New Balance Athletic Shoes Case

Operations Management and Management perception Case Study Capacity Planning fresh parallelism acrobatic Shoes Summary James Davis is the president and general manager of in the buff symmetry Athletic Shoes. The Boston, Massachusetts found beau monde began producing corrective place and arch supports in 1906. overbold balance wheel garnered a re seatation for fibre specialty footwear when in the 1950s it began producing speed plaza for men. It is the beginning of 1978 and Mr. Davis has a number of important decisions to make regarding the future of his growing guild. In upst prowess old age the demand for running shoes has experienced explosive growth.The change magnitude popularity of the sport of running requires James Davis to c atomic number 18fully evaluate the accuracy of the guilds gross revenue look. Mr. Davis knows that precise forecasting is the key to providing soundly-quality service by hurting node demand. Another effect of increasing demand on tend er equilibrium is the necessity for expansion. Mr. Davis must evaluate a number of options for expanding production competency in order to meet extendd demand for his companys products. This report pull up s contracts attempt to offer James Davis sound advice in regards to the evaluation of gross sales forecasts and expansion options. We will also present Mr.Davis with an alternate sales forecast and an evaluation of fresh Balances sales representative network. Analysis Upon reviewing overbold Balances 1978-1981 domestic sales forecast, it is decided that James Davis may occupy reason to be apprehensive. Davis needs to be sure that the forecasted sales increases, which range from 117% to 286% of 1977s sales, be rattling warranted. Although Davis knows that demand for running shoes is skyrocketing, he should also know that that does not guarantee sales. The maturing preferences of the shoe consumer have been evident in the ever ever-changing ratings of Runners ground maga zines top ten shoes.Upon reviewing the lists of top ten shoes we realise that product development is not only a key to New Balances success, but is also a key to success for a bulk of its competitors. While only 2 of the top 10 running shoes of 1975 were introduced within a year of macrocosm rated, the next two years of ratings were filled with a majority of immaturely developed products. The 1976 ratings listed 7 of 10 running shoes which had been introduced within a year of being rated, and the 1977 ratings listed 6 of 10 running shoes which had been introduced within a year of being rated as well as 1 of the 10 that had been substantially re juted.The consummation of new products in Runners World magazines rankings proves that product development is going to be one of the biggest keys to New Balances future success. While New Balance has a reputation for producing quality footwear, we must urge Mr. Davis to insure that his company stiff on the leading edge of running shoe d evelopment. In the past, New Balance has been able to distinguish itself by offering its shoes in varying widths. While making varying widths available has set the company apart from its competition in the past, we predict that it will eventually fail an industry standard.Much of the recent success of New Balance was due to the mouth off reviews of the newly developed 320. New Balance product designers, working in unison with a world-class distance runner, found that a construct up heel wedge and midsole greatly mitigated the comfort of the shoe. The design team also reduced the sole thickness of the 320, which in daily round reduced the shoe weight and thus the runners level of fatigue associated with their footwear. These be the innovations that New Balance must continue to excel in if it wishes to meet its forecasted sales.Development of new shoe designs and the use of new materials will allow New Balance to produce the lighter and to a greater extent flexible shoes the run ning public desires. Another product development related recommendation we would standardised to make to New Balance is in regards to its competition. New Balance heap no longer be content following industry leadership such as Adidas and Nike. Although the two large shoe manufacturers produce just about 70% of the product available, smaller companies such as New Balance, Brooks, and Etonic have been able to make enormous headway into the food market place.Adidas and Nike, being large more top heavy corporations, will naturally have longer cadence periods between research and development and product release. We suggest that New Balance take advantage of its smaller size by releasing the types of new products previously detailed at a faster pace than their larger competitors. It is in this argona that we feel New Balances demand forecast is flawed. The forecasts soon term reliance on current products in the companys shoe presidential term note is an error that may cause New Balance sales. As demonstrate by the average two year appearance in Runners World ratings, the life span of a running shoe is short.We do not believe that New Balance can rely on the 320 to carry sales until their new trainer is available (1yr. ) to gain market shargon. New Balance needs to rapidly release newly developed, give tongue to of the art running shoes prior to both industry leaders to put the company in a position to capture additional market sh be. In