New Balance: Shoe Fits

New Balance: Shoe Fits

Sean Gallagher

You are a salesman for the New Balance Athletic Shoe company. You’re driving to Boulder, Colo., one Monday in July to meet with the regional buyer from your top account, The Sports Authority. Your cell phone rings. It’s Jim Tompkins, president of New Balance.

“Is your forecast right?” he asks. “Where are the orders to back it up? Why did those orders slip another month? What are you going to do to get back on plan today?”

This isn’t how you expected your week to start. But the personal attention isn’t

unique today—Tompkins is calling every salesman whose top account has fallen

behind on purchases. The source of his omniscience: The “Top Accounts” report,

an update distributed at noon every Monday that gives New Balance managers a

clear-eyed look at sales figures for the past, present, and forecasted future.

“The salespeople have nowhere to hide,” says sales planning manager Teresa Holland,

who is responsible for making sure the company’s forecasts are accurate, both

in the United States and in foreign markets.

She smiles as she remembers that Monday in July, the day her software project

changed the way New Balance executives run the company.

Tompkins and other top managers at the company’s headquarters in Boston, Mass.,

can now view a finely detailed report for each style of shoe in New Balance’s

lineup: the to-date sales for the year and month for each major retailer that

New Balance serves; the sales of that shoe (or its predecessor) for the same

period last year at that retailer; the orders for that retailer that have yet

to be filled by New Balance’s factory or warehouse; and what the sales rep had

forecast for the current month. In addition, the report includes “sell-through”

data—the number of the shoes actually sold by the retailer in the past

week and month.

So it isn’t hard for Tompkins to call a salesman when orders don’t meet forecast.

And the salesman is not likely to be very surprised that the call came in. Every

member of New Balance’s sales force has access to every last detail of customers’

histories—down to the last size-13 triple-E basketball shoe that was ordered—for

every retailer they do business with in North America.

The “Top Accounts” report is Holland’s personal creation, an outgrowth of an

overhaul she directed of how New Balance figures out what shoes it will need

to put into the market, months before they are needed. Now its factories produce

fewer wasted pairs of shoes, and retailers sell more of what customers want.

It’s Economics 101: Matching demand with supply. But the not-so-simple execution

of better forecasting has helped New Balance spring back from near irrelevance

in the athletic-shoe market six years ago. The company is giving market-leader

Nike fits in its approach to the feet of both weekend warriors, where the volume

is, and serious athletes, where the profit is greatest. “No other brand is threatening

[Nike] for dominance,” in both running and athletic shoes, says David

Campbell, a financial analyst at Davenport & Co.

The company’s sales worldwide have more than doubled, from $560 million in 1997

t0 $1.3 billion in 2002. The 131% growth in sales have occurred during a period

in which overall sales of athletic shoes in the U.S.—its home market—

have fallen from $545 million to $503 million, according to the National Sporting

Goods Association.

Most critically, Holland’s project is helping to keep the company from experiencing

the troubles that became a nightmare for Nike, whose founder Phil Knight two

years ago claimed his company lost $100 million in sales when it tried to put

in place a new system for managing manufacturing and distribution.

Now, the swoosh can hear New Balance’s footsteps. Where Nike controlled 24.7%

of the athletic shoe market in 1997, that’s down to 17.8%. The big gainer? New

Balance, at 7.9%, up from 2%. And while Nike claims to have improved its system

for managing its inventory and is spreading that system around the world, the

company said on September 18 that its revenue in the U.S. was down 2%, to $1.25

billion, in the first quarter of its current fiscal year. Its athletic-footwear

business declined 5% from a year ago.

Keeping retailers like The Sports Authority and Foot Locker happy is key to

the New Balance comeback. Foot Locker, for instance, is the world’s largest

athletic-shoe retailer, with annual sales of more than $4.5 billion. The New

York-based chain has been engaged in a well-publicized spat with Nike over the

pricing and promotion of Nike’s high-end shoes. At one point, Nike refused to

ship its most profitable shoes to Foot Locker—either to keep those products

from being included in some of the chain’s free-shoe promotions or, as some

analysts believe, to punish the retailer for reducing the amount of shelf space

it allocated to Nike’s most expensive shoes.

New Balance, on the other hand, “really takes care” of its retailers, says Foot

Locker treasurer Peter Brown. “They do an outstanding job of getting the right

shoes to us in a timely fashion.”

