NEW BALANCE ATHLETIC

SHOE,INC.
Group 2 Section B

1. AKANSH VARSHNEY 18PGP012

2. A SAI TEJA 18PGP014
3.K CHANAKYA CHOWDARY 18PGP072
4.K MANI PRATEEP 18PGP073
5.MACHA KRANTI KUMAR 18PGP086
6.MALLEMPATI DHEERAJ 18PGP090

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 INTRODUCTION

• It was founded in Boston in the year 1906 by William J. Riley under the name New Balance Arch.

• They particularly operated in making arch supports for prescription footwear. Focusing on fit and performance

• In 1980’s it setup a new manufacturing facility in New England and signed many international distributors.

• Company wanted to target high number of SKUs with quick response to meet the demand. High responsiveness
was achieved through high finished goods inventory and in house manufacturing of 25% of the total demand.
Remaining 75% of the manufacturing was outsourced to Asia.

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 INTRODUCTION – CONT..

• Advertising and marketing were not their strong suit and their spending on marketing and advertisements. was
quite low as compared to the competitors.

• US footwear industry was highly competitive with multiple players in the market. Majorly the market was
dominated by Nike and followed by Adidas and Reebok. In 2005, acquisition of Reebok by Adidas was set to
change the market dynamics.

• New balance now had to compete with two big competitors instead of one. This posed question for the
company on how to react to the change in the market.

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 CURRENT OPERATIONS STRATEGY AND DECISIONS IMPLICIT IN
THIS STRATEGY
Commitment to multiple
sneaker widths, fit is the critical
performance characteristic.
Two fronts in design and
development – Incremental
development, disruptive
technologies
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Manufacturing and operations
based rather than marketing
based
Loyal group of salespeople who
create a distinct edge over
competitors
Teamwork is a critical
component “continuous
improvement is the mantra”
Sales force automation system
– freeing up sales
representative to help in
recommending inventory to
the retailers
Flexibility among workers to
push their limits and increase
productivity
Just in time model to decrease
the inventory holding cost and
increase the service level to
the customers
Product focused strategy -
Energies and investment into
research, design and domestic
manufacturing
Changes in production system
as per New Balance
Executional Excellence (NB2E).
Instead of batch basis
production more continuous
flow of production system
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 Q2.ASSUMING THAT THE TOTAL U.S. MARKET FOR ATHLETIC FOOTWEAR WAS 400 MILLION PAIRS IN 2005, HOW
COSTLY WAS NEW BALANCE DECISION TO MAINTAIN 25% OF ITS MANUFACTURING IN THE UNITED STATES? WHAT IS
YOUR ASSESSMENT OF THAT DECISION?

Units (Mn) model extra cost ( per unit )

US market 400 cut-through-assembly $ 13

New Balance 45.42 sourced upper $ 0.5

Outsource 34.07 model extra cost (Mn)

In house 11.36 Cut-through-assembly $ 49.21
Cut-through-assembly 3.79 Sourced upper $ 3.79
Sourced upper 7.57 TOTAL $ 52.99

• Despite the costs, the decision of partial domestic manufacturing is beneficial as they learn by doing it
and share with partners abroad
• This helps in lead time optimization as they can ask the partners to work with lower level suppliers
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 HOW SHOULD DAVISES REACT TO ADIDAS’ PLANNED ACQUISITION OF
REEBOK? WHAT ASPECTS OF NEW BALANCE’S OPERATIONS STRATEGY
SHOULD THEY CHANGE?
Reaction
 Not get affected by acquisition
 Not acquire, first resolve problem in house
 Focus on its core competency of making quality footwear products

Change in Operations Strategy

 Increase the number of “sourced-uppers” produced in the United States, since it is only 50 cents more expensive
to produce domestically while at the same time decreasing the amount of “cut-through-assembly
 The emphasis on lean manufacturing will drive down costs and increase the quality of products
 Focus on NB2E
 Quality problem is because of number of SKUs and transition period from ‘Brute force’ to NB2E
 Proper transition will improve efficiency overall through continuous process

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 HOW IMPORTANT IS THE NB2E INITIATIVE FOR NEW BALANCE?

 With the merger of Adidas – Reebok, New Balance has to be more responsive to trends and customer needs
 This program drives employees to develop “Problem-Solving attitude” and encourages to continuously improve
 NB2E initiative will reduce the cost of manufacturing which will help to bring down the $13 premium paid for
domestic production
 Reduced Inventory levels will bring down further costs. This will help in staying competitive in the market
 NB2E initiative will also bring down the time for delivery – which will foster better partnerships with retail
channels
 After 2005, we have witnessed rise of E-Commerce. Therefore, being responsive and lean in terms of
manufacturing helps company to venture into E-Commerce in a rapid and efficient way

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 THANK YOU

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