This essay will aim to show my understanding of the
operations management, supply chain and process flow of the business that I
have chosen. I will also give recommendations on how they can improve their
supply chain strategies and possible market developments.
Adidas is a multinational corporation that design and
manufacture sports and accessories. They have made a name for themselves as one
of the biggest companies which specialises in sports goods.
The 4 V’s
All operation processes always use one thing to get their
inputs (raw materials, knowledge, capital) and transform them into outputs
(goods and services) and that is called the Four V’s (Volume, Variety,
Variation, and Visibility).
Volume: In Adidas
case they are known for their high volume and high-quality sports clothing that
is available for their consumers to purchase. The volume of their operation is
vital to how their business is organised. Employees are repeating tasks daily
which drives them to do their job how it is supposed to be carried out with no
faults, one might say it is almost machine-like. High volume allows Adidas to
gain more profit as there is more stock available for the customers.
Variety: Variety shows that there are more options to choose
from for the customers. Adidas made sure they don’t just one specific type of
products. They offer products like shirts, footwear, sports accessories etc.
This is very advantageous for Adidas because more options mean there is something
for everyone which in turn increases revenue.
Variation: Adidas have a very good manufacturing process
since they get it exported from countries around the globe and is distributed
to stores in different parts of the world. Adidas have made sure that to
purchase their products in store and online very is a smooth purchase. They
hire good employees to help the customers whenever they need help, these
workers are trained to a suitable standard where they can serve anyone who
needs help. They have specific types of clothing for certain seasons.
Visibility: The visibility dimension allows the customers to
see how their order is being processed. For example, Adidas do have high
visibility as customers can pick up their goods and purchase them over the counter.
Customers can easily order online if the item they are looking for is not in
stock at the store and it can be delivered to their house.
A literature review was conducted to structure the analysis
of Adidas supply chain management and logistics. Logistics is a managerial
system which makes sure that the right product or service is delivered to the
right customer, given on time, in the right quantity and at the right place (Adriane,
The flow can be reversed, by beginning at the customer and
then flowing it back to the suppliers of components and raw materials (Adriane,
2011) and this is called reverse logistics. To achieve a sustainable chain
management, businesses like Adidas must implement reverse logistic practices
into their business. The advantages of reverse logistic are that it reduces
financial and environmental burden and it reduces consumption of raw materials
for packaging (Bouzon and Govindan, 2017). However, there are disadvantages
like additional logistic cost such as air emissions from transportations,
associated energy/environmental effects, labour management. Adidas do use
reverse logistics like for example, when a customer returns a product, they
have a returns policy of 45 days and Adidas will offer a full refund if you
return your product. and that is because there is a cost benefit to it. Reverse
logistics maximises costs of handling from the returned goods and they can
reuse, remanufacture, or dispose it.
Suppliers are very crucial towards Adidas’ success because
they rely heavily on them. Since Adidas’ supply chain is quite large and
varied, they have a detailed and systematic approach to managing a strong
relationship with their suppliers. Adidas has outsourced a lot of its
production. They work with more than
1000 independent factories around the world where they manufacture their
products in 63 countries. China, India, Indonesia, and Vietnam are the most
dominant sourcing locations for Adidas (Adidas-group, 2017).
Even though Adidas is one of the global leaders in the
sporting goods industry, transportation is an essential part of the development
of their company. Adidas uses inbound logistics is that they utilise
international water carriers, so they can ship their goods to different
countries around the world. Adidas also uses air carrier for bulk orders
because they can deliver the products faster for something like a huge event. Adidas
uses outbound logistics by giving out their products to retail stores. Also,
motor carrier is something Adidas use to deliver products to retail stores like
Sports Direct and JD.
Adidas have three different types of sourcing relationships
which are direct sourcing, indirect sourcing, and local market production.
Adidas do direct sourcing is that they have direct contractual relationships
with its core suppliers. Product development, commercialisation, distribution,
and the manufacture of most of the products for Adidas, Reebok and adidas golf
segments are all handled by a corporate function called Global Operation. These
suppliers produce the most amount of the total sourcing volume of the company.
