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How Adidas Footwear Helped Suppliers Increase Labor Productivity

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Process ImprovementLast month, Mr. Guenther from Adidas Footwear’s Manufacturing Excellence department gave a presentation on the topic of “Dealing effectively with increases in labor costs in a labor intensive industry”. It was one of the best presentations of the last sourcing conference organized by the European Chamber.

Adidas Footwear works with a number of suppliers that own a total of 48 factories. They have to source about 25,000 articles every year. So they have to maintain a massive buying organization.

Every factory working for them employs 2,000 to 10,000 employees. A total of 180,000 operators work on Adidas shoes across the world — they are present in China but also in many other countries.

As all importers have noted, fully-loaded labor costs have increased. The trend has actually been accelerating, from 50 USD a month in 1990 to 550 USD a month this year. Only 20% of their products’ costs come from labor, but in aggregate it represents very large sums.

They set up a “Manufacturing Excellence” department with the goal of offsetting labor cost increases by a raising efficiency. How have they tacked this challenge? By adopting a lean manufacturing approach.

Their strategy can be broken down in 4 themes:

1. Design for manufacturability (DFM) – simplify, standardize, modularize, and automate as much as possible. Designers are changing the way they work, and it helps reduce the labor content of one pair of shoes.

2. Technology for processes – manufacturers are adopting CNC stitching and other higher-tech equipment.

3. Labor organization – whenever possible, factories are shown how to convert batch & queue organizations into assembly cells. (More information about this here.)

4. Leveling of orders – everybody benefits if factories have a relatively stable demand and can keep trained workers all year long. Adidas has made changes to their order planning to smooth out the peaks and lows in their demand.

Overall this is an excellent approach, and it seems to bring in strong results. And I am positive that midsize importers can apply all of this at their own scale and benefit from lower costs.