New Balance Athletic

Shoe, Inc.
Presented By Group 08
Q1.Evaluate New Balance’s current operations strategy. What are the key
decisions implicit in this strategy?
• Focus- High-quality over meeting demand, lead-time optimization, design.
• Operation strategy was delivery of high-quality products by aligning manufacturing strategy as well
for longer use.
Key decisions implicit in this strategy:
• Entrepreneurial and innovative mindset leading to outsourcing of network salesforce to improve sales
and distribution.
• Focused on service-oriented customer.
• New Balance used outsourcers for 75% of its U.S. volume. For the remaining 25%, final product
assembly took place in one of New Balance’s five factories in the northeastern United States. Thus,
the in-house variant was much expensive than outsources from China variant. But they were
constantly upgrading their foreign vendor thus improved their supplier support.
• Did not spent much on advertisers and focused on delivering on high end product delivery.
• To meet uncertain demands, they stocked huge inventories.
• The relationship with retailers were improved as they could easily rely on the company.
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?
Market share:36% of market share(Nike)=3228mn sales .1022mn of new balance sales is 11.408%
market share,400mn pairs(assumption).So 45.632mn pairs to be manufactured(total) .25% of
45.632mn would be 11.408mn pairs to be assembled in USA by New Balance and rest
outsourced.1/3rd-Cut through assembly-3.802mn paired shoes(imported finished soles ,raw materials
for upper).2/3rd-Sourced upper-7.604mn pair shoes(finished upper and soles)
Negative Implications
• 13$ extra for Cut Through Assembly Products so 49.42mn$ costlier and 0.5$ extra for sourced
upper so 3.802mn$ costlier. Total extra cost would be 53.228mn $ 
• Competitors like Nike and Reebok outsourced completely so more savings due to cheap labor(Asia)
• High inventory cost-4.5weeks(raw materials goes to material warehouse rather it would have gone
to distribution centers if totally outsourced), material warehouse land and maintenance cost. If
totally outsourced, then will only act as mediator apart from designing capability.
Positive Implications
• Increased learning curve and Low lead time(for cut through-9+2.5 i.e., 11.5 days) compared to 12
weeks order to delivery lead time for fully assembled shoes
• May loose core competency as they were more into operations rather on marketing
• Reduces total dependency on Chinese manufacturers
Q3. How should Davises react to Adidas’ planned acquisition of Reebok? What
aspects of New Balance’s operations strategy should they change?

• According to Davis, a merger between Adidas and Reebok may be advantageous for New Balance,
whose sales in 2004 increased to $1.5 billion from $1.3 billion. Retailers prefer working with fewer,
smaller suppliers who can be more flexible since larger suppliers may demand conditions. New
Balance wants to increase its adaptability by taking use of the agility of its US factories.
• According to Davis, who aims to move some production from abroad to the United States to increase
local manufacturing, the ability to manufacture and assemble shoes domestically enables quicker
turnaround times on client orders. Thomas (VP: Information and Research) reported that the
National Sporting Goods Association projected 2004 footwear sales at $14.8 billion, up from $14.5
billion the year before.
• According to Doyle, demand is ordinary as the proportion of teens in the US population, who are
generally significant consumers of athletic footwear, is presently lower than it was during the period
of the industry's rapid expansion. 
• Under Davis, New Balance concentrated on making running shoes with different widths, which were
historically uncommon in the business and extremely helpful for senior runners. 
• New Balance has recently increased the number of middle-aged clients by luring younger customers
with trendier designs and by providing footwear for team sports like football and lacrosse.
Q4. Moving forward, how important is the NB2E initiative for New Balance?

• With its current operations and competitive advantages, the NB2E initiative is not the most
crucial component of New Balance's company going ahead. 
• Lean manufacturing and the Toyota Production System are appealing concepts for every
organization, but they are not compatible with all businesses. To have the styles available in
multiple sizes and widths is one of key the competitive advantages that executives emphasize. 
• In 2005, Jim Davis spoke about a client "with a 13EEEE foot size" and the kind of brand loyalty
developed because of being able to satisfy that client. Consumer customization is increased as a
result, while manufacturing homogeneity is decreased.
• As a result, it seems inconsistent to value customization and push for continuous flow
operations. 
• It would be very challenging to keep up a continuous flow operation without having a highly
specialized "13EEEE foot size" request disrupt it. It is difficult to think of alternatives to reducing
the number of designs and SKUs given the amount of money New Balance has already committed
in the production. 
• Until New Balance decides which aspect of its business is more critical to the organization—
offering several widths for every style or lean manufacturing—the NB2E effort is not critical.
 Key Takeaway
Focus on operational issues related to quality, late
deliveries and samples, reduce SKUs and styles

Group 08
THANK YOU •Chaporkar Kalyani Gajanan (21PGP061)
•Kharde Archana Satish (21PGP107)
•Patil Pragati Hemant (21PGP166)
•Sanak Aditya Manna (21PGP202)
•Smruti Ranjan Palo (21PGP232)
•Ayush Kumar (21PGP265)