: 1964 Adidas presents the lightest track shoe ever made. The “Tokio 64” weighs just 135 grams per shoe (Adidas, 2011, pp 1-26). The Official Football: 1970 for the first time, an Adidas ball, “Telstar”, is used as the official ball at the Football World Cup, in Mexico. From then to present day, all goals at major football events are scored with Adidas balls (Adidas, 2011, pp 1-26). Jogging and Skiing: 1976 the “TRX” jogging shoe is introduced. Adidas also sets the pace in the winter sports sector, with newly developed X-country ski bindings (Adidas, 2011, pp 1-26). Germany Wins Again: 1980 The German team wins the European Football Championship for the second time, dressed from head to toe in Adidas. Marathon Training Shoe: 1984 a running shoe with “Micro Pacer” computer inside is introduced. The “Marathon Training” running shoe is awarded a “very good” rating by Stiftung Warentest, the independent German consumer testing institute (Adidas, 2011, pp 1-26). New Sports Shoes: 1988 Adidas launches the revolutionary “TORSION®” sole system, still used today for a wide variety of sports shoes (Adidas, 2011, pp 1-26). A New President: 1993 Robert Louis-Dreyfus becomes President of Adidas AG. New sales and marketing strategies pave the way for the successful turnaround. The Frenchman initiates the comeback of the Three Stripes and his leadership accelerates deep changes throughout the company (Adidas, 2011, pp 1-26). Partner at World Cup: 1994 Adidas is official marketing partner at the Football World Cup in the USA. “Predator®” is the name of the revolutionary football boot introduced on this occasion and “Questra” is the official match-ball (Adidas, 2011, pp 1-26). The Most Successful Year: 1996 turns out to be the most successful year in Adidas history. At the European Football Championship and the Atlanta Olympic Games, Adidas successfully underlines its ambition to become the best sports brand in the world (Adidas, 2011, pp 1-26). 50 Years of Adidas: 1999 Adidas celebrates its 50th anniversary. Following a successful turnaround, the company is now on top form. For the first time, Adidas-Salomon AG exceeds DM 10 billion, with sales of DM 10471 billion. The number of employees now totals 12,829 worldwide (Adidas, 2011, pp 1-26). Maximizing Profit: 2001 the Adidas-Salomon’s record breaking sales of € 6.1 billion. The management constituted a team committed to maximizing profit from the Group’s passion for performance, innovation and heritage. This allows them to honor their promise of a 15% increase in earnings per share (Adidas, 2011, pp 1-26). Successful Shares: 2002 as in 2001, the Adidas-Salomon share is once again the top performer in the DAX- 30, Germany’s leading stock index. Group sales rise 7% to reach a record high of € 6.5 billion (Adidas, 2011, pp 1-26). 1. Mass Customization: Meaning and description  Mass customization is the method of "effectively postponing the task of differentiating a product for a specific customer until the latest possible point in the supply network." (Chase, Jacobs, & Aquilano, 2006, p 419). It is the ultimate tool for personalization and individualism. People’s lives today are more turbulent and diversified than ever. The “one size fits all" model is outdated, as individuals want custom-built products for which they pay. Mass Customization is the tailoring and personalization of products and services for individual customers at a mass production price. The concept was first conceived by Stan Davis in Future Perfect. It was then further developed by Joseph Pine in his book Mass Customization - The New Frontier in Business Competition. Traditionally customization and low cost have been mutually exclusive. Mass production provided low cost but at the expense of uniformity. Customization was the product of designers and craftsman. Its expense generally made it the preserve of the rich. To-day, new interactive technologies, like the Internet, allow customers to interact with a company and specify their unique requirements which are then manufactured by automated systems. The new interactive technologies provide a new delivery vehicle whereby customer can participate in the product design to create their own unique custom products or services. Pine II (1992) described four types of mass customization: (1) Collaborative customization: where a company consults with a customer to determine the precise product type that would meet their need. The information is then used in the manufacturing of a customized product as per the customer’s needs; (2) Adaptive customization: here a firm produces standardized products but which can be customized by the customer; (3) Transparent customization: where a firm offers individual customers with unique products, but does not tell them that the products are custom-made; (4) Cosmetic customization: where a firm produces a standardized product, but markets it to diverse customers in distinctive ways (Pine II, 1992, 4-100). The mi Adidas project is the collaborative mass customization type which Pine has defined as one of the four possible settings for MC. Christopher Berger, the director of Mass Customization at Adidas says that the mi Adidas products are results of hard customization (production on demand). (Seifert, Benoit, & Tucci, 2008, pp697-718) In contrast to their main competitor Adidas is not making cosmetic changes to the product (soft customization), each pair is the result of a customer’s need in regards to fit, performance and design (Berger & Piller, 2003, pp42-45). 