Cover Story -- Meltdown -- Adidas' warehouse distribution system was supposed to be state of the art, but things went from bad to worse

Adidas America is hurting. Problems with an automated distribution system have brought its main U.S. warehouse almost to a standstill, with retailers getting few or no Adidas shoes so far this year. In January, the sporting goods company was able to fill only about one-fifth of roughly $50 million in orders-and that only with the help of direct shipments from overseas factories, according to people familiar with the situation.

The difficulties could continue for weeks or months. "It's been a fiasco," says Ron Gresko, owner of a chain of footwear stores in Pinebrook, N.J.

It was supposed to be state of the art. In August 1993, Modern Materials Handling, a distribution-industry trade magazine, gave its "Warehouse Of The Month" honor to Adidas, which was about to flip the switch on an automated distribution system at its Spartanburg, S.C., warehouse. But the project was plagued by constant problems and, at the start of this year, Adidas scrapped the first system's software and computer hardware in favor of a new architecture. Then things went from bad to worse.

Life has been one big headache for IS managers at Portland, Ore.-based Adidas. Many of the key players involved with the initial system's launch in 1993 already have left the company, and other IS staffers are heading for the exits, sources say. "They're going through people like water," says a former employee. "I'm told the situation is three {IS} people away from total meltdown."

The Adidas saga, like the continuing nightmare of Denver...