#Lessonsfromthebest : Speed factory

 

Author’s Note: Over the last few weeks, I have been using this space to write about the lessons I learn from organizations with respect to their supply chain management, but not limited to it. I have also been attempting to convey my learnings as a narrative, and a story of sorts. So, if you want to learn something informative whilst having some entertainment, go ahead and read away! If you want to read my previous blog posts, click here! 😊

Shanmugeshwari, MBA '21

Amrita School of Business, Coimbatore

With more organizations focussing on localization with custom made products, goods are made at “Speed factories”. Though these factories have a quick turnaround to satisfy the demand, often they come with high production costs.

 

Let’s take an example, Adidas.

 

In 2018, Adidas came up with AM4NYC (Adidas Made for New York City). These shoes are made specifically for the runners and athletes at the Big Apple AKA NYC. These shoes were produced in the U.S., unlike most of its footwear which happens overseas.

 

As retail customers expect instant gratification and immediate deliveries, consumer-faced companies are starting to invest in these speed factories. However, these account for only a small percent. At least in the case of Adidas were out of the 300mn athletic shoes the company makes, only 1% of it comes from these speed factories. Adidas has the vast majority of its production in Asia and only two-speed factories in Germany and Atlanta.

 

Now, why is it companies allocate only a tiny amount of its total production to these speed factories, considering their fast turnaround?

 

This lies in the demand forecasting. If the exact long-term demand is known, these products could very well be manufactured overseas, but the nature of the demand for these customized shoes is uncertain. If people see their favorite celebrity sporting a new sneaker and they want to buy it immediately, predicting this kind of demand becomes hard, and producing them fast enough in Asia to meet the demand in the U.S. becomes tedious. Also, such unpredictable demand requires companies to maintain large safety stocks, which may have to be sold off at discounts in case they don’t sell it in the season.

 

This is where the Speed factory comes into play. If companies can get the latest and the best product to market faster, there’s no need for a discount and they can command higher prices.

Having a speed factory may be a worthwhile investment, as long as they have the best product mix to allocate to these factories. The local production via these speed factories can give the business a competitive edge, but over time if the demand becomes stable it only makes sense to have the production offshore.

Here is the making of Futurecraft M.F.G at one of the Adidas' speed factory,

You can read the tech stuff about these shoes here, Adidas AM4NYC Shoes