After three years of testing, Adidas eventually abandoned the smart factory. Under cost pressure, two robots in Germany and the United States, which carry Adidas’s “money-saving plan”, are entering the countdown to closure, and adidas’s production line will return to the Asian market as 2020 approaches. As it turns out, fully automated, high-tech robot factories don’t seem to be as cost-effective as they’ve been.
Close the robot factory
Three years ago, under cost pressure, Adidas withdrew to its home country, targeting a robot factory that could be “once and for all”. Ironically, three years later, under cost pressure, Adidas had to abandon its robotics plant and return to production lines in Asia. Adidas’ two high-speed plants in Ansbach, Bavaria, Germany, and Atlanta, Georgia, are out of operation by April 2020, German sportswear group Adidas said in a statement on Monday, Reuters reported. Both plants use robotics and 4D printing technology to produce sports shoes.
Although Adidas did not disclose the exact reason for the plant’s closure, the outside world has long found clues in various ways. Martin Shankland, Adidas’ head of global operations, said the factories had helped Adidas increase its expertise in innovative manufacturing, but would be “more flexible and economical” by applying what it has learned from suppliers. It is understood that Adidas production in Asia has exceeded 90% of total production.
High-speed factories are closing, but technology doesn’t close with them. It is understood adidas will focus on using its pioneering technology to produce shoes from two suppliers in Asia, both in China and Vietnam. Moreover, fortunately, the closure of the plant will not result in large-scale layoffs, after all, the factory of fully automated robots itself does not use much labor, and only about 160 people will be affected.
Such a result has left the outside world somewhat unguarded. After all, when Adidas chose to build the two factories, there was anticipation. In 2016, Adidas announced that it was preparing to launch a robot factory in Germany, and the name “high-speed factory” already hints at everything. In 2017, Adidas opened a second high-speed plant in the U.S., with both plants in production in 2017 and 2018, almost 100 percent of which are operated by robots. In 2012, Adidas shut down its last plant in China because of rising labor costs.
At the time, Adidas stressed that these automated production can be tailored to customers shoes, smart factory production capacity of high characteristics, is widely used to fill the limited, out-of-stock shoe inventory. Under Adidas’ plan, products and sales from smart factories will account for half of Adidas’ revenue in three years, 2020.
Cost Abacus Mistaking
Adidas had hoped to offset the cost pressure with sales from speed, and that’s where the high-speed plant is. It is understood that before the establishment of the high-speed factory, a pair of shoes from the prototype to the shelf took about 18 months, but three-quarters of the shoes in less than a year into the promotion phase. And in the fast-moving market, high-speed factories solve this pain point. A pair of shoes takes about 5 hours from start to finish production.
Automated production can increase productivity growth by 0.8%-1.4% globally each year, according to McKinsey Global Institute situational modeling. Adidas naturally understands this, but it turns out that there is a gap between ideal and reality. There is speculation that Adidas’s closure may be related to the plant’s inability to meet mass production, which produces only part of the shoe and sole, and cannot produce rubber-based soles.
Adidas had expected two high-speed factories in Germany and the United States to produce 1m pairs of shoes a year, which sounds like a huge number, but the size of the 1m seems insignificant in the face of Adidas’ overall production capacity. It is understood that the number of shoes produced by Adidas each year is about 400 million pairs, the average daily production of more than 1 million pairs.
In addition, high-tech robotics plants also mean that the cost of machines is not a small number, so the high cost is also considered to be one of the main reasons for the closure of Adidas. Although Adidas did not disclose the costs of the two plants, saying only that they would be included in research and development spending, there has been a marked increase in adidas research and development spending between 2015 and 2017. The figures show that adidas’s research and development costs in 2014 were 126 million euros, which has since increased year by year, rising to 187 million euros in 2017 and down to 153 million euros in 2018.
It’s also worth noting that three years ago, when Adidas was preparing to move its plant back to Germany and even the United States, it considered a transportation cost in addition to saving labor costs, and the other side of the cost of transportation was to be closer to users in Europe and even North America, but the reality of the data proves that Spending a lot of money to build a factory closer to the European North American market may be a no-no. In Europe, for example, Adidas’ sales in 2018 were EUR 5,885 million, down 0.8% from EUR 5,932 million in 2017. In North America, Adidas’ sales growth has slowed at times. In both markets, Nike is a fierce rival to Adidas.
The Beijing Business Journal reporter contacted Adidas about the reasons for the plant’s closure and its plans for the U.S. and Europe and the Asian market, but has not received a response as of this time.
Automation plants are not cheap.
The dividends of the age of automation are full of temptations. Replacing manual labor with 24-hour high-efficiency production, it seems to be the perfect automation factory as one might imagine. Adidas has tried automated factories, as have Nike. The Financial Times reports that Nike has been working with Flex, a high-tech manufacturing company, since 2015 to add greater automation to its labor-intensive shoemaking process to achieve faster manufacturing speeds and lower costs and profits.
But like Adidas, Flex announced its “break-up” with Nike in December, saying that “it is clear that we are unable to achieve commercialization and a viable approach, and that, with Nike’s consent, the plant will close in Guadalajara, Mexico, on December 31st”. The result was a $30 million loss for Flex, and Flex’s chief financial officer stepped down as a result of its deal with Nike.
The vision of automation is too easy for people to step into whimsical situations. Not long ago, the “American Factory” hit the outside world with concerns about the problems of U.S. manufacturing, a complex entanglement between unions, employee benefits and corporate profits. High-pressure labor costs have weakened U.S. manufacturing, and at the end of the documentary, a large number of automated industrial robots began to replace labor.
In the U.S. market, “machine replacement” is becoming more and more common, the number of robots in the factory is more and more, no one can deny that the robot eventually replace shuman will be the trend, but in the current state, the machine itself is a high investment, not to mention adidas example sinitth. Not all work can be replaced by automation.
Another point that is overlooked may be the effects of the larger environment. At the moment, trade friction is a presence that no multinational factory can ignore. Components used in robotic products tend to be used to cover a wide range of raw materials, and the steel and aluminum tariffs that have been on the rise since last year have begun to “boom”.
“The technology industry generates 10 percent of U.S. GDP and creates more than 15 million jobs for Americans,” said Gary Shapiro, president and chief executive of the Consumer Technology Association (CTA). The U.S. technology industry has been hit by tariffs this year. Our industry can’t afford an additional $1 billion a month in tariff costs. Andrew Stom, chief executive of Eckhart, a collaborative robot manufacturer, also said: “We and other competitors are under enormous pressure because of recent tariffs imposed by the US government on large quantities of imported steel. “