Back in July 2019 I had the opportunity to drive a Tesla Model S P100D down the Pacific Coast Highway in California and some choice roads off it - and when I say drive, I don't mean the typical plodding around the town doing a Driving Miss Daisy (look it up, you yung'uns) impersonation. I mean numerous launches using Ludicrous mode, corners taken at speeds that had the tyres screaming for mercy / return to sanity and a first degree murder charge for what I did to those poor brakes. But it was an opportunity to really test the limits of a car that more than any other in my lifetime, has rewritten the rules of the future of the automobile.
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The Tesla Mdole S P100D: The product of a disruptive company with a radical approach to electrification, this car reset expectations of what a large sedan was capable of - and that performance and environmental friendliness were not mutually exclusive. But bringing this car to market required a lot of industry 4.0 technology...and thinking. How did Nike and adidas fair with their approach? Oh...and it's an amazing drive, though please always drive sensibly, unlike the author...(Image:Tesla)
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The acceleration was insane: lineball with a Porsche Turbo S up to about 180 km/h. For a (very) heavy 4 door sedan, that's jaw dropping. Handling was quite remarkable for such a big, porky car, thanks to the low centre of gravity and favourable inertial moment caused by the battery pack layout. Interior design was truly minimalist and effective. It was a revelation: this was the future...one which I would likely play no part in if I kept up this type of driving.
The internal combustion motor may not be dead, but over that weekend I saw many new lines added to its obituary. Whilst the Tesla is far from perfect (fit, finish & assembly quality, the lifeless steering, some weird software quirks and what I can only describe as a slight "out of sync"; the accelerator, brakes and steering all seem to be a fraction of a second ahead or behind each other depending on conditions, making good driving at speed nigh on impossible), it's clear that if a Lithium Ion battery pack and electric motors can achieve this today after a relatively brief development time, then the future is electric.
And it's only taken 120+ years.
If I Could Turn Back Time...
As surprising as it is to many, back in 1900, more than 35% of the vehicles on US roads were electric, and by the early 1910s, the number was exceeding 40%. Yes - America almost had an electric road future before today's Tesla buyer's grandparents were born.
But it was not to be. The limited range of electric cars (less than 70 km in real world situations) and the expanding infrastructure of petrol stations combined with the advent of the low cost Ford Model T to make electric cars less able to meet the people's expectations. Simply, the total eco-system (or super-system) of the Model T, its successors and indeed all internal combustion engine powered cars proved a market success and serious interest in electric cars stalled for almost a century.
But technology and thinking moves on, and sometimes it does so with ideas from the past that suddenly become fashionable and viable. Electric cars were limited by the primitive lead-acid battery technology of most of the 20th century and CO2 emissions from cars was a non-issue until the 2000s. But since the turn of the century, lithium ion battery technology has combined with strong environmental awareness to make electric cars more than a curiosity...and as Tesla has shown, one company taking a huge risk with a few advanced technologies can totally transform an industry, or at least get the ball rolling on the change.
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The Tesla Factory in Fremont, CA. Even by auto industry standards, where robotics have played a huge role in vehicle assembly since the 1990s, Tesla use of robotics sets new standards in . Sadly, as of the end of 2019, the quality produced by this factory leaves a lot to be desired. Whilst this industry 4.0 technology promises perfection in theory, the real world has proven to have little respect for theory...(Image: Tesla)
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So with that in mind...what are we to make of one of the first real world examples of Industry 4.0 being shut down in the Mexico, the US and Germany this over the past 2 years with Nike and adidas closing some cutting edge facilities?
Huh? What do shoes have to do with Teslas? As it turns out, quite a lot. Tesla represents new thinking in both product and the production processes to realise it. It is a company that more than any other has disrupted the established players, and its use of robotics is at another level compared to existing car companies. And in that sense, it has sought to achieve over the past decade what both Nike and adidas have tried to go for over the past 3 years. The end results, however, are now likely to be very different.
