Adidas’ SpeedFactory: A Big Step Towards Onshoring Work?


adidas-training-shoes

For years we’ve talked about a robot revolution, but robots are nothing new! Robots have worked in factories for decades. They’re incredibly fast, but they’re also expensive to program, and they can only follow very specific instructions. If they receive a tray of bolts, each bolt has to point in the same direction, if not the robot gets hopelessly confused. Whole factories were often redesigned before the robots could arrive. The new generation of robots can be dropped into the existing workplace and left to figure out little inconsistencies. Instead of being programmed, they learn from  mistakes (which costs less). New robots are arriving… somewhere near you!   

The gold standard for factory automation is “lights-out” manufacturing, which is complete automation with zero on-site humans. The first lights-out factory was built in 2001 by FANUC, a Japanese robotics firm. Other full lights-out factories exist, but the technology has only recently become cost effective and robust. Still, a lot of progress has been made since 2001.

The most advanced factories in the world have become automation incubators, where factory managers and automation technologists are learning the best practices for automation. Factories have multiple production lines, with each line producing a part or a complete product. While lights-out factories are rare, individual production lines in factories across the world have increasingly been totally automated.

By just looking at a factory, the signs of automation are not always obvious. Automated factories have few if any workers, which means that parking lots, the cafeteria, locker rooms, bathrooms and other facilities are gone. Without human beings, the factory floor is much smaller and more compact, hallways, reception areas, staircases, elevators, and other areas are much smaller. Even the heating and air-conditioning systems are much smaller.  All of this leads to a smaller, less expensive factory.

Like any big “disruption”, a few lights-out factories may be built in the next few years… the technology is certainly there… but it is the modest innovations that move technology forward. One of these steps is the SpeedFactory. Adidas, the global athletic wear company, has put one and one together and got three. By making a highly automated, but not quite lights-out, factory for athletic shoes, a series of other benefits suddenly materialize.

A SpeedFactory is a highly automated factory with a dramatically lower cost of operation, that is built onshore (where customers live). The combination of reduced staffing costs and reduction/elimination of transportation costs generates a third benefit, the ability to quickly provide products to customers. The lower cost of operation allows them to build the factory onshore, which further reduces the cost of operation by eliminating transportation cost, which gets  the product to the customer faster because the product is already nearby.

That speed difference is not just a convenience factor, it leads to more sales. Athletic shoes, consumer electronics, fashion items and many other goods either changes models quickly or change seasonally. When new products are released, some specific model, or option, or color is usually in higher demand than expected. That means it will be sold out, and restocking could take weeks or longer. Unless you just happen to have a factory nearby that can restock. SpeedFactories reduce restocking times and reduce the number of times a customer buys a competing product.    

Adidas has already built a SpeedFactory in Germany, and another one outside of Atlanta Georgia will be completed before the end of 2016. We have reached a tipping point, where manufacturers can move manufacturing back to America. Every manufacturing situation has different economics, but if manufacturing shoes and clothing can be onshored, then so too will many other manufactured goods.

Even if we only look at athletic footwear, Adidas’ has a lot of competitors: Nike, Puma, Converse, New Balance, Fila, Asics, Skechers, to name a few. That’s going to be a lot of new factories being built in America and Europe. Expand that out to electronics, and other industries, and we may see a big uptick in factory construction. That’s the good news. But the other news, not quite bad. But not particularly good either, is that while factory work will return to America, that won’t translate into many new factory jobs.  

No matter how many SpeedFactories are built we’re not going to return to the high of 240,000 shoe industry workers we had in 1966. Still, with just 2,000 shoe workers in 2014, an improvement would be welcome.

While SpeedFactories may not provide much employment, they do provide consumer benefits. No matter how great a range of products we have, consumers always want something unique. Customized athletic shoes are becoming big business. Customers can request mix and match pattern, different colored soles, laces, eyelets, and various finishes. Shoes can even be printed with selected graphics or something you designed yourself, for a completely one-of-a-kind shoe.

In lower Manhattan, Converse has a shoe store that is also a factory, creating custom sneakers while you wait! This is a tempting model for any fashion store. Using a small warehouse of custom parts plus printing machines to create exactly the product you want. A smaller version of SpeedFactory technology could operate in department stores and malls for a custom purchase experience. Not that long ago it was a revolutionary idea that you could get your eyes examined and pick up your eyeglasses just an hour later. SpeedFactories technology could be applied to a lot of consumer goods. More options, less waiting. That’s a great deal!    

