New Balance Athletic Shoes Case

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Operations Management and Management Science Case Study

Capacity Planning

New Balance Athletic Shoes

Summary

James Davis is the president and general manager of New Balance Athletic Shoes. The Boston, Massachusetts based company began producing corrective shoes and arch supports in 1906. New Balance garnered a reputation for quality specialty footwear when in the 1950's it began producing running shoes 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 company.

In recent years the demand for running shoes has experienced explosive growth. The increasing popularity of the sport of running requires James Davis to carefully evaluate the accuracy of the company's sales forecast. Mr. Davis knows that precise forecasting is the key to providing good-quality service by meeting customer demand. Another effect of increasing demand on New Balance is the necessity for expansion. Mr. Davis must evaluate a number of options for expanding production capacity in order to meet increased demand for his company's products.

This report will attempt to offer James Davis sound advice in regards to the evaluation of sales forecasts and expansion options. We will also present Mr. Davis with an alternate sales forecast and an evaluation of New Balance's sales representative network.

Analysis:

Upon reviewing New Balance's 1978-1981 domestic sales forecast, it is decided that James Davis may have reason to be apprehensive. Davis needs to be sure that the forecasted sales increases, which range from 117% to 286% of 1977's sales, are truly 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 changing ratings of Runner's World magazine's top ten shoes. Upon reviewing the lists of top ten shoes we realized that product development is not only a key to New Balance's success, but is also a key to success for a majority of its competitors. While only 2 of the top 10 running shoes of 1975 were introduced within a year of being rated, the following two years of ratings were filled with a majority of newly 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 redesigned.

The achievement of new products in Runner's World magazine's rankings proves that product development is going to be one of the biggest keys to New Balance's future success. While New Balance has a reputation for producing quality footwear, we must urge Mr. Davis to insure that his company remains on the leading edge of running shoe development. 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 become an industry standard. Much of the recent success of New Balance was due to the rave reviews of the newly developed 320. New Balance product designers, working in unison with a world-class distance runner, found that a built up heel wedge and midsole greatly improved the comfort of the shoe. The design team also reduced the sole thickness of the 320, which in turn reduced the shoe weight and thus the runner's level of fatigue associated with their footwear. These are 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 more flexible shoes the running public desires.

Another product development related recommendation we would like to make to New Balance...
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