The World of Sneakers...and Sneakers for the World
The athletic shoe industry has - arguably - epitomised globalisation more than any other. With 90%+ of production of athletic footwear from the major brands being sourced from Asia to be sold the world over for over 3 decades, the likes of adidas Nike, Puma, New Balance et al have built corporate empires based on an enviable blend of fashion, fitness and performance - as well as low cost manufacturing. These elements combine to create desirable, high turnover and high margin products - and ones which have the distinction of being a fashion item that men of all age brackets can appreciate, something that can't be said of almost any other piece of apparel, where women's fashion awareness far outstrips that of most guys.
But the challenges in this industry using this model are many - one of the major ones being long lead times (I'll save the protectionist resurgence for another time). From design concept to being on retail shelves in Europe and North America, a new sneaker design can take upwards of 18 months in a worst case scenario - and worst cases are all too common. 12 months can be achieved in some situations, with shorter times possible if a company is modifying an existing model. But this is an industry that constantly demands fresh new ideas to satisfy a market that is fickle yet set in its ways. There are only a handful of iconic models from major brands being able to be produced year in, year out as staples (such as the Nike Air Force 1, the adidas Superstar and the New Balance 574). All too often, new designs fail in the market due to the inability to respond to new trends (and the inability to create new ones), delays in getting the right product to the right location, supply/demand misalignment and failures in product design/quality.
The above occurs in part due to supply chain complexity: long lead times are often the price paid for of low cost component sourcing, with dozens of suppliers of such items of knits uppers, rubber outsoles, shoe laces and midsoles having to tightly coordinate movements of components to enable lean manufacturing. Having worked in this sector recently, I have seen amazing efforts by skilled managers to make these complex systems work in the real world - think of juggling a bunch of chainsaws, electric knives and hand grenades whilst wearing a pair of dark sunglasses and tap dancing through a minefield with a hungry Bengal tiger circling about - that's what it often feels like for , especially in the age of The Orange Tariff Man.
If only there was a way to quickly respond to consumer needs close to their location, to offer a high degree of cost effective customization, to have a lead time measured in days rather than months and to simply - give something better for every stakeholder.
Enter Industry 4.0.
Whilst more a subset of the Fourth Industrial Revolution than a different way of saying the same thing - and of course exact definitions that everyone agrees upon are not to be found - it is generally characterised by a number of attributes which include:
- Usage of large data sets from various sources to uncover hidden trends / desires / potential
- Robotics performing more and more tasks formerly done by people
- Internet of Things enabling more automated / intricate / accurate / timely production processes
- Artificial Intelligence technologies to assist in decision making at multiple levels / stages
- 3D printing and advanced additive and related manufacturing technologies
- Agility with machine / human process configuration
- Advanced simulation "what if" scenario modelling
- Augmented reality to assist humans with new perspectives
- Cloud technology
When configured correctly, the above is destined / expected / hoped to eventually enable any individual to go into a footwear store (or a podiatrist clinic, or even from home), have their feet/stride scanned and within a day or a few hours, be able to pickup a bespoke, 'perfect' pair of shoes that optimally meets the customers' needs /desires in a way no shoe currently can. The customer can spec the shoe exactly how they want (sizing, style, colors, materials, shaping etc), or can let the AI technology decide what is best for them. A shoe will be 'printed'/assembled for them on the spot or close by and be on their feet in as little as a few hours. If desired, the shoe is embedded with technologies that enable real time monitoring of wearer performance/health, for further improvements on new shoes and perhaps modifications on the existing one.
Broadly, the above is the goal of both Nike and adidas, as well as many other companies. But it's really only been both those companies that have put in the commitment - and dollars - to really push hard with Industry 4.0.
