New Balance Athletic Shoe Inc.An Operational Management Case Study

GROUP 1Adit / Bhagas / Bima Dwi / Estie / EtgarFerry / Hanif / Irreza

Magister Manajemen Universitas Indonesia

Case Summary

New Balance, Inc. is an American footwear maker founded in 1906

Jim Davis bought the company in 1972

It is one of the largest makers of sports footwear in the world

The only footwear maker with manufacturing presence in the US

Case Summary

In 2005, Adidas bought Reebok, prompting swift response from New Balance Management New Balance has already

introduced New Balance Executional Excellence

(NB2E) program aimed at lean manufacturing

NB2E was adopted from Toyota Production Systemto increase efficiency and reduce lead time

Case Summary

THE US BIG FOUR (2004)

US Sales: $3,225 M | Worldwide: $13,739.7 M US Sales: $790 M | Worldwide: $8,057 M

US Sales: $1,087 M | Worldwide: $3,785 M US Sales: $1,022 M | Worldwide: $1,500 M

Case Summary

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200.00

400.00

600.00

800.00

1,000.00

1,200.00

USA Outside USA

New Balance Sales: USA vs Outside USA(in million USD)

Sales in the USA is very significant for New Balance

Problem Identification

Operational Issues Quality Problem

Late Deliveries

Late Samples

Cost Issues

Made in USA

Fully Outsource

Lean Manufacturing

Scaling current business model

Improving performance via N2BE

Inventory Inefficiencies

The THEORIES

Lean Manufacturing

• A production practice involving never ending efforts to eliminate or reduce waste in design, manufacturing, distribution, and customer service processes

• Centered on preserving value with less worko enhance efficiency and profitability o focus on speed to achieve shortest possible

cycle time

The THEORIES

• In Lean Manufacturing, inventories will be best utilized to avoid over production

The THEORIES

Principles of Lean Manufacturing

1. Eliminate waste2. Minimize inventory3. Maximize flow4. Pull production from customer demand5. Meet customer requirements6. Do it right the first time7. Empower workers8. Design for rapid changeover9. Partner with suppliers10.Create a culture of continuous improvement (Kaizen)

continued

The THEORIES

Wastes in Lean Manufacturing

Any activity that does not add value to the product or service

continued

8 Types of Waste

Overproduction, Waiting, Transportation, Non-VA Processing, Inventory, Under-utilizing People, Defects, Motion

Case Analysis

Case Analysis

Lean Indicators Issues/Recommendation1) Supplier - Purchasing Order and Lead Time take too long

2) Procurement - Implement B2B system for purchasing

3) Manufacturing- Integrated communication system for forecasting,

manage production level and data (e.g. trend)

4) Warehousing - Too many inventories low level of inventory

5) Logistics - Lead Time 5 weeks from Asia Pacific to Warehouse

6) Customer- New Balance already implement NB2E need to

better implement the system

New Balance® Lean Process (N2BE)

Case Analysis

SUPPLIER1

ISSUES

PO and Lead Time take too long:• 1 week PO, 6 weeks

components manufactured, 5 weeks delivery

ANALYSIS

• Delivery time is too long, challenge in achieving 100% availability in 24 hours

• Bull Whip Effect: 5% retailer’s buffer stock, 10% distributor stock, 15%warehouse stock, NB production at25% inventory stockpiling

SOLUTION

• New Balance should find additional suppliers to fulfill demand• Aimed at reducing lead time to manufacture components• Securing Long Term Contract with suppliers

New Balance® Lean Process

Case Analysis

PROCUREMENT2

ISSUES

It took 1 week to place PO and have it accepted by suppliers in China

ANALYSIS

Inefficiencies in procurement process, presumably due to documents submitted in hard copy format

SOLUTION

New Balance could form agreement with main suppliers to establish B2B system• Suppliers can check stock availability online in real-time• New Balance can also see and update PO form online• Eliminating delay

New Balance® Lean Process

Case Analysis

MANUFACTURING3

ISSUES

Company Policy of having complete range of shoe sizes and widths means more products in inventory

ANALYSIS

Overstock is positively correlated with high stockpiling costs

SOLUTION

New Balance should establish an integrated communication system with their retailers• Record sold products and identify purchase trend from retailers to create a

clear-cut forecasting• Manage production level to maintain low-level inventory, impelement

Uniform Plant Loading to find Model Cycle Time and improve Profitability

New Balance® Lean Process

Case Analysis

WAREHOUSE4

ISSUES

To ensure product availability,New Balance maintains high level of finished goods in the warehouse

ANALYSIS

Inventory Costs that must be paid by the company become too high

SOLUTION

New Balance can maintain its inventory at Low-Level Inventory in order to achieve Lean Warehousing. They need to eliminate non-value added steps and wastes; e.g. by eliminating shipping defects, overproduction, and overstocking.

New Balance® Lean Process

Case Analysis

LOGISTICS5

ISSUES

5 Weeks total delivery time for materials

ANALYSIS

If demand suddenly fluctuated, product delivery could be disturbed, hence losing potential customers

SOLUTION

Through an integrated communication and ordering system between New Balance and the suppliers, the lead time can be anticipated by utilizing Customer Demand Forecasting and maintaining Low-Level Inventory

New Balance® Lean Process

Case Analysis

CUSTOMERS6

ISSUES

New Balance maintains high level of inventory in order to improve their product availability

ANALYSIS

New Balance has realized their overall production method is inefficient, hence the NB2E program to reduce inventory costs

SOLUTION

As a “customer” to their suppliers, New Balance needs to dedicate their effort in implementing NB2E program to improve efficiency and profitability. They also need to build effective relationship with suppliers.

New Balance® Lean Process

Conclusion &Recommendation

Conclusion

Key Aspects

• New Balance should stay faithful to their differentiation as the only shoe manufacturer which maintains USA presence

• The company attempts to implement Lean Manufacturing strategy through NB2E Program

Main Challenges

• Demand Uncertainty (readily available products concept)• Lead Time takes too long• High Inventory Level (variation and quantity)• Online System and accurate data regarding demand and

product availability trend are not yet available• High Cost of Production

Recommendation

• Maintain their competitive advantage as the only company with US-manufactured shoes

• Systematic Implementation of NB2E should solve lead time, manufacturing cycle, and inventory level issues

• Online system should assist in the automation process to achieve promptness and availability of data

• Additional Distribution System in Emerging Markets is needed to anticipate rapid growth outside USA

Lessons Learned

Understanding Lean and Supply Chain Management is needed to avoid or eliminate non-value added activities (wastes)

Well-prepared operational design is required to ensure every process is value-added

Availibility of detailed and comprehensive data is necessary to guarantee product availability with various variants like New Balance

Thank You.