Global Operations - adidas Annual Report 2021 (2023)

Global Operations manages the development, production planning, sourcing, and distribution of our company’s products. The function strives to increase efficiency throughout the company’s supply chain and ensures the highest standards in product quality, availability, and delivery. With the consumer in mind, we deliver competitively priced products that drive our sustainability ambitions and are available when and where the consumer wants them.

Global Operations delivers upon our mission to be the best sports brand in the world. The function creates the best products by establishing state-of-the-art infrastructure, processes, and systems that enable us to focus on innovative and sustainable materials and manufacturing capabilities. Moreover, Global Operations is focused on delivering the best services through flexible and agile distribution capabilities, enabling product availability through an omni-channel approach. Thereby, Global Operations contributes to delivering the best experience to our customers and consumers.

Global Operations in Go-to-Market process

Global Operations - adidas Annual Report 2021 (1)

IMPACT OF GLOBAL CRISES ON OUR OPERATIONS

Global Operations continued to respond with speed and agility in addressing challenges emanating from the ongoing coronavirus pandemic and inbound supply challenges.

Our manufacturing partners continued to deal with facility closures and reduced working hours due to spikes in coronavirus cases and resulting government-administered lockdowns. The highest impact was seen from closures in Vietnam. We took several measures to secure additional capacity, expedited transit modes to avoid delays and moved production to our other source countries, leveraging the agility of our global supply base. All measures taken maintained our suppliers’ production capacities for upcoming seasons and were managed with a cost-conscious view.

We also faced inbound challenges related to availability of shipping containers and port congestions. We acted swiftly, securing air freight and rail capacities, managing ocean freight carriers and adjusting planning processes for early shipments.

Taken together, these actions have limited the negative impact on product availability and consumer delivery time.

PRODUCTION THROUGH INDEPENDENT MANUFACTURING PARTNERS

To keep our production costs competitive, we outsource almost 100% of our production to independent manufacturing partners. While we provide our manufacturing partners with detailed specifications for production and delivery, they possess excellent expertise in cost-efficient, high-volume production of footwear, apparel, and accessoriesandgear.

In 2021, we worked with 114 independent manufacturing partners (2020:132) that were producing in 234 manufacturing facilities (2020:277). The majority (71%) of our independent manufacturing partners are located in Asia (2020:68%).

We value long-term relationships: 65% of our independent manufacturing partners have worked with adidas for at least ten years and 35% have a tenure of more than 20years.

Relationships with independent manufacturing partners1

Total

Footwear

Apparel

Accessories and Gear

Number of independent manufacturing partners2

114

21

61

33

Average years as independent manufacturingpartner

19.6

22.7

18.7

19.2

Relationship < 10 years

35%

38%

29%

43%

Relationship 10 – 20 years

30%

29%

38%

18%

Relationship > 20 years

35%

33%

33%

39%

1

Figures reflect the expected divestiture of the Reebok business.

2

Includes one manufacturing partner who produces both footwear and apparel.

Relationships >20 years

35%

Overall, our independent manufacturing partners produced 938million pieces of apparel, footwear, and accessoriesandgear in 2021 (2020:943million pieces).

All our manufacturing partners are subject to specific performance criteria which are regularly measured and reviewed by Global Operations. To ensure the high quality that consumers expect from our products, we enforce strict control and inspection procedures of our manufacturing partners and in our own factories. Effectiveness of product-related standards is constantly measured through quality and material claim procedures. In addition, we track the delivery and efficiency performance of our partners. Adherence to social and environmental standards is also promoted throughout our supply chain. The current list of our independent manufacturing partners can be found on our website. See Sustainability adidas-group.com/s/sustainability

INDONESIA BECOMES LARGEST FOOTWEAR SOURCING COUNTRY

96% of our total 2021 footwear volume was produced in Asia (2020:97%). Production volumes in Vietnam declined due to government-mandated covid-19 lockdowns. For that reason, Vietnam was not our largest footwear sourcing country last year. In 2021, Indonesia represented our largest sourcing country with 36% of the total volume (2020:29%), followed by Vietnam with 30% (2020:42%) and China with 15% (2020:15%). In 2021, our footwear manufacturing partners produced approximately 340million pairs of shoes (2020:379million pairs). Our largest footwear factory produced approximately 8% of the footwear sourcing volume (2020:8%).