Life in a Thousand Styles

Today, every one of New Balance’s 160 sales reps in North America uses the system

Holland willed into existence to forecast the business for all their accounts

a full 18 months into the future. The forecasts cover nearly 1,000 styles of

shoes and, in some cases, colors within a style. They estimate apparel sales

as well. In all, they’re predicting the performance of more than 100,000 different

pieces of merchandise, with monthly updates.

New Balance has concentrated on improving its planning. But that doesn’t mean

that demand for its shoes automatically increases. First, New Balance establishes

how its shoes will distinguish themselves from rivals—and then it must

figure out how many of those shoes its retailers want.

New Balance shoes, for instance, are not about style. “You have to understand

that there are two distinct camps when it comes to selling athletic shoes,”

says Wells Fargo Securities analyst John Shanley. “Nike and Reebok are fascinated

with capturing [the] fashion-oriented market. New Balance sticks to

reliability and performance in their running shoes. It’s that simple.”

The company’s strategy means it puts more shoes in its product lineup that serve

the average, aging athlete. In technical terms: it supplies shoes in many more

widths, so that Baby Boomers with flattening feet are more comfortable as they

jog or drive to the hoop.

The result is a loyal following among runners. At the Chicago Marathon last

month, about 500 runners lined up at New Balance’s mobile marketing van to try

on the company’s 991 running shoe. The van carried every available size and

width of the men’s and women’s 991; all told, 140 pairs of shoes.

Greg Thompson, a 43-year-old from South Bend, Ind., has run in 14 marathons.

“New Balance is all I ever wear,” he says. “Everything else hurts my feet. If

I don’t wear these shoes, that”—he points to a bunion on the inside of

his left foot near the big toe—”would rip out [the material].”

Any Which Way but Right

Since New Balance’s focus is on the everyday athlete, it garners a fairly stable

clientele, based on predictable demographics. That makes it easier to forecast

demand accurately.

Neither New Balance’s sales force nor Holland really had the tools to deliver

accurate forecasts until about two years ago.

Back then, Holland supplied a template in a Microsoft Excel spreadsheet that

sales representatives would fill in with their monthly forecasts.

But there was no statistical reliablity.

When Holland first got to New Balance in 1999, she was supposed to collect forecasts

from about half of the company’s 120 sales representatives, compile them and

create overall predictions of what shoes and clothes the company’s factories

should turn out and when.

But she was lucky if she got 20 sheets back each month. “We were just barely

into collecting rep’s forecasts,” she recalls.

The problem for the sales representatives was filling out the sheets consumed

a lot of time—as much as a day for the forecasts of larger accounts. They

had to pore through reams of printouts to plug answers into Holland’s rows and

columns. And time spent forecasting is not time spent closing. For salespeople

paid on commission, that’s like taking money out of their wallets.

The problems multiplied for Holland. The format of the electronic spreadsheets

was not protected. That meant, first of all, that reps would delete columns,

type in the wrong style names, and move information around as they saw fit.

Holland became more a proofreader than a planner; it would take at least a day

for her to validate the information on each sheet she did receive and put the

answers into the correct form for collating and analyzing. “It wasn’t a very

streamlined process,” she says.

Even then, rolling up the data was hard. She tried to combine the forecasts

into a single table, where a planner could see combined results but also ‘pivot’

into other tables that carried the underlying data from different regions or

representatives.

“I tried to create this huge pivot table,” she says. “But the file was so large

that it would crash on my computer. It was basically impossible to do much analysis

off of it.”

The information from the field was next to useless. “When we sat in forecast

meetings we weren’t relying on the reps too much,” says Holland. “It was just

feedback. We really had to kind of decide what the forecast was without their

input.”

The seat-of-the-pants approach meant sudden spikes in orders to factories for

some products and backlogs of others. In some cases, plants overseas would be

geared up, on a contract basis. Then there would be deep valleys of production,

when inventory that had piled up was sold off. New Balance executives won’t

reveal actual numbers, but they admit that there was difficulty in getting orders

to customers on time.

Breaking Free From the Pack

The system Holland inherited was an improvement from the days when sales quotas

were simply pushed down from headquarters, with the forecast basically being

last year’s number plus some gut estimate of growth for the coming year.

The sales force would disavow the quotas, even as footwear flew off the factory

floor. “They would say, ‘Those weren’t our numbers, those were your

numbers,’ ” says Stan Mescon, the head of New Balance’s sales-planning department.