While the SpeedFactory may revolutionize 21st century manufacturing, it’s not the first time manufacturing was “re-shored” to America. In the 1990’s, imported cars were rapidly gaining share in the US car market. Soon, imported cars ran into import limits and tariffs. The solution was to build foreign cars on US soil (Kentucky, Ohio, Indiana) and thereby be exempted from import limits and tariffs. The cost mechanisms were slightly different, but moving onshore changed the game for car manufacturers, and brought jobs back to the US.  

Which raises a rather large question. What happens to the jobs in offshore locations? As more work moves back onshore, jobs that were relocated offshore will go away. At the same time, the work replacing technology used in SpeedFactories and lights-out factories will become the standard for new factories, wherever they are built.

With over 100 million manufacturing workers, China is the world’s manufacturer. Yet, the technology that makes the SpeedFactory possible will make it very difficult to maintain this title. Employment in China will be squeezed on one side by jobs lost to onshoring, and squeezed on the other side by competitive pressures to automate Chinese-owned factories. There are stories everywhere about how robots will soon take over half more of the world’s jobs. But in China, that will happen even faster, because they will lose domestic jobs to automation, plus they will lose previously offshored jobs that return to the US and Europe.

In most developed nations, the ebb and flow of jobs due to automation and on/off-shoring is largely a corporate matter, and corporations have closely followed profit incentives. China, however, is a bit different. China is one of the few remaining Communist governments, and they see full employment as their primary tool to maintain political stability. Corporations in China exist to provide jobs. Yet, there has never been a Communist nation with so Capitalistic an interest in profits as China. When the squeeze comes, what will China do?

The answer comes in two parts. Part one, China will aggressively pursue new markets, both for domestic manufacturing and for outsourcing, to replace lost jobs. That means taking over work from Vietnam, Cambodia, Thailand and other low-wage manufacturing markets. As automation raises productivity, China will be able to underbid competitors. At the high end, China will push outsourcing services into high-end knowledge work (especially in banking, insurance, and financial), while simultaneously expanding the footprint of Chinese-owned banks and insurance companies.

Part two, China will open factories in America and Europe. Just as car manufacturers moved to America when the financial incentives were right, the lower cost of new automation plus the elimination of transportation fees provide powerful incentives for China to co-locate factories where products are sold. Within this answer is a second question. When Chinese outsourcing programs are shut down, will China offer to re-shore these services themselves, in order to keep their clients?

The technology that makes SpeedFactories possible will disrupt both traditional manufacturing and outsourcing. Consumers will greatly benefit from these new factories. America will gain a few jobs, perhaps more that a little additional taxes when a wave of new automated factories are built in the US. China, however, has the most to lose as worldwide employment in manufacturing plunges. However, we have seen that China has been flexible in moving from one area of employment to another and the people of China no longer wants assembly line jobs.

In the short term, at least, the consumer will be the big winner. More choices and continually lower prices. In the long term? There are so many disruptors that we can expect to hit in the next few years that it’s difficult to say anything other than, “Everything is about to change!”. That’s my Niccolls worth for today, and I’m sticking with it!

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4 Responses to Adidas’ SpeedFactory: A Big Step Towards Onshoring Work?

  1. Girls Jansons says:

    You should also write about how Microsoft and other companies auto update and access your computer’s without really any of your knowledge of what they are doing in the background. Maybe during the process they scan and copy the contents of your machine…does anybody monitor this?

    Sent from my Samsung device

  2. Sandy Montalbano says:

    The benefit of sourcing domestically and reshoring apparel manufacturing is in the total costs. Offshore apparel manufacturing leads to high shipping costs, high carrying costs of large inventories and long lead times. Reshoring allows for smaller batches with more flexibility for customization, style changes and delivering the product to retailers on time for consumers.

    Companies are recognizing that with the use of the refined metrics of total cost of ownership (TCO) to uncover the hidden costs and risks of offshoring and reducing costs with sustainable strategies such as robotics, improved product design, innovation, automation, and LEAN they can increase competitiveness and manufacture in the U.S. profitably.

    The Reshoring Initiative Can Help
    In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s free TCO Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/tco-estimator/

  3. Pingback: The other shoe just droppedOutsource magazine: thought-leadership and outsourcing strategy

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