2. Evaluation of the mi Adidas pilot The mi Adidas pilot is both a success and a failure. The parameters on which the pilot was based on were biased and the results unreliable. The pilot phase was event based for a selected number of individuals who were offered this service for free. Such selective approach would greatly compromise the extrapolation effectiveness of any sample data collected by the pilot phase (Seifert, Benoit, & Tucci, 2008, pp697-718). The pilot project was mainly seen as a first attempt to evaluate the requirements of “normal” consumers, as opposed to those of top athletes, with whom Adidas had ongoing relationship (Schroeder, 2008,p 432). The main idea of having this initiative is to provide the general public with the ability to customize their shoes just like star athletes, thus by selecting a specific 300 individuals; Adidas cannot really capture the feedback of its target market for the mi Adidas. Furthermore, the pilot service was provided as event based not in connection with the regular shopping experience. Obviously, people will respond differently to an event they are specially invited to than an offer or new introduction to the brand (Seifert, Benoit, & Tucci, 2008, pp697-718). And the 100% satisfaction is in response to the free pair of shoes they received. It is but natural that anyone would be more than happy to receive a pair a free pair of customized Adidas shoes. The selective audience they catered to tampered with the feedback which ultimately affected the future schemes of the mi Adidas project. On top of that, what the phase focused on was the market strategy and reception and not the manufacture procedure of the shoes. Adidas is mainly concerned with mass production and catering to personal needs requires a new approach (Seifert, Benoit, & Tucci, 2008, pp697-718). 3. Potential problems and opportunities which the current initiative present  Taking the successful concept of the pilot to the retail channel, however, meant facing different and new challenges. For the pilot, certain issues to do with back end processes were adapted to current processes or not covered at all. Now, these would require more attention. In addition, a new retail unit had to be created that was smaller, easier to transport, more durable, and user friendly. Retailer interest in mi Adidas was overwhelming. In Germany alone, almost 1000 athletics specialty shops wanted to participate. However, only 50 German retail stores could be a part of this second phase: the first retail tours in 2001. Soon, retailer selection became a sensitive issue within Adidas: Marketing preferred small athletics specialty shops for a maximal image effect and utmost retailer commitment. Sales, however, favored big key accounts for reasons of relationship management (Seifert, Benoit, & Tucci, 2008, pp697-718). In addition, country selection was controversial: In some countries retailers were accustomed to paying a fee to a manufacturer for being able to host a promotion such as mi Adidas. In other countries, retailers had never paid a fee for in-store promotions and might even demand a fee from the manufacture instead. Depending on the final selection verdict, retailer feedback ranged from enormous enthusiasm to vast disappointment (even sporadic threats to withdraw business from Adidas altogether). Once selected, the retailers took care of consumer recruitment. To support them in marketing mi Adidas, they were given a package of communication tools: CDs, posters, invitation cards, registration cards and folders. Some retailers felt that the material was not engaging enough and demanded more support(Seifert, Benoit, & Tucci, 2008, pp697-718). Subsequently, the countries modified and translated the tools to fit the needs of their consumers more directly. Yet consumer turnout (and other placement) varied greatly from one retail store to another, depending on the commitment to mi Adidas. Whereas the pilot was 100% event based, retailers played the central role in the second phase and accounted for roughly 90% of the order volume. Using multiple mi Adidas retail units, well over 100 retailers participated across Europe in 2001. The customized version of this soccer boot sold for a 30% to 50% price premium over the catalog price of 150 euros (Seifert, Benoit, & Tucci, 2008, pp697-718). In addition, the product offering was expanded to running shoes. Consumers were either recruited or invited by PR, or they were impulse buyers who passed by and became interested. For 2002 the plan was for mi Adidas for Running to be present at all Adidas- sponsored marathons (Paris, Boston, London, Madrid, Rotterdam, Prague, and Berlin) and to go on a retail tour in the relevant country after each event. Consumers’ feedback was great because of the short delivery time and the opportunity to design their own shoes. Also the strong interest from the press: two television stations (Bayerischer Rundfunk and Fox TV) and many articles featured Adidas’ MC initiative and hailed it as a major milestone (Seifert, Benoit, & Tucci, 2008, pp697-718). Information Management throughout the critical: basic consumer data, product opinions, biometric knowledge, and product specifications had to be merged for order taking. In addition, sourcing, production, distribution, payment, and reordering required appropriate IT backing (Seifert, Benoit, & Tucci, 2008, pp697-718). Many challenges in terms of the scope and integration of the required IT infrastructure remained: 1. The mi Adidas kiosk system for other creation led to technical problems with synchronizing information generated offline; for example order numbers and customer records with Adidas backbone systems such as the sales system and customer master database. 