New Balance Athletic Shoe Inc.

• CTOE CASE STUDY

Submitted to - Prof . Siddharth Joshi

SUBMITTED BY -

Sakshi Sharda (20192341) | Subhasish Das (20191108) | K. Partha Saradhi (20192234) | Dharmik Tandel
(M20191561) | Shubham Bopche (20191099) | Baisakhi Singha Roy (B20195205) | K Md Riaz (20191047)
INTRODUCTION

In the hyper-competitive markets of running shoes and athletic gear, New Balance
has always followed its own path.
From the beginning, the company has challenged the conventions of the industry.
New Balance insists on making and assembling a limited portion of its shoes in
facilities based in the United States and England in contrast to its competitors, which
often manufacture exclusively outside the USA and Europe.
They believe in sustainability, philanthropy and innovation. 
INTRODUCTION

• Design is the key component and shoes are made in multiple widths, because N.B. believes
that fit is a critical performance characteristic. Thus, design still needs to be improved and
emphasized from being conservative for a long period of time. In terms of sales and
distribution.
• N.B. is mainly focused on smaller retailers (as foot locker running specialty shops and other
independent dealers.
• Unlike the other operators, N.B. relied on a sales force composed of independent and
exclusive to N.B. agents. Those agents are compensated through a commission per sale and
are not directly related to N.B
• In order to speed the ordering process and manage the product flow, N.B. launched an
automated system that permitted sales representatives to place direct orders remotely,
access the company’s inventory information, and check on delivery status.
Question 1- Evaluate the current Supply Chain Strategy of New Balance. What are the key
components in the Supply Chain Strategy

• 75% volume outsourced from Asian Manufacturers

• 25% final assembled in US only out of which
• 1/3 domestically assembled are referred as “Cut through assembly”
rd

• 2/3 is known as “Sourced upper”

rd
• John Wilson, Vice President for Manufacturing, noted that the company had taken several
steps in recent years to reduce the lead times from Asian suppliers.
• First, New Balance had shifted to placing smaller orders of between 2,000 and 10,000 pairs
on a weekly basis. In addition, New Balance made arrangements with these suppliers to
enable them to “pre-buy” their own raw materials on behalf of the company, thereby
reducing the lead time required to produce an order.
• These and other efforts reduced the average time from placing a component order with a
supplier to having those items available at the New Balance materials warehouses from 12
weeks to approximately nine weeks.
• We are focusing on lead-time optimization, asking them to go downstream two or three
levels and work with suppliers to react more quickly to us.
• In 2004, New Balance adopted New Balance Executional Excellence (NB2E) to apply the
principles of the Toyota Production System (TPS) to shoe production. One of the key goals
of NB2E was to further reduce the time between a retailer’s order and its delivery.
• In 2001, the average lead time for a cut-through-assembly batch (typically consisting of 12
pairs of shoes) through a New Balance plant—measured from arrival of the raw materials to
loading on the truck as finished product—was roughly 8.5 days.
• By 2005, the company had reduced this time to 2.5 days through significant attention to
process improvement and work-in-process reduction within the plants. Wilson
and his colleagues believed that further reductions in manufacturing lead time were
attainable
FINAL OUTCOME

New Balance’s current operation strategy is to increase the efficiency of the company’s operational processes by
applying lean manufacturing. This strategy aimed at reducing the lead time of product delivery. The company’s
operational strategy was more product-centric in nature as it focused on fit, comfort and performance

The key decisions they took in action are -

• As compared to other competitors of New Balance who outsourced almost their entire volume to low-cost Asian
markets, New Balance kept an in-house manufacturing facility to meet the faster changes in product designs and
rapid replenishment.
• New balance shared data related to forecasted demand to their suppliers who in turn can forecast their demands
and let their suppliers know their requirement which in turn will reduce the lead time of the entire upstream
chain.
• The company kept a higher finished product inventory for faster replenishment to its dealers and retailers.
• The hiring and training decisions were based on their strategy of having cross-functional teams as they hired
employees with prior experience in a team-based ecosystem.
• The company outsourced its salesforce to independent agencies who were loyal and exclusive to New Balance
rather than having an in-house salesforce. This reduced their expenses related to salesforce training and hiring.
• There was a huge lead time associated with foreign suppliers. In order to counter this, the company started
placing small orders on weekly basis.
Question 2 - How is New Balance managing to stay a float/survive in an Industry dominated by
global major players like Adidas, Nike, Reebok etc.

•New Balance has focused on the CSL and the Functional part of the product while the
competitors have traded for the efficiency and aesthetic appeal.
•Main unique aspects of New Balance's strategy - focusing on fit and performance, offering a
long-lived shoes in different widths and eschewing celebrity endorsement of their products -
and discusses operations New Balance in decisions to support this strategy.
•They include significant use of domestic production at a time when almost all other
competitors sources Footwear from Asian suppliers and focus on improving inventory
management for its network of small and large retailers.
• Set immediately after the announcement of Adidas-Reebok deal in 2005, New Balance,
recently initiated efforts to improve corporate performance through the application of lean
manufacturing concepts and production system Toyota
•Their aim to make every one of their shoes a performance product as opposed to just a
fashion product.
•New Balances Stores Rather than being a Museum of sorts has generated more sales than any
individual outlet.
•The company remained private to avoid shareholders
•Marketing Spend was much lower than competitors
•Continuous Improvement was the mantra of the company
•To satisfy the customer service level custom finished goods of different sizes are kept with
increase in inventory cost, which helped achieve a shorter lead time
•They are manufacturing – Operation Based not Marketing Based
•Culture was very entrepreneurial & willingness to take risk
•Sales Agents were independent and compensated through a sales based commission
•Endorsed by No-one ( Cost saving )
•Spent money on Quality improvement and R&D
•New Balance maintains a huge Finished Goods Inventory to reduce the lead time for retailers
and the central warehouses located reduce the cost
• Approximately 60 peoples are there in product design and using technology such as Absorb
EX and Zip for product development
THANK YOU