So New Balance often got stuck with excess inventory.

In 1997, New Balance put the shoe on the other foot. “We decided, let’s let

the reps give us what they think are their numbers,” Mescon says, “with

some topline direction.” The management, after consulting with New Balance’s

major retailers, would set a general sales goal, while leaving the details of

how to hit that target to the sales force.

The approach required information sharing on an unprecedented level—not

just with the sales force, but with retailers as well.

New Balance’s management and sales team began meeting with executives of its

top retailers each season, to develop a consensus on goals for overall sales.

The retailer’s buyers and merchandisers, along with New Balance’s product teams

and sales force, hash out the details of reaching the agreed-on goals, down

to production runs for each shoe style.

In theory, New Balance would have the ability to manage its marketplace account

by account, region by region. But to make it work, Holland’s spreadsheets had

to be replaced completely.

In 1997, New Balance brought in iProcess demand-planning software from the manufacturing-software

division of SCT Corp. in Malvern, Pa. The software ran on Windows NT and could

pull in data from files generated by the company’s existing planning system.

The software helped Mescon’s team take into account such predictors of demand

as general economic indicators, current orders, historic sales data and competitive

plans. The team produced forecast numbers for each style that could be given

to New Balance’s manufacturing and sourcing managers to guide how they planned

for production capacity.

But it wasn’t what Holland was looking for. “When we do the [overall]

New Balance forecast,” says Holland, “what we’ve realized is that the sales

reps really are the ones who know what’s happening with each of their accounts.

We wanted to be able to give them a tool [with which] to forecast more

accurately.”

Statistical Lockdown

So Holland brought in a sales-forecasting application from a small company in

Portland called SRC Software. SRC was founded 20 years

ago by Phil Sandstrom, now the company’s chief financial officer and chief systems

architect, and Stephen Reiff, the chief technology officer, out of frustration

with the software tool of the day—the Lotus 1-2-3 spreadsheet. That software

couldn’t handle the thousands of records’ worth of data, and didn’t have the

security that was needed for financial forecasting.

With the SRC system, information about customers can be distilled for each sales

rep from corporate databases. The reps download the information from a secure

Web site as each month ends. Using the data and consulting with customers, each

sales rep updates the forecast of each customer’s orders, not just for the rest

of the current year, but for the following year as well. Then, instead of using

a malleable spreadsheet, sales reps enter their revisions in a locked-down template

created by a “master user” such as Holland.

The template makes it easier for the sales rep to fill out required information

and a snap for the system to roll up all the forecasts. If the sales reps send

in their new predictions before the dawn of the first Monday of the month, by

noon Holland can shoot back consolidated reports and breakouts by account and

product.

In early 2001, Holland and Tom Murdock, a manager in New Balance’s 30-person

information-technology department, started to depl0y the software with the aid

of an SRC consulting team.

It took only a few days of programming and debugging to get historical data

out of New Balance’s general-ledger system in a formatted file. That file could

then be transferred by SRC’s software into a Microsoft SQL Server database on

a regular schedule. Meanwhile, Holland went to work building the templates that

sales reps would be asked to fill out.

By the spring of 2001, the system was ready to use. Holland started distributing

software and training the sales force at New Balance’s regional sales offices

in April. She did additional training on the software at the company’s annual

sales meeting in Acapulco in June. By summer, the forecasts were starting to

roll in.

For the first time, New Balance sales managers could tell which representatives

could best predict orders and could recognize who was responsible for managing

problems with key accounts when they arose.

“We really didn’t have any checks and balances before SRC,” says Steve Prince,

the West Coast regional sales manager for New Balance. “What SRC has done is

added accountability to everyone’s role.”

Sales managers review each forecast that comes in, and generate their own “recap”

reports. If orders from an account such as Nordstrom have deviated from the

forecast, it shows up in those reports—and the sales manager can move to

find out why immediately.

Hitting the Limit

To jump-start that accountability, Holland brought Kris Vandemore, the sales

coordinator for the West Coast office, along with her to the SRC users conference

in Anaheim that February. She then guided Vandemore through the process of building

reports in SRC’s software.

But there was a major hurdle to giving Vandemore and other employees in remote

offices full access to the data in SRC—bandwidth. The SRC server for sales

forecasting was located in the Boston headquarters, and SRC’s client software

used to create reports requires a direct connection to that database. That made

using the software over the wide-area network connection back to Boston painfully

slow from Vandemore’s California office.