The other part of Adidas’ product volume is that they are sourced by agents or
is made under license and this is called indirect sourcing. Agents place orders
for Adidas with their preferred suppliers and licensees can place orders
directly with their own suppliers. Indirect sourcing complements the direct
sourcing by meeting specific requirements which Global Operations are not able
to do. Local market production is a way for Adidas to quickly seize short-term
opportunities in their local markets to satisfy the requirements for the niche
market or to react to certain trade regulations. Adidas subsidiaries may also
source from local suppliers in a specific country which are not overlooked by
Global Operations. The larger the logistic network used by Adidas, the higher
the cost used to maintain Adidas. Adidas outsources to reliable companies in
cheaper countries to get higher profit. (Adidas-group, 2017)
Adidas has five types of suppliers which are main suppliers,
subcontractors, material and other service providers, licensees and agents.
Main suppliers supply products whether it is for exports or domestics market
consumption. Subcontractors are the factories that are subcontracted by the
suppliers to perform manufacturing operations which the main supplier are not
able to do. Material and other service providers might not have a direct
relationship supply goods and services to main suppliers. Licensees are
independent companies which handle the design, production, and distribution of
specific products under the license of Adidas. In 2016, Adidas have worked with
over 60 licensees and the suppliers outsourced the products from 377 factories in
48 countries. Companies that are independent who act as mediators to source
product manufacturing, overlook the manufacturing processes, then sell the
final product to the Adidas. Every
single stage in this logistic network is connected, this helps the flow of
products, funds, and information. If there is a lack of co-ordination it will
lead to an increase in cost consequently, resulting into diminishing
profitability which is not what any business wants (Adidas-group, 2017).
Adidas have an objective of being the world’s best sports
brand which shows great ambitions. They have maintained a great image therefore
they have a lot of popularity and brand recognition. Adidas have a strong
market presence around the world for example, Adidas have performed well in North
America, China, and Japan. Adidas acquired Reebok in 2006 and this led to a
growth in its market share. There is a lot of momentum for both Adidas and Reebok
in recent years. This is very beneficial for Adidas because the currency
neutral revenues grew by 26% and 6% for Reebok. (Ong, 2017)
Adidas do very well in marketing by using sponsorships and
partnerships. They have many celebrity endorsements and sponsor major sports
organisation such as FIFA, UEFA, NBA and the Olympics. Adidas have collaborated
with footballer Paul Pogba and grime artist Stormzy. The youth of today will
know who Stormzy is since grime music has gone global especially the US. This
is a very good marketing idea from Adidas getting someone like Stormzy and
Pogba since many young people will buy Adidas clothing because of them.
The products by Adidas can be quite costly due to the
production method or innovative technology being used, this can rule a certain
target market because they cannot afford the high-priced clothing. They have
tough competition from Nike who are dominating the footwear market therefore
pressure is high for Adidas to get customer retention.
Adidas has always been known for sports clothing and they
have very limited stylish fashion accessories and clothing for their customers.
This is a weakness for them because their rivals in the industry have delved
into broadening their line of clothing and keeping up with the modern trend.
Adidas should do continuous product and design because this
is good for sales and revenue. This will also help attract and gain retention
Adidas can venture into making more stylish design which
will be more appealing to the younger generations since fashion is constantly
changing. If we consider the Indian market, there is a growth rate of 33% in
demand of premium products. This shows that there is a future business
opportunity in India and expanding the market size of countries with developing
Even though Adidas is a global and recognisable brand, but
it is facing fierce competition from Nike. Nike are the biggest threat however,
there is competitive pressure from brands like Puma and Under Armour. Brexit is
also a problem from Adidas since there is political and economic uncertainties
which is a challenge is some of its key markets. Adidas have a high dependence
on their suppliers which is very risky for the long term. They have focused on
building long term and strong supplier relationships but relying on suppliers
this much can be dangerous. A lot of
their production are being outsourced therefore suppliers have more bargaining
power than Adidas. Other brands offering more styles and varieties, therefore
Changes in the global economy such as recession is a
weakness for major corporations like Adidas. For example, when BREXIT was
confirmed, the sterling currency went down and if Adidas decided to expand
their brand and business in the UK, it may be affected because of the possible
damages to the UK economy caused by BREXIT when it gets finalised.
There are five performance objectives which allow
organisations to measure its operations performance (Slack et al, 2007). They
are dependability, flexibility cost, quality, and speed. I will be talking
about each of these and say which one suits Adidas the best.