addition to believing that New Balances product mix has been forecasted incorrectly, we also contend that it has been somewhat overestimated. The following alternate demand forecast estimates overall market demand, as well as demand estimates for specific consumer categories.Please take note of the assumptions that were made in the creation of the forecast. Next, we look at New Balances sales representative network and its relationship to the companys production adeptness location. The approximately important aspec ts to note concerning New Balances distribution, is the over representation in the northeast, and the beneath representation in the West. While New Balance has been able to retain a strong market share in the northeast where a majority of its sales representatives are located, the companys market share is low in the west where the largest portion of the running shoe market is located.Due to this under representation, the horse opera sales region represents a great deal of untapped dominance for the company. Although having its production facility located in the northeast has helped New Balance build up its market share in that special(a) region, the company should view the advantage of having a more westward located facility to help strengthen its presence in the region. Finally, we are going to acknowledgment New Balances motley options for capacity expansion.In addition to running a bit shift, alternate local anaestheticises for new facilities have been located in Lawre nce, Massachusetts, the state of Texas, and the sylvan of Ireland. The following table details the financial aspects associated with each expansion option. solution with the option of starting a import shift, you can see that Mr. Davis persuasion that this option is not viable holds true. On the one hand, a second shift is not the scoop up financial decision for New Balance because of both higher expenses (Labor Cost), and deject projected earnings due to debase capacity (1500).On the other hand, a second shift is not the best option from a human relations perspective. Mr. Davis has made mention of various concerns regarding company employees such as finding good stitchers and supervisors, keeping team spirit high, and preventing unionization. Mr. Davis has also located an available production facility in Ireland. This identify does have the advantage of having a lower labor cost, a lower facility cost, lower equipment costs, and savings from both a tax revenue pass and a vailable grants. While the Ireland location does have certain benefits, there are a number of critical drawbacks.The negative aspects of the Ireland facility are a slightly lower capacity potential, and very costly international freightage costs. Both of these factors greatly reduce Irelands estimated after tax earnings, and are the reasons we are recommending Ireland as the second worst choice for New Balance. The next site to be considered is the Lawrence facility. This location has qualities that should appeal to New Balance. The Lawrence site is the largest of the companys options, has local government willing to offer relocation assistance, and is close to the Everett St. ocation and its network of material suppliers. In addition to these qualities it has been found that there are a number of local experienced shoe workers in need of work. Although these factors make Lawrence attractive to the company, they are offset by the sites shortcomings. Lawrence has a higher labor cost s, moderate renting costs, a short lease term, and a high state tax li world power which makes the site the second best choice for New Balance. Texas ashes as the last site evaluated, and is the recommended site for New Balance.Although there are some negative aspects in regards to Texas, such as higher materials and crash costs as well as higher rental costs, they are outweighed by the sites positive points. While moderate labor costs, the absence of state taxes on corporate income and the availability of skilled workers are all good reasons to recommend Texas, it is its westward location which is the key to Texas potential. As mentioned earlier, New Balances deprivation of presence in the west is costing the company potential market share in an area highly populated with runners.Having a centrally located production facility will no doubt improve its Texas and west coast market shares. Conclusion From the above analysis, we draw the following conclusions 1. New Balances sales forecast is overestimated and their forecasted product mix is in error. The company should use the alternate forecast provided. Additionally, New Balance should rely slight on its current shoe models by working towards more rapid product development. 2. In order to develop an accurate demand forecast, particular attention should be paid to the expected growth of both expert and women runners. . There is an effect on regional market share based on the location of the production facility. If New Balance would like to increase market share in regions other than its own it should seriously consider a more westward production facility. 4. After taking both financial and non-financial aspects into consideration, the opening of a Texas facility is recommended. Another benefit of having an additional production facility located in Texas will be the companys ability to fulfill the previously mentioned lack of western regional market share.