Two Titans
In October 2015, Nike announced a partnership with Flex (formerly Flextronics), to help create a new type of manufacturing and supply chain model that will take advantage of Industry 4.0 thinking and deliver new ways of designing, making and selling footwear, with a new facility in Guadalajara, Mexico. This would produce shoes for Nike athletes and act as a template for the next generation factory/store concept.
Not be outdone, in the same month adidas soon announced its own initiative, which would see a new facility launched in Ansbach, called the Speedfactory. It later announced that a sister facility would be built in Atlanta, Georgia.
adidas partnered with a myriad of expert firms firms to help bring the 4.0 vision to life. This included Johnson Controls (systems integration), Manz (engineering consultants) and KSL Kleimann (robotic assembly/configuration specialists).
So far, so good: two of the biggest industry players leading the charge into the future with highly skilled partners, with a clear vision of what they wanted and a determination to rewrite the rulebook as to how shoes are designed, made and sold.
Let's have a brief look at some parts of the Speedfactory and its products...
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The adidas AM4LDN sneaker is a prime example of Industry 4.0 and Lean thinking combined: absolute minimalism in product enabled by advanced design and manufacturing technology. But the entire platform that created this shoe may be both a little ahead of its time...and in other ways not really much of an advance over current best practices. (Image: adidas)
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Speedfactory
The Speedfactory in Atlanta is roughly the size of a smaller big box store, about 7,000m2. And from the moment you walk in, you get the impression you are where everyone else will be in 10-20 years. The machinery is somehow familiar yet radically different once you examine them, the layouts initially look crazy but soon make some sense. And then you start to think about the parts relating to the whole and the totality of what you perceive.
Whilst for obvious reasons I cannot go into too many details about some of what I witnessed, I did see a very lean manufacturing process that created a very lean sneaker: minimalism was a theme I saw, felt and heard in depth. And to say I was impressed was an understatement. It showed technologies, layouts and processes that represent a radical departure from current thinking...as well as a few "The more things change, the more they stay the same" moments.
The well known Primeknit upper was being laser cut in a way that was largely familiar to me (the earlier process of its creation was more impressive) but with some clear improvements. These two stages were the first of my "Wow!" moments. Next was the shaping and sewing stage.
This was my first "Oh" moment.
It was very familiar. I have seen it replicated many times before, including in one of the most non automated factories I have ever seen. And that really brought something home to me.
Industry 4.0 is not about automation as much as it is humans and technologies working together in new ways...as well as old ones. The simply reality for now and the near future is that working with soft, pliable materials to shape them and sew them is something that no technology can yet match the capability of a well trained pair of eyes, an optic nerve or two, a skilled pair of fingers and a brain in reasonably good condition.
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What a strange looking robot... A very human worker in the Ansbach Speedfactory performs the final stitching steps of the knit upper of the AM4LDN, prior to the breakthrough process of heat fuse-bonding to the midsole. The difficulty in working with soft, highly flexible materials highlights the limits of current machine technology and shows that Industry 4.0 will be a combination of automation and machine/human collaboration.
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But then things took a turn for the better again. Arguably, the most interesting process adidas has (mostly) perfected with is the fuse bonding method. Normally, the midsole is glued and stitched to the upper, a process which is cumbersome and must be done by hand. It often results in glue stains and less than perfectly aligned uppers/midsoles.
Fuse bonding is different. It technically means no adhesive is used (in practice this is not always the case, depending on materials; often, a thin adhesive layer is added between the materials at some stage or there is an adhesive built into either or both of the materials, providing additional bonding strength/longevity.) as the joining process is made permanent by a chemical/ionic bond between the two materials.
Here, I saw the knit uppers being reshaped by specially designed and operated machines, attached to the midsoles by pressers, then put into a special oven like device and after being subject to a series of processes that radiated heat, were fused together to form the shoe in an intricate ballet between human and machine, in a manner very different to a manual process.