2. The traditional sales system was not designed to process orders of individually customized shoes with detailed information on each article. 3. The IT systems for distribution needed to be extended for an organized distribution and return process. 4. Consumer data captured via mi Adidas could not be transferred to the Adidas CRM system. There were ways around these problems, but they resulted in limited centralization and poor accessibility of data. (Seifert, Benoit, & Tucci, 2008, pp697-718). All development, configuration, and support for mi Adidas had thus far been absorbed by the business and no costs had been charged to the project budget for IT solutions, beyond the mi Adidas kiosk application and scanning software. The kiosk application was developed by a contractor. However no help-desk was available for support and future system integration. Now, although the assembly of a customized show was theoretically straightforward, provisioning the required material proved to be time consuming. Delays were exacerbated when material was needed that was not currently available for inline production. In this case, special material provisioning resulted in significant inventory costs as material for the top-of-the-line models in question were expensive. From a production perspective, a better understanding was needed of the value-cost tradeoff between the marketing perception of customer value added versus inventory and production costs for specific customization options (Schroeder, 2008, p432). 4. Suggested manufacturing and distribution approaches In October 2001, Reinschmidt had been leading mi Adidas to create a customization experience which seeped into many sectors from PCs and made to measure jeans. The time had come to make specific recommendations on the best course of action for mi Adidas. Reinschmidt had three alternatives to choose from: Withdraw: to withdraw mi Adidas from the main market slowly, they would need to cut down on the events and advertisements being propelled and focus mainly on the core Adidas products. To withdraw with grace is an art which any company running risks should learn to master. Concentrating on mi Adidas’ accomplishments and the innovations it brought about, the project can be put under wraps and replaced with may be another new project(Seifert, Benoit, & Tucci, 2008, pp697-718). Maintain: Maintain the developed capabilities and selectively run mi Adidas fairs and planned retail tours following top events such as the Soccer World Cup and world marathon series. Maintaining the pilot’s offers and just keeping to it would be another possible alternative. Now with maintaining the show, it is important to figure out the existing lacunas in the production phase which is important for a smoother running (Seifert, Benoit, & Tucci, 2008, pp697-718). To keep the mi Adidas up and running, the better involvement of IT should also be considered as explained in the previous answer. Expand: Expand mi Adidas to multiple product categories and permanent retail installations; elevate it to brand concept status further building volume and process expertise (Seifert, Benoit, & Tucci, 2008, pp697-718). . With the start of the customization experience project, Adidas entered the new age of the experience economy. Adidas introduced a new business model in the industry, influencing and changing the whole value chain and potentially the sporting goods marketplace, creating a new level of relationship between the consumer and the brand. This innovation has led to Adidas reinforcing its brand name and value. In such cases the company can always risks new venture relying on its already acclaimed customer loyalty. To expand the project further to other merchandise and regions in Far East closer to the outsourced factories would be a feasible option. 5. Recommended Alternative The alternative I would recommend strongly will be expansion. Adidas has been the forerunner among the sport merchandiser for decades. Now this market value gives it the freedom and capital to take risks which not many others can afford. The mi Adidas pilot has been more or less successful because of the increasing individualism and personalization of the market. Everyone wants to be different. Now this individuality is very well catered to by mi Adidas. Although the current business model and work structure of Adidas is batch processing and not personalized orders, and of course there are these issues to be taken care of. The mi Adidas project has till now been catering only to a certain number of countries and to expand it further under improved administration will in all probability be a success. List of References Adidas. (2011). Step Back In Time. Retrieved October 21, 2011, from Adidas: http://www.adidas.com/campaigns/history/content/data/downloads/adidasHistory_en.pdf, pp 1-26 Berger, C., & Piller, F. (2003). Customers as Co-Designers. IEE Manufacturing Engineering, 42-45. Chase, R. B., Jacobs, F. R., & Aquilano, N. J. (2006). Operations Management for Competitive Advantage. New York: McGraw-Hill/Irwin, p 419 Pine II, J. (1992). Mass Customization: The New Frontier in Business Competition. Boston, Mass: Harvard Business School, pp 4-100 Schroeder, R. (2008). Schroeder, Operations Management –Contemporary Concepts and Cases. Irwin: McGraw – Hill Irwin, p 432. Seifert, W. R., Benoit, L., & Tucci, L. C. (2008). Nurturing science-based ventures: an international case perspective. New York: Springer, pp 697-718 Read More