James Therien, Derek Mayo, Charles Angotto, Hassan Abualola
Professor Kleinberg
Manufacturing
March 20th 2012
New Balance
MGMT 280-04
I.
A. Players:
 Major Players
- Jim Davis:
- Anne Davis: Sole Owners of New balance Athletic shoe
- William J. Riley: founder of New Balance Arch in 1906
- Author Hall: Head Salesman
- Herb Spivak: executive Vice President of Operations
- John Withee: Chief Financial Officer.
- Fan Allen: Executive Vice President for Sales and Service
- Jim Tompkins: President and Chief Operating Officer
- John Wilson: Vice President of Manufacturing
 Competitors
- Nike
- Adidas-Salomon
- Reebok
B. Financial Performance
- In 2005, two warehouses, one in Skowhegan, the other in Lawrence holding approximately 9
Million dollars of inventory, over 4.5 weeks of work. New Balance exceeds 1 billion dollars in
revenue. New Balance Holds approximately 10% of the market share
C. Timeline
- 1906: First Founded
- 1934: Riley Forms a partnership with his head salesman
- 1954: Hall Sells business to daughter and son in law
- 1972: Jim Davis Acquires New Balance
- 1982: New Balance reaches 60 Million in Sales, 990 running shoes debuts
- 1992: “Endorsed by one” advertising campaign. U.S market share 3%
- 2001: Average Lead Time for a batch going through a New Balance Plant was 8.5 days
- 2005: “For love or money” advertising campaign/Advertising expenditure exceeds 17.3Million.
Lead time is shortened to 2.5 days, 6 days shorter than it took in 2005.
- 2006: Expected to spend 21 Million on its marketing campaign.
II.
A. Problems:
- Increasing the quality and efficiency of the companies operational process
- Design, Jim Davis noted that in order to succed they would need to focus more heavily on
design to remain competitive
- Become stagnant in their shoe design, due to lack of risk taking/ being more conservative.
- New balance relied on a sales force that was mainly composed of independent sales agents
- Managers viewed training as another project, something that took employees away from
their job
B. The Problem Defined:
New Balance faces an uncertain future as it becomes “a smaller fish in the ocean” with the
merge of Adidas and Reebok in 2005 they will be forced to differentiate themselves from the
competition. With the Adidas-Reebok merger, as well as Nike’s ever expanding empire, New
Balance needs to make sure they’re order winners remain order winners, because everyone that
they lose to their competitors is a severe blow. Their dated designs force New Balance to
accelerated their future plans, but give them little room to breathe as a company.
III.
With focus on increasing the quality and efficiency of its products the New Balance company
adopted the “New Balance Executional Excellence (NB2E)” in 2004. One of the main goals was to
further reduce the time between a retailers order and its delivery. Feeling pressure from a
recent merger between Addidas and Reebok the second and third largest producers of athletic
footwear respectively, New Balance felt that the NB2E plan was a must. With the goal being
100% delivery of requested product within 24 hours New Balance realized that they needed to
make some changes.
If that goal were to become a reality manufacturing cycle times had to be dramatically reduced
and required complete realignment of factory operations. New Balance started with its
workforce and started training its employees in the” foundations of associate involvement,
continuous improvement, and leadership.” They paired up new workers experienced workers
known as a “buddy” and began training them together, laying the foundation for improving New
Balance as a whole.
Unlike its competition which is has nearly all of their production in Asia, New Balance only
outsources 75% of its production while the other 25% is based in New England. Part of reaching
the goal that the NB2E plan wanted was reducing the average lead time for a cut through
assembly batch from Asia. The NB2E plan did just that with reducing of the previous batch
delivery time from 8.5 days to 2.5 days through significant attention to process improvement
and work in process reduction within plants. In just its initial stages New Balance management
could see that NB2E was working but with the announcement of Addidas buying out Reebok the
new question was whether or not to stick with the NB2E plan or head down a different road
such as better promotional tactics like those used by its competitors.
IV.
Pros:
New Balance used outsourcers for 75% of its U.S. volume. (Where as Nike and Reebok
outsourced nearly all of their production to Asia)
25% of its production is made within 5 factories in the northeastern United States.
The use of Cut-through assembly: Where New Balance imported finished soles and raw
materials for the upper from Asian suppliers. The uppers were then fully manufactured and
attached to the soles in the United States.
The use of sourced-upper assembly: Where New Balance imported finished uppers and soles
from Asia and completed the assembly by attaching the appropriate size uppers and soles at its
U.S factories.
By shipping quickly and accurately, New Balance offered retailers the ability to build loyal
customers of their own.
Offering sizes like “13EEEE” allows them to build a reliable customer.
Improved production speed from 2001 to 2005 by going from an average 8.5 days from raw
material to finished in store product to just 2.5.
The New Balance Workforce… A key to operation improvement
Lean Manufacturing: NB2E New Balance Executional Excellence (Company Goals)
Cons:
Outsourcing to foreign suppliers
The company’s U.S. workforce: Team Mates put too much pressure on each other under the
team-based compensation system.
Outsourced a lot of its production… however its less than other competitors such as Nike and
Reebok.
V.
As a conclusion we feel that New Balance is doing a great job maintaining a strong place in the
market. They have set very high goals such as trying to fill orders faster so that customers will be
able to receive their product within 24 hours of it being ordered. They believe that guaranteeing
this delivery speed will help retain existing customers. We like that fact that New Balance is
outsourcing around 75% of their manufacturing to Asia, when Nike and Reebok are outsourcing
nearly all of theirs. I feel that New Balance is a good company however I recommend that they
start thinking of new ways for creating a different target market. Now that New Balance has
established a good manufacturing plan and company goals they need to start thinking outside
the box like Nike so they can be the first to innovate a market changing product. Once they do
this I feel they will notice a huge difference in company stats like sales and customer
satisfaction.
VI.
New Balance produced their shoes in the United States, and competitors produced
Outside of the United States because the manufacturing was highly labor intensive and required
relatively low worker skill.
Teammates put too much pressure on each other under the team‐based compensation
system. The Adidas‐Reebok merger allowed New Balance to recognize the need for higher
Operational efficiency, His would involve improving the production process. The problem was
Finding a method that was both effective and efficient for the most optimal results the ability to
route orders for the day provides an accurate picture, including more accurate shipping
information. Rate shopping functionality provides the ability to do same-day pick runs and
shipments, or priority programs.
Today, New Balance is live on Warehouse Management, Slotting Optimization, Supply Chain
Intelligence and RFID in two sites. The solution is integrated with Demotic conveyor systems;
Mantissa for tilt tray sorting, Quantronix Cubical and Fox 4 print and apply. Our host system
does a pre-allocation, so no orders drop to Warehouse Management unless there’s inventory in
the facility. When orders come in, Warehouse Management allocation is completed.