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| With the upper over the last, the mating to the midsole is about to happen. Note this automated process relies on a camera. The reliability and accuracy of this setup has been improved with usage of a series of lasers, a technology which a number of contract manufacturers are keen to get their hands on. |
Of course, threading the laces was then done by a human - it will be a sorry day for humanity when a robot is able to perform that task.
The above is a very simplified view, but that fuse bonding process is a true breakthrough: glue in shoes is often a weakspot in terms of heat resistance and long term durability, one that now seems to have been solved.
All in all, this was most impressive. After the above and many many observations and discussions, I walked away thinking this was the future, pure and simple.
But somehow...it all went wrong. And fast.
The Wheels Come Off
Already by late 2018, Nike killed off its deal with Flex, and in early November 2019, adidas confirmed it was shutting down its Speedfactory sites in both Ansbach, Germany and Atlanta, USA. But more than that, some of the technologies and processes would be shared with existing contract manufacturers in Asia.
An entire system that many feared was set up to replace the Asian manufacturing juggernauts will now assist them.
The adidas timing was interesting from my perspective: it happened about 12 hours after I had finished visiting the Atlanta site. During my tour, only about 3 people at the site were aware of what was about to happen, though rumours had been flying around for the past few months.
This is not the way Industry 4.0 was supposed to go.
Whether fast or slow, the integration of IoT, 3D printing, various and a bevy of more specialized manufacturing technologies was supposed to be inevitable and irreversible. And with both adidas and Nike keen to reduce the huge lead times for highly seasonal/trend sensitive footwear, you'd think that their Industry 4.0 factories located within a few kilometres of major population centres - and in some cases right within them - would be a no-brainer.
So what happened?
The reasons vary, depending on who you believe - and my discussions with key players have left me with the impression of a 'work in progress' for an answer. The simple headline of "It costs too much to do it this way" is not incorrect, but it is but one ingredient of a complex recipe.
With Nike, the issue seems to be simply the inability to work out a commercially viable arrangement that Flex would accept - and after speaking to a number of contract shoe manufacturers recently, it is pretty clear Nike is always borderline sadistic in price negotiations with its suppliers in every part of the value chain. They know their market power and use it mercilessly. Flex simply could not abide by Nike's terms so best to call it a day.
And what of adidas? Why did they not want to play this game?
Great Expectations?
The adidas Speedfactory was not so much factory as a laboratory: one of the most advanced examples of what re-shored, mass customized manufacturing would look like - or so we all thought. And even though a number of adidas executives said that it would never replace the outsourced manufacturing model, it seems that other adidas executives always had a plan that it would - and that was the only reason they saw to pursue it. Even now, there is a lot of soul searching in adidas as to the next steps. But it is worth understanding a bit more about the reality of the Speedfactory, or what you see when you peek beyond the marketing hype curtain.
I was advised that the machinery and the layout of the Atlanta site has been in a near state of constant evolution since the day it opened. Simply, there is no template to follow of accepted best practices with this technology: what the machines should be, what they do, how they do it, their configuration/layout, the process steps, what components still had to be made offsite, the type of automation and how it interfaces with the human element. Everything is being created now - and at significant cost in new technology, maintenance practices, layout, testing, reconfiguration etc.
Also, there is a safety issue in some cases: the high performance midsole for some shoes requires chemicals such as hydrazine in the production process - and that's not exactly a substance you want anywhere near an urban (or really any) area. It is simply not going to be possible to economically fabricate certain components of footwear at the site, result in the need to bring some components in, which adds time and may well limit customisation or increase wastage, negating many of this methods advantages.
Next, remember that the current model of "make in Asia and ship to the world" has had over a half a century of operations / supply chain management expertise to be fine tuned: very capable individuals have made a career out of studying ways to improve the transformation of materials into new objects, and getting them to where they need to be. Industry 4.0 technologies have in many cases less than a 5th of that time allocated.
