LOGISTICS AND TRANSPORTATION 1

MANAGEMENT OF ADIDAS SHOES

NAME: TRINATH OJHA

JGU ID: 18020347
 PRODUCT CHARECTERISTICS AND ITS EFFECT ON LOGISTICS AND
TRANSPORTATION 2

Product: Foot Ware (Shoes)

Materials used: The most commonly used materials are:
1. Recycled polyester
4. Polylactic Acid (PLA)
Product characteristics:
Bulk-Weight ratio: Low
Value-Weight ratio: High
Product Substitutability: High
Risk to theft : High
2. Recycled rubber 3. Organic cotton, "Better Cotton"
5. TENCEL (a fibre made from wood pulp) 6. leather
Demand Management:
Order Fulfilment and Forecasting: Adidas recently
manages demand driven supply chain instead of forecast
based supply chain which it uses before.

Strategy:
Major resource for production of shoes are cotton, rubber and manpower. As all three are abundant in Asia, so
Adidas has outsourced almost 97% of shoe production to Asia to gain advantages in transport and logistics.
As Bulk-Weight ratio is low so higher transportation cost. To reduce transportation cost best method is by ocean
carrier.
Due to higher Value-weight ratio it can be transported by air during high demand periods.
Product substitutability is high, so highly agile third party logistics will be better suited for economies of scale for
logistic and transportation process.
Risk of theft is high so transportation through container will be the best medium.
 COMPANY STRATEGY ON TRANSPORT AND LOGISTIC
MANAGEMENT
Production Strategy: Adidas, operations
were transportation cost is low. traditional batch and queue,
and stored in warehouses until the order was processed.
INBOUND LOGISTIC
Major suppliers of Adidas Shoes:
 USA (2%), Asia (97%): China(22%), Vietnam(42%),
Indonesia(24%) and Others(7%) and Europe (1%)
 97% productions outsourced nearer to resource bases due to
abundance of cotton and cheap manpower cost. So inbound
logistics and transportation cost is low.
Adidas Group
3
OUTBOUND LOGISTICS
Three store format: Brand Centers, Core stores, and
Factory outlets summing up to 2800 stores world wide.
12000 mono branded franchise stores.
120,000 whole sale points and more than 50 e-commerce
sites.
Mi Adidas allows customers to customize products for
own needs and hence helps adidas reducing stock
holding cost.
Since the main production factories are located in Asia
while the retail stores separated widely all around the
world. The out bound logistics and transportation cost
are high.

Supplier Agent Licensee

Manufacturing Unit
Sub-contractor Supplier Agent Supplier
Country
Sub-contractor Supplier Sub-contractor Warehouse

Sub-contractor Store-1 Store-2 Store-3 Store-4

 CURRENT PROCESS OF LOGISTICS AND TRANSPORT 4
MANAGEMENT.
Mode of logistics and transportation:
. • Adidas operates in a decentralized manner, with separate operating units independently choosing software that suited their
internal preferences and geography. Due independent choosing software and batch production and storing ,warehouse,
logistic and transportation cost is high
• Third party logistics (3PL) named Total Logistics is an European supply chain specialist who provide a supply chain
rationalization solution to Adidas.
• International ocean carrier, etc. general cargo ships.
• Air carrier for bulk order, high market demand and faster delivery faster, for example, sports event.
• Road carrier is used by Adidas to deliver their product to retailer stores.

Strength:
• Concentrated production facility decreases inbound
logistics.
• Centralized ware housing provides better recording
and maintainability of inventory.
• Avoid capital expenditure. Better service quality. Cost
reduction.
• Flexibility in terms of economic order quantity
Weaknesses:
• Concentrated production in Asia(97%). So higher logistic
and transportation cost to transport world wide.
• Either higher lead time in transportation through water
carrier causes higher inventory cost, or lower
transportation time through air causes higher
transportation cost.
• Bulk batch production for ocean transport increases
warehouse cost.
 SUGGESTIONS FOR IMPROVEMENT 5

1. Change in production strategy: Adidas should employ Flexible “Demand-Driven Production

System”. It will decrease the over all inventory holding cost and warehouse cost.

2. Creation of Speed Factory according to higher customer base:

 Benefits of speed factory:
• Shorter lead time: Reduces time from design to finished good from currently 12 to 18 months to as
little as 45 days. Will reduce inventory holding cost as well as warehouse cost.
• Smaller batch size: Will enable Adidas to reduce batch size to as little as 500 pairs (vs. 50,000 to
100,000 pairs in traditional mass production). Which will decrease the ware house cost.
• Lower transportation and logistics costs: Localize production will lower the transportation and
logistics costs from transportation from Asia.

3. Centralized demand data: By incorporating centralized demand data milk run transportation
model can be achieved, which will reduce the logistic and transportation cost.
 6
COMPARISION OF PREVIOUS AND EXISTING COST CTRUCTURE
COST STRUCTURE FOR PRODUCT OF 100 USD
COST TO PRODUCE 21 INCOME TAX 3

TRANSPORT 10 PROFIT 5

MARKETING 8 RETAIL MARGIN 40

WAREHOUSE 13

ADIDAS SHOES EXISTING COST

STRUCTURE
ADIDAS SHOES PREVIOUS COST COST SAVING 9.803
STRUCTURE MAXIMUM RETAIL PRICE 90.197
MAXIMUM RETAIL PRICE 100.000 RETAILER MARGIN(30%)
RETAILER MARGIN(30%) 23.077 COST TO RETAILER 72.851
COST TO RETAILER 76.923 COMPANY PROFIT(5%)
COMPANY PROFIT(5%) 3.663 COST TO COMPANY 69.382
COST TO COMPANY 73.260
CORPORATE TAX(35%)
CORPORATE TAX(35%) 18.993
COST BEFORE CORPORATE TAX 51.394
COST BEFORE CORPORATE TAX 54.267
MARKETING COST(8%)
MARKETING COST(8%) 4.020
PRE MARKETING COST 47.587
PRE MARKETING COST 50.247
WAREHOUSE COST(13%) 5.781 WAREHOUSE COST(13%)
PRE INVENTORY COST 44.466 PRE INVENTORY COST 43.658
LOGISTIC AND TRANSPORTATION COST(10%) 4.042 LOGISTIC AND TRANSPORTATION COST(10%)
FINISHED PRODUCT COST 40.424 FINISHED PRODUCT COST 40.424
PRODUCER MARGIN(20%) 6.737 PRODUCER MARGIN(20%)
COST OF PRODUCTION 33.687 COST OF PRODUCTION 33.687
 7
REFERENCES
• https://www.statista.com/statistics/278834/revenue-nike-adidas-puma-footwear-segment/
• https://www.google.com/search?q=PRODUCT+CHARACTERISTICS+OF+ADIDAS+SHOE
S&rlz=1C1CHUA_enIN624IN624&oq=product+characteristics+of+adidas+&aqs=chrome.0.
69i59j69i57.24579j0j9&sourceid=chrome&ie=UTF-8
• Supply Chain Management, book by Sunil Chopra, Peter Meindl and D. V. Kalra/ Fourth
Edition.