New Balance Athletic Shoe Inc.

An Operational Management Case Study GROUP 1

Adit / Bhagas / Bima Dwi / Estie / Etgar Ferry / 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 System to 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
New Balance Sales: USA vs Outside USA
(in million USD)
1,200.00 1,000.00 800.00 600.00 400.00 200.00

USA

Outside USA

Sales in the USA is very significant for New Balance

Problem Identification
Operational Issues
Quality Problem Late Deliveries Made in USA Late Samples

Cost Issues

Fully Outsource
Inventory Inefficiencies

Lean Manufacturing
Scaling current business model

Improving performance via N2BE

The THEORIES

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 work
o enhance efficiency and profitability o focus on speed to achieve shortest possible cycle time

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

The THEORIES continued

Principles of Lean Manufacturing
1. Eliminate waste 2. Minimize inventory 3. Maximize flow 4. Pull production from customer demand 5. Meet customer requirements 6. Do it right the first time 7. Empower workers 8. Design for rapid changeover 9. Partner with suppliers 10.Create a culture of continuous improvement (Kaizen)

The THEORIES continued

Wastes in Lean Manufacturing
Any activity that does not add value to the product or service

8 Types of Waste
Overproduction, Waiting, Transportation, Non-VA Processing, Inventory, Underutilizing People, Defects, Motion

Case Analysis

Case Analysis
New Balance Lean Process (N2BE)
Lean Indicators
1) Supplier 2) Procurement

Issues/Recommendation
- Purchasing Order and Lead Time take too long - Implement B2B system for purchasing

3) Manufacturing
4) Warehousing 5) Logistics

- Integrated communication system for forecasting, manage production level and data (e.g. trend)
- Too many inventories low level of inventory - Lead Time 5 weeks from Asia Pacific to Warehouse

6) Customer

- New Balance already implement NB2E need to better implement the system

Case Analysis
New Balance Lean Process

1 SUPPLIER
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% retailers buffer stock, 10% distributor stock, 15% warehouse stock, NB production at 25% 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

Case Analysis
New Balance Lean Process

2 PROCUREMENT
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

Case Analysis
New Balance Lean Process

3 MANUFACTURING
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

Case Analysis
New Balance Lean Process

4 WAREHOUSE
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.

Case Analysis
New Balance Lean Process

5 LOGISTICS
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

Case Analysis
New Balance Lean Process

6 CUSTOMERS
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.

Conclusion & Recommendation

Conclusion
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

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

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.