Group 01
Avneesh Bansal
NEW BALANCE Rahul Sadhu
Shubham Gupta
ATHLETIC SHOE, INC. Ameya Shire
Kaushal Seth
Suman Sarkar
US ATHLETIC SHOE INDUSTRY
•50% of the $32 billion market
•Growing at 6.3% by volume between 2004 and 2009
•Nike has a market share of 36% followed by Adidas, Reebok and New
Balance at 8-12% each
•Distributed through several discrete retail channels catering to periodically
overlapping demographics and psychographics like distinctive tastes, buying
pattern and price elasticity
ABOUT: NEW BALANCE
•Founded in Boston in 1906 as New Balance Arch
•From being a supports and prescription footwear, it has become a high
performance footwear over the years
•Relied mainly on word of mouth and grassroots promotion to market itself
•Its growth has been propelled by cutting edge R&D and focus on performance
needs of athletes
•Does not endorse athletes to differentiate their product as a performance product
rather than a fashion product
ABOUT: NEW BALANCE
•Charges customer premium for its product, which ultimately helps to drive
future growth
•Strong balance sheet with 7:1 ratio of assets to liabilities
•Maintains a inventory of variety of products for replenishments to be
responsive to dealers’ demands (Cost vs. Variety Trade-off)
• Team-oriented culture empowering employees
• Entrepreneurial culture that fostered change, innovation and willingness to
take risk for the good
•Employees organized in cross-functional teams working towards improvement
of the products
PRODUCT DESIGN
•NB focused on width sizing and fit
•Products were bit more conservative in its presentation and style
•NB had 60 people in product design and development, these people worked on
two fronts
• Incremental development of existing products
• Incorporation of new technologies
•NB focused on raising level and stature of design within organization
SALES & DISTRIBUTION
•NB focused on sales and distribution activities on smaller retailers, running
specialty shops & family footwear shops
•NB sold shoes through 3500 retailers representing 12000 sites, these retailers were
divided in 2 groups:
• Key accounts
• Specialty dealers
•All of the sales agents of NB are independent
•Past: To sell 1000 pair of shoes, retailers needs to maintain 400 pairs in inventory
•Currently: To sell 1200 pair of shoes, retailers needs to maintain 200 pairs in
inventory
SUPPLY CHAIN &
MANUFACTURING
•New balance used to outsource 75% of operational activities from Asia
•Remaining 25% of operations take place in one of the 5 factories of New Balance
•Products:
• Cut-through-assembly
• Sourced-upper
•For Cut-through-assembly New Balance imported finished soles and raw material
for upper from Asia, while manufacturing and attaching was done in U.S
•For Sourced-upper shoes imported finished upper and soles from Asia and
completed the assembly in U.S by attaching appropriate upper and soles
FOREIGN SUPPLIERS
•NB sourced most of the soles from 2 suppliers in China
•For cut-through-assembly kits contains a significant portion of the material
required to stich upper
•For sourced-upper finished upper are imported
•Previously it took 1 week for NB to place purchase order, 6 weeks for supplier to
manufacture & 5 weeks to ship the delivery of a batch of 20000 pairs
•NB took various steps to reduce this procurement lead time from 12 weeks to 9
weeks
• NB started placing small orders in range of 2000 to 10000
• NB made arrangements of “pre-buy” to suppliers
• Pre-buy helped suppliers to buy raw material on behalf of NB
MATERIALS WAREHOUSING,
MANUFACTURING
&DISTRIBUTION
•Three warehouse in Skowhegan and Lawrence held 4.5 weeks or $9 million worth of
raw material inventory
•Each of the five plants placed orders to these warehouses
•Inventory was held briefly before moving to production in one of the two flow paths
• Sourced-upper flow path
• Cut-through-assembly flow path
•Labor content for cut-through-assembly was nearly 25 minutes and labor and
overhead accounted for 25% of total, while material cost was 50% of total cost
•It took NB 8.5 days to manufacture a product before Process improvement and WIP
reduction within plant
•This number was dropped to 2.5 days after the same
•Assembled pairs were transported via truck to retailer or distribution center
NEW BALANCE WORK FORCE
•Improving the production require initiation and involvement from workers
•Buddy program: new hires were paired with experienced employees and were
placed in training team for 6-8 weeks
LEAN MANUFACTURING-NB2E
•New Balance Executional Excellence applied Principles of Toyota Production
System to shoe production
•NB2E was initiative to further reduce the time between a retailer’s order and
its delivery from 2.5 days to within 24 hrs
•NB2E shifted batch production to pair-by-pair flow in manufacturing plants
•To reduce manufacturing cycle time, plants needed to be completely
realigned
OPERATIONS STRATEGY
MATRIX- NB BEFORE NB2E
Quality Maintain
High Inventory Reduced to 2.5
Speed
at retailers days
Performance Objective
Dependability
Width sizing
Flexibility High SKU Batch & queue
and fit
complete Raw material
Cost capacity and finished
utilization goods in China
Process Development &
Capacity Supply network
technology organisation
CURRENT CAPACITY
YEAR
DECISION 2004 2005
US Total Market (billion $) 8.33 9.00
US total shoe units (miilion units) 390.48 415.09
Average Price ($) 21.34 21.34
Market Share of New Balance 12% 12%
New Balance World Wide Sales (million $) 1500 1620(Assumed 8% growth in global market)
New Balance US Sales (miilion $) 1022 1103.76
Total World Wide units (million unit) 70.28 75.91
% Manufactured in US 25% 25%
New Balance required manufactured in US 17.57 18.98
No of Units required by US New balance (miilion
units) 47.88 50.90
No of plant 5 5
Capacity required in each plant (miilion units) 3.51 3.79
Import Required ( million units) 30.32 31.93
Increase in Capacity Required (million
0.28 units)
OPERATIONS STRATEGY
MATRIX- NIKE, ADIDAS
Quality
High Inventory at 12 weeks to
Speed retailers Import
Performance Objective
Dependability
Low variety High
Flexibility volume Standard size
Manufactured in
China
Cost
Process Development &
Capacity Supply network technology organisation
OPERATIONS STRATEGY
MATRIX-NB
Quality
AFTER
NB2E
need to focus
Low Inventory at
Focus on
retailers
Speed Reduced to 24 hours maintaining
High inventory
assembly line flow
of raw material
Performance Objective
Dependability
Matching
production with
Flexibility
demand
High SKU
Only Raw
Cost material from
China
Development &
THANK YOU