The New Value of Proximity

March 14, 2019

While strategists of the 80s and 90s were pitching companies to outsource manufacturing to developing countries where labor is cheap, today they are changing their tune. Before, costs were their principle focus. Today, however businesses have begun to focus on something else—speed. In fact, the strategy du jour is bringing manufacturing back to developed markets where the product is sold, the opposite of what they were championing before. Thanks to new automation technologies like advanced robotics, artificial intelligence, and additive manufacturing, companies can produce closer to consumers and build a better innovation platform for themselves.

To see the benefits of proximity manufacturing, we can look to Adidas. In 2016 the German footwear and apparel company brought production back to Germany with its newly built Speedfactory in Ansbach, roughly 35 miles from the Adidas headquarters. Then, in 2018 it opened another Speedfactory in Atlanta, Georgia for the US market.

As the name denotes, the new factories are all about speed. These are not your typical sneaker factories with assembly-line workers constructing shoes by hand. Instead, robots are cranking out the kicks. By controlling production under one roof, Adidas has the ability to optimize its production processes in order to create a better quality product quicker. While it traditionally takes 60 days to make a sneaker, the robots together with a workforce of 160 people can turn out a sneaker in just five hours, basically lightning speed for the industry.

In today’s fast-paced world, speed to market is fundamental. Especially since the sneaker world is driven by social media, the Speedfactory will help Adidas stay ahead of fast changing trends. Traditionally, a sneaker that comes out in 2019 was designed in 2017, so designers have to predict what will be popular at least 18 months out. At the Speedfactory, however, Adidas can design something just a few weeks before it hits shelves. For example, with their conventional manufacturing system, if designers didn’t predict transparent sneakers would be a hit, Adidas would have to sit out of the trend. Now, with the Speedfactory if they saw kids rocking transparent sneakers, they could easily react and make an Adidas version.

Also, the Speedfctory will allow Adidas to better match supply with demand in the US and European markets. By being closer and faster, it doesn’t need to order huge volumes before each season. Instead, it can produce small numbers, then quickly restock styles when needed. Additionally, with advanced manufacturing in place, Adidas can also adjust digital designs to customers preferences. So, if they found out people dislike certain details about a model, Adidas could modify it during the season.

In addition to innovating the sneaker production process, the Speedfactory is also a platform to innovate products. Because Adidas doesn’t need to place an order for 50,000 shoes at the Speedfactory, it has the freedom to create experimental products. It is also better able to offer individualized customization, which many strategists are saying is new frontier for growth. It has already released a collection of running shoes called Adidas Speedfactory AM4 City Series, where each sneaker is designed for the terrain of specific cities around the world. It includes shoes designed for London, Paris, New York City, Los Angeles, Shanghai, and Tokyo. In the future the brand will build unique sneakers for each individual through technologies like 3-D printing and body scanning.
While the Speedfactories’ output is still small, producing only one million shoes compared to the 360 million Adidas produces a year, the value it creates is not in volume, but in speed and flexibility. They hold huge potential for the company because tomorrow’s innovations will rely on faster business models. Other apparel and footwear companies should see the value of what Adidas is realizing and join in on building the manufacturing of the future.