Dependability means that doing things in time for customers
to receive their goods or services. Being on time is very important because
customers are likely to get irritated if their product is not given on time or
not there at all when promised. This has internal and external effects on the
business. Adidas are reliable and dependable because they have a high volume of
stock ready to give out to different retailers. Retail stores like JD gets
Adidas clothing given to them to sell to the public. Internal dependability
influences cost in three ways – it saves time therefore saving money, saves
money directly also, it gives Adidas stability which helps them improve on
their efficiency (Heizer & Render,2006).
This performance objective suits Adidas the most since they
are very flexible in terms of having a variety of products. They sell shoes, t-
shirts, tracksuits, football boots etc. They have these products’ sizes
available for men, women, kids. There is an option to customise the products in
any way you want. On the adidas website, they have a section which is dedicated
to sports. This is very useful for customers who wants sportwear, Adidas made
it easier to access on their website for them. Adidas have recognised that
their large base of customers come from diverse cultures and backgrounds, therefore
they have adapted to this by providing a wide range of products for their
customers. They have also collaborated with different types of people such as
Stormzy (a grime artist) and Paul Pogba (Manchester United football player).
This goes to shows that Adidas are flexible in choosing people to represent
their brand on a global scale.
Cost is a major performance objective which businesses need
to focus on. Low price is universally attractive to customers and this can be
achieved by getting their goods at low cost. Adidas gets most of their clothing
from countries, where workers are less privileged and are given minimal wage
which contributes to reducing cost. This is an ethical issue since workers are
not getting paid much for their hard labour, reputation can be harmed by
workers protesting for better working conditions and wages. Adidas do put out
competitive prices on their products to match or beat their competitors,
however, they do try and make sure it is affordable, so customers will feel
that is good value for their money.
Quality is the most important aspect in the modern business
environment. This when the product or goods meets the customer requirements.
Adidas have built a reputation of having quality clothing which means error
free goods and services which makes customers satisfied. The price of adidas clothing is quite high
but that is only because of the fact the quality is there at adidas. To make
sure they can keep up with their rivals, Adidas need to produce high quality
products and have a good reputation about their products. The materials and
designs they use are of high standard in a way that it justifies the price tag of
the products. Also, having high quality clothing gains customer retention
because they can rely on Adidas for good quality clothing.
Another performance objective is speed, and this means doing
things fast to minimise the time between the order and the availability of the
product or service. Adidas have been improving on their speed when it comes to
shortening queues. I have been to an Adidas store and I was impressed on how
quick they were on helping their customers and serving them on the tills. Queue
lines are made into ‘zigzagesque’ lines to make their customers psychologically
think it is getting shorter than it actually is. This was originally used for airlines,
but this knowledge has been transferred into fast food restaurants like
McDonalds and now Adidas are using the same method which is effective in busy
periods. This is very good for a retail store like Adidas because this gets
customer retention which in turn increases profit/revenue.
Adidas’ performance has been doing well in recent years and
that is because of the increase of focus on marketing in the last couple of
years. The market dominance of Nike is the major challenge for Adidas so to
stay competitive, they need to continue focusing on their marketing and product
innovation. I recommend Adidas to fine tune their supply chain because
traditional sports footwear is not eye catching on to the public. They should
invest in making more high-tech shoes which will challenge the likes of Nike
Jordans which are produced by Nike. They need to develop footwear to appeal to
the mass public because Adidas are mainly known for their sports footwear
whereas Nike Jordans can be worn for casual wear and for sports. For Adidas to be more relevant than Nike, they
will need to invest more into casual footwear. Nike Jordans is very popular in
the US, which is Nike primary market, and for Adidas to increase their exposure
and revenue, they will need to win over the US market by releasing products
which are out of the ordinary but within trending fashion.
Adidas own Reebok and although Reebok has a good brand image
in the sports industry, it is only seen as a fashionable footwear rather than a
practical sports footwear therefore customers are not interested in this. I
recommend Adidas to concentrate in having many retail stores in markets like
India, China, and Russia. The growth of the business can be risen by focusing
on the evolving markets in China, Russia, and India. Their current performance
in China and Japan is doing great also, India has potential as a market for
Adidas. They will increase revenue if they were to exploit these markets more