When Adidas put out its annual report for 2018, a phrase from the accompanying press release went up like a bat signal to those focused on operations: "supply chain shortages."
Problems with the athletic wear company’s majority Asian suppliers would negatively affect sales growth for the first half of the year, the report explained.
Adidas hasn’t given too many details, so we don’t know exactly what internal dynamics caused the shortage. It’s also important to note that annual reports include what companies decide to publicize – not everything going on behind closed doors.
What we do know is the brand has been experiencing unexpectedly high demand for mid-range apparel in the North American market. Adidas' woes offer a cautionary tale for supply chain managers, who can glean lessons from the apparel brand's shortfalls and avoid a similar fate.
Was the sportswear brand slow on the uptake?
The central question at the heart of any shortage is, is the problem the result of a failed understanding of demand, failed communication from buyer to supplier, the supplier's failure to produce or a combination of these factors?
Simon Croom, academic director of the Master's in Supply Chain Management program at the University of San Diego, told Supply Chain Dive that what he sees in Adidas’ situation is a possible slow signal uptake.
"Essentially it’s a classic case of having a low responsive supply chain (in outsourced manufactured products) when demand changes are substantial. In essence, it is a form of bullwhip effect that is more connected to inappropriate supply chain design than either procurement or planning," Croom said in an email.
Lag time, one might say, is the mark of an inflexible, sluggish supply chain.
"Adidas’ CEO says they 'didn’t respond quickly enough to that demand signal.' This suggests the demand forecast was not the issue, but rather the execution. Being able to execute a demand plan based on a reliable forecast is crucial and requires flexibility within the end-to-end supply chain," Nick Finill, senior analyst of intelligent supply chain at ABI Research, told Supply Chain Dive in an email.
Using data to build a responsive supply chain
The right data in the right place — and knowing how to use it — may have helped Adidas respond accordingly to demand this past quarter. Finill said poor data management and lack of real-time insights are some of the biggest barriers to agile supply chains.
"The most impactful way to increase supply chain flexibility is to ensure that data is not stored in silos across the supply chain, but shared in a collaborative way across various departments. The supply chain should be viewed as a web, rather than a linear chain," Finill said. Supply chains that function in this way can quickly respond to changes in demand without missing a beat while maximizing efficiency and profitability, he said
One step further than well-integrated descriptive data, he explained, is predictive analytics, which Adidas' main rival Nike is working on right now.
"The supply chain should be viewed as a web, rather than a linear chain."
Senior Analyst of Intelligent Supply Chain, ABI Research
After a system for constant gathering and analyzing of supply chain data is in place, that data has to get into the hands of the suppliers who can make a deep understanding of demand worthwhile.
"Understanding and predicting demand ... can only deliver value to the business when it is effectively connected to supply. It’s critical that supply capabilities keep up with demand," Thomas O’Connor, senior director and supply chain analyst at Gartner, told Supply Chain Dive in an email.
He said supply chains should ask themselves: "Are we effectively providing insight to our suppliers into future demand, such that they can keep up with and meet our needs?"
Digitization and automation will certainly help, but as the experts explained, getting real-time supply chain data freely flowing throughout an organization has to be at the core of any strategy, no matter the technology backing it.
Adidas seems to know this. It wants to implement large-scale supply chain digitization as part of a plan to "achieve at least 50% of the company’s net sales through speed-enabled articles by 2020," the company's report said.
Now it's down to the execution.