And related to that, I have seen evidence of a view in both companies that perhaps at this early stage, their involvement in designing the ideal processes, procedures and structures to integrate the various technologies was proving a real financial drain, with the light at the end of the tunnel further away than many executives (who live and die by the quarterly reports) wanted. Industry 4.0 is the future, but today is sweating the next quarterly report, with special focus on ..
It seems to come down to expectations: adidas wanted a template for the future that was going to be ready soon for mass rollout. What they got was a laboratory that produced many technical innovations, but that detailed financial analysis showed would almost certainly never be viable without either great breakthroughs in technologies/configurations/operations management knowledge...or a willingness by a substantial portion of the market to pay a significant price premium for the "perfect" sneaker/running shoe. The latter was judged extremely unlikely, the former a total unknown.
And here's the reality.
The Bottom Line Brain
Whilst both Nike and adidas like to innovate, it is only within a certain paradigms: a new foam, a new upper material, a new outsole pattern...this they do. And they do it well.
But Industry 4.0 is way outside those borders that they are comfortable working in. It's a sector that will demand incredible intellectual resources for many years to come - and at a cost that may prove hard to justify to a Board and shareholders.
Despite the slick corporate image of creating /supporting.enhancing elite athletes, the reality of these two companies is not the pie in the sky vision of a startup. It is of established Fortune 500 companies that need to prove their ability to meet KPIs, to ensure that analysts' consensus forecasts are met in the next quarterly report and that the attitude of a relatively small number of analysts to the numbers is positive. They can innovate, but only if they quickly produce results...and that's not the way Industry 4.0 is going to work, at least in the short term.
And this is perhaps why Industry 4.0 is at this stage a bridge too far for the industry: the current executive culture is focused on the near term bottom line, to the exclusion of taking risks outside a set of guidelines.
And to top it off, there was another issue with adidas: existing supply chain problems. These were alluded to in March 2019, and a bit of investigation reveals problems with responding to positive demand signals, a few bumps in a major ERP rollout and a painful standardisation process with a myriad of Asian suppliers - the final point of which I can more than sympathise with...
These issues are happening now. They are impacting the bottom line. They demand smart people to work hard to solve them. Like many of the smart people currently working in the Speedfactories...
That is the big reason why. adidas had to make a tough call: keep rolling with the Speedfactories that may not see results for a long time, or deploy those resources to resolve critical issues happening now. With one eye on the next quarter's results and the promises made to fix them, the call was pretty obvious. And as stated, it's not a total loss: many of the ideas, technologies and innovations pioneered at the Speedfactory will soon find their may to existing supply chains.
And this is perhaps most realistic: modelling a total value chain for sneakers is an exercise in uncertainty of what the component technologies are...and certainty that mistakes, change and are inevitable. But some elements will be proven fast to work, and with some adaptation, they can be made useful today, rather than waiting for an entire new ecosystem to develop around them.
Conclusion
Ultimately, this is not a good look and not the best of starts for the footwear industries' jump into Industry 4.0...but that is more a reflection of unrealistic time-frame expectations than any fundamental flaw in any of the individual technologies, or the full potential of getting the complete supply chain solution defined. The speedfactory dream of walking into a retail outlet, having your foot/stride scanned and within a timespan of hours having a tailor made, virtually perfect shoe on your feet remains the ultimate prize. But before that goal, there will be many interim prizes: of better fits, faster lead times, superior bio-mechanical performance and greater individual choice - just that it won't all happen at once and in some cases there may need to be a tradeoff with another attribute (most of the time it will be cost).
And there will be stumbles. Plenty. This needs to be accepted as part of the deal to take us to Industry 4.0. It will be messy and painful, indeed fatal for some companies. But that is the price of progress, and it is inevitable.
Meantime, all of us need to keep the faith. Industry 4.0 is the future, though what that term actually means and the supply chains it will spawn are still being defined. But despite this uncertainty, there is one thing we can be sure of:
The tipping point won't take 100 years.