CAMBODIA REMAINS LARGEST SOURCE COUNTRY FOR APPAREL

In 2021, we sourced 91% of the total apparel volume from Asia (2020:93%). Cambodia is the largest sourcing country, representing 21% of the produced volume (2020:22%), followed by China with 20% (2020:20%) and Vietnam with 15% (2020:21%).

In total, our manufacturing partners produced approximately 482million units of apparel in 2021 (2020:465million units). The largest apparel factory produced approximately 11% of this apparel volume (2020: 11%). Overall, apparel production is more fragmented than footwear.

CHINA REMAINS MAIN SOURCE COUNTRY FOR ACCESSORIES AND GEAR

In 2021, 69% of our accessories and gear, such as balls and bags, were produced in Asia (2020:77%). China remained our largest sourcing country, accounting for 34% of the sourced volume (2020:36%), followed by Turkey with 29% (2020:21%) and Pakistan with 15% (2020:16%).

The total accessories and gear sourcing volume was approximately 116million units (2020:100million units), with the largest factory accounting for 21% of production (2020:21%).

Worldwide production volumes by country1

Global Operations - adidas Annual Report 2021 (2)

Total production volumes by category1

Global Operations - adidas Annual Report 2021 (3)

AGILE AND EFFICIENT DISTRIBUTION CENTER NETWORK

By following a clear strategic framework, we enhanced our distribution center landscape in 2021 through process automation, system upgrades, and distribution center capacity expansion. These enhancements helped us to improve e-commerce service levels and provide more delivery choices with an overall broader product availability.

Overall, our global distribution network consists of 67 distribution centers, enabling us to service our global demand efficiently and effectively. We operate distribution centers in all our markets, with 26 distribution centers in EMEA, eleven in Greater China, 14 in Asia-Pacific, seven in North America, and nine in Latin America.

Through own and partnership best-in-class execution, Global Operations ensures that the health and safety of both employees and consumers is maintained equally. Of the 67 distribution centers that make our global network, 27 are owned and operated by adidas, and 40 are owned and operated by logistics partners, allowing for the operational flexibility and agility to best service our customers and consumers.

To enable a broader range of products to be available at point of sale, 21 of our distribution centers are set up to serve all our channels, 37 are specialized to serve our retail and wholesale customers, and nine distribution centers are solely dedicated to servicing our e-commerce consumers. This diverse combination of distribution centers allows us to be agile and efficient in distributing our products to our customers and consumers across the globe.

adidas vs. partner-owned and -operated distribution centers per region1

Global Operations - adidas Annual Report 2021 (4)

ON-TIME IN-FULL DELIVERY TO OUR CONSUMERS

Global Operations strives to develop, produce, source, and distribute ordered articles on time and in full. Therefore, we track two KPIs: ‘On-Time-Available’ (‘OTA’) and ‘On-Time In-Full’ (‘OTIF’). OTA measures on-time-available product for both our wholesale customers and own-retail stores. OTIF represents the in-full delivery of our products by the request date of our own-retail stores only, as part of our DTC-led strategy. With the introduction of OTA in 2021, we have changed the scope of OTIF compared to prior years where wholesale and franchise customers were still included.

As a ripple effect of coronavirus restrictions, the factory shutdowns in Asia, container shortages, and port congestions impacted our ability to provide the highest product availability in our distribution centers. This heavily impacted our OTA KPI in the second half of the year as further lockdowns came into force. The effects of these lockdowns could not be entirely mitigated despite diligent management and prioritization in the first half of the year. In 2021, adidas deliveries were 87% on time for adidas brand products (2020: 89%).

Despite availability challenges, OTIF exceeded its ambition through prioritization of product and an aligned planning process. This resulted in stable delivery performance throughout the year of our own-retail stores against the request dates. In 2021, adidas delivered 83% of its adidas brand products on time and in full (2020:68%), laying a strong foundation for the 2025 OTIF ambition of 90%.

Independent manufacturing partners

We outsource almost 100% of production to independent manufacturing partners. They are defined on a supplier group level, which means one independent manufacturing partner might produce in several manufacturing facilities. The majority of our independent manufacturing partners are located in Asia.

Accessories and gear

A product category which comprises equipment that is used rather than worn by the consumer, such as bags, balls, sun glasses or fitness equipment

Independent manufacturing partners

We outsource almost 100% of production to independent manufacturing partners. They are defined on a supplier group level, which means one independent manufacturing partner might produce in several manufacturing facilities. The majority of our independent manufacturing partners are located in Asia.

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