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ACCOUNTS PROJECT

OUTSOURCING

SUBMITTED BY: PALLAVI GHAI SMBA12021

Outsourcing is the contracting out of a business process, which an organization may have previously performed internally or has a new need for, to an independent organization from which the process is purchased back as a service. COMPANY: ADIDAS Adidas is a German multinational corporation that designs and manufacturers sports clothing and accessories based in Herzogenaurach, Germany. It is the holding company for the adidas Group, which consists of the Reebok sportswear company, Taylor Made-Adidas golf company (including Ashworth), and Rockport. Besides sports footwear, Adidas also produces other products such as bags, shirts, watches, eyewear, and other sports- and clothing-related goods. Adidas is the largest sportswear manufacturer in Europe and the second biggest sportswear manufacturer in the world. BEGINNING OF OUTSOURCING In the early beginnings Adidas produced all the shoes and apparel on its own. Through the huge expansion in the last decades Adidas does not produce all their apparel on its own. Today Adidas owns 9 factories where it produces some of its products. Further, it has around 615 main suppliers from all over the world. Production is in Europe (27%), Asia (51%) and America (22%). Adidas has now switched from its past vertical integration strategy to the outsourcing in production and manufacturing. Most of the products of the company like sports shoes, apparels, accessories and equipment are manufactured in the Asian countries. The reason for outsourcing the manufacturing is the lower cost of raw material and labor in Asian countries. In 1993, Adidas moved its production overseas to Asia in order stay competitive in the industry. Even though Adidas has outsourced its production and manufacturing but the design and development process of all the products is still based in Germany.

OUTSOURCING PROCESS The Adidas product line includes more than 20,000 items, from soccer and inline skates to outdoor jackets and snowboards, with thousands of product variations. To keep up with market demand and competition, the company changes its product range twice a year. The change in the product range depends more often on the availability of the new technologies and the also on the product range and technology of the competitors. Adidas also designs products for local, vertical and niche markets. Developing this complex mixture of products means the design studios and development departments are working at full capacity and under enormous competitive pressure. Once the designs of the products are created, managing the production is the next significant and often more complex step. The design and development process of all the products is based in Germany. Adidas has 900 active suppliers worldwide and more than 90 percent of the companys products are produced in outsourced manufacturing locations around the world, especially in Asia. With such a large amount of manufacturing outsourced, communication between designers, suppliers, and manufacturers is critical. LAYOUT OF OUTSOURCING PROCESS AT ADIDAS GROUP

Product design and research & development.

Manufacturing & production of shoes, apparels, equipment and accessories.

Marketing and selling of products.

Germany

Outsourced to Asian countries.

Worldwide

PRODUCT DEVELOPMENT PROCESS AT ADIDAS GROUP


PRODUCT DESIGN PROCESS IN GERMANY BASED R&D OUTSOURCED

Planning

Detail concept design

Cost modeling

Testing and refinement

Final design

Production of Product

OUTSOURCING SUPPLIERS In 2011, the top five countries per region by number of supplier sites were:

The Americas: United States, Brazil, Canada, Argentina and Mexico Asia: China, India, Indonesia, Vietnam and Japan EMEA: Germany, Italy, United Kingdom, Turkey and Spain TYPES OF SUPPLIERS

Adidas suppliers fall into five broad categories:

Main suppliers. They have a direct contractual relationship with the adidas Group for the supply of products, whether for export or domestic market consumption. Subcontractors. These are factories that have been subcontracted by our suppliers to perform manufacturing operations the main suppliers are not capable of doing in their own facility. Material and other service providers. These suppliers may not have a direct business relationship with the adidas Group, but supply goods and services to our main suppliers.

Licensees. Independent companies which manage the design, production and distribution of specific products, under license to the adidas Group. In 2011, the adidas Group worked with 44 licensees whose suppliers sourced products from 269 factories in 45 countries. Agents. Independent companies that act as intermediaries to source product manufacturing, manage the manufacturing processes, and sell finished products to the Group.

REASONS FOR OUTSOURCING THE PRODUCTION: Benefits of Cost Saving: Due to outsourcing there is significant cost savings. Raw material cost, labor cost, employee compensation costs, office space expenses and other costs associated with work space or manufacturing are eliminated. Focus on Core Business: Outsourcing allowed adidas to focus on their expertise and core business. When organizations go outside their expertise, they get into business functions and processes that they may not be as well-informed and educated about .This could potentially take away the firms from their main focus resulting in low value creation. Therefore the company chose to outsource. Utilization of new Resources and Capability: Outsourcing helped Adidas to utilize the new resources and capabilities of country they are trading in. Sometime the firms learn and adapt to the new core competencies. Hence, they chose to outsource. Operational Efficiency: Outsourcing gave the organization exposure to vendor specialized systems. DISADVANTAGES OF OUTSOURCING THE PRODUCTION: Product Quality or Service Risk: Outsourcing can lead to compromises in product /service quality due to lack of necessary resources and competencies.

Organizational Knowledge: An outsourced employee may not have the same understanding and passion for an organization as a regular employee. Labor laws & Regulations: Different countries have different laws and regulation for labor, which maybe different and difficult to follow. Employee& Public Opinion: There can be negative perceptions with outsourcing and the sympathy.