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New Balance Athletic Shoe Inc

Solution Id Length Case Author Case Publisher
2352 1779 Words (7 Pages) H. Kent Bowen, Robert S. Huckman, Carin-Isabel Knoop Harvard Business School : 606094
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New Balance Inc. is among the world's five leading companies of athletic shoes. The company is considering its options of how it should respond to the merger between Adidas and Reebok. Adidas and Rebook are the second and third largest manufacturers of footwear respectively and their merger would create as big a rival as Nike for New Balance. The case study discusses the unique business model and operation strategy of New Balance that provides it a competitive edge and sets it apart from its competitors based on high performance and high quality. New Balance is also working on a new NB2E initiative based on lean manufacturing to minimize production costs, improve product quality and maximize profitability. The news of Adidas's acquisition of Rebook has brought New Balance to analyze whether it should change its current strategy to adapt to the changing competitive landscape.

Following questions are answered in this case study solution:

  1. What are the key elements of New Balance Athletic Shoe, Inc.’s current operations strategy? What are the key assumptions and decisions implicit in this strategy? Please be specific.

  2. What key OMT philosophies, concepts, frameworks, tools, and insights can be used to analyze the situation at New Balance? Please be precise and remember to use the appropriate terminology and related case references.

  3. What is your assessment of the implications (financial and strategic) of the decision to keep 25% manufacturing in US? Assume that the US market for athletic footwear was 400 million in 2005.

  4. What should New Balance do about Adidas planned acquisition of Reebok and the NB2E initiative? What aspects of operations strategy may need to change and why?

  5. What would be needed to implement your recommendations? How would you handle the related risks?

Case Study Questions Answers

1. What are the key elements of New Balance Athletic Shoe, Inc.’s current operations strategy? What are the key assumptions and decisions implicit in this strategy? Please be specific.

An operation strategy lays the groundwork for utilizing resources efficiently in a business. As discussed in the case New Balance Athletic Shoe, Inc, was devoted to producing shoes that are high performance rather than just being a fashion product. Therefore, New Balance Athletic Shoe Inc. developed a differentiated operations strategy to deliver high-quality and reliable products to its consumers. Some of the key elements of their current operations strategy were:

Manufacturing and Supply chain

Unlike the bigger players in the market, New Balance only outsourced 75% of its products, and 25% of the products were manufactured in-house in its US-based factories through two processes – cut- to assembly and purchased-upper. The key raw materials were supplied from Asia mainly China. The rest 75% is outsourced from two Chinese manufacturers and shipped directly to their distribution centers with a lead time of 10-12 weeks. The company is working on reducing the lead time of suppliers by reducing the ordered quantity and making arrangements to allow them to pre-order raw materials. 

Inventory management

Unlike competitors, New Balance kept a huge percentage of products in inventory to meet the uncertain demands of retailers to ensure the availability of different sizes, colors, and widths. Each type of sole comes in 20 different SKUs of varying lengths and widths which means a huge inventory has to be kept to ensure the availability of each SKU

Sales and distribution

Another distinct element of the New Balance operation strategy is that the company focuses more on selling through small specialty retailers, however, it maintained strong relationships with both small and large retailers. The independent retailers selling specialty products contributed to enhancing the brand image of the company and the large retailers contributed to the sales volume. Unlike the competitors, New Balance sold products through independent sales agents with an entrepreneurial mindset. 

2. What key OMT philosophies, concepts, frameworks, tools, and insights can be used to analyze the situation at New Balance? Please be precise and remember to use the appropriate terminology and related case references.

Operational management refers to developing and using optimal business strategies that maximize the utilization of resources and minimize the costs achieving the highest levels of efficiency. Analyzing the case, it can be interpreted that one of the challenges New Balance is facing is the high cost of production. The high cost of production mainly comes from the high labor cost of manufacturing 25% of the athletic shoes domestically and the high cost of inventory management, to ensure the availability of each SKU of every sole produced by New Balance and meet the uncertain demands of retailers. 

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