To solve the problem, Holland made the client software available through a Citrix

terminal server. That allowed remote employees to build their own reports from

the forecast data on a computer with a high-speed connection to the database

and SRC application server; they could then send workbooks based on those report

formats to the regional sales managers and others by e-mail.

Lack of bandwidth created other problems. Typically, sales reps were being sent

three forecasts to update—one for major accounts, one for small retailers

and one for New Balance company stores in their territories. To help prepare

the forecasts, 15 megabytes of data were being sent out to each sales rep.

That exceeded the limits set in New Balance’s e-mail system for the amount of

data that could be sent in and out of each mailbox. Holland was affected, too.

As she started to send out the files to more and more salespeople, she exceeded

the storage quota of her e-mail account.

Meanwhile, the sales reps were going nuts. They had slow connections. “I would

e-mail these workbooks as attachments to salespeople,” she says, “and they would

just clog up their e-mail. They might be trying to send out an order, might

be trying to get through to a customer, and they would freak out because it

took an hour to download their mail.”

SRC solved the problem with a Web check-out system. Sales reps now download

forecast workbooks at their convenience. When they’re ready to report in, reps

check off the forecasts that have been completed, and the correct workbook files

are automatically uploaded for collection, slicing and dicing by “master users”

such as Holland and Vandemore.

The result is a much more accurate picture each month of what New Balance’s

future looks like. Since New Balance has a six-month lead time for delivery

from its factories and overseas suppliers, shaving a month from the time it

takes to react to changing customer sentiment is huge. Sean O’Brien, product

manager for New Balance’s cross trainer, basketball and tennis lines, estimates

that he’s been able to improve his capacity planning by 25%.

That translates to more efficient production. Sales-planning chief Stan Mescon

says that since the implementation of SRC the number of shoes left in inventory

when New Balance discontinues a style has dropped on average by about 8%.

It also means New Balance can react more quickly to retailers’ needs, a quality

that chains such as Foot Locker and The Sports Authority say has been the single-largest

reason it has been taking market share from Nike.

New Balance’s ability to ship orders to its retailers, on time and complete,

has “gone up between 5% and 10%” per retailer, says Mescon. That means fewer

back orders, a smoother management of inventory by retailers, and more shoes

on customers’ feet.

Just Do It Yourself

That’s driving Nike executives crazy.

“Nike is a manufacturer, but really it’s just a marketing company,” says Wells

Fargo’s Shanley. “New Balance is a pure manufacturing company and, in my opinion,

that’s why they’re gaining on Nike. They understand how to use technology to

gain an advantage on their competitors.”

Retailers say Nike has been on top for so long that it no longer feels the need

to be responsive to its customers’ demands. In fact, Nike operates much like

the playground bully.

“Nike tells its retailers what shoes they’re going to get—in what styles

and sizes and colors—and retailers just have to accept it,” says one athletic-shoe

industry analyst based in California. “New Balance works with the retailers

and calls them partners. Nike never refers to anyone as a partner. They determine

what the retailers are going to get and if they don’t like it, what are they

going to do?”

Where “Just Do It” is Nike’s tagline, New Balance’s philosophy might be described

as “Just do it yourself.”

Take Holland, as an example. She didn’t start out as a champion of new methods

of gathering, presenting and acting on statistics. But she doesn’t shy away

from doing whatever it takes to get an answer. At her previous job, for a consulting

firm that designs compensation packages for overseas employees of multinational

corporations, she traveled the world “comparing the cost of Skippy peanut butter

in Boston versus Bangkok,” she says. Only with precise local data could she

calculate the appropriate cost-of-living adjustments for each country.

Holland joined New Balance partly so she wouldn’t have to travel so much. But

she also bought into the take-charge culture, which she felt chairman and chief

executive officer Jim Davis had created. For example, a single product manager

and two assistants now “take charge” of more than 200 different styles of cross-training,

tennis and basketball shoes.

It’s that kind of focus that has helped New Balance surpass Reebok and Adidas

to stand second only to Nike in the sale of running shoes. For all types of

athletic shoes, New Balance ranks third, behind Nike and Reebok.

New Balance’s core customers—serious runners and middle-aged weekend warriors—aren’t

swayed by superstar endorsements and fancy advertising campaigns.

Moreover, because it had started talking to its retailers, New Balance discovered

that the sweet spot of sales had shifted from the $120-to-$160 basketball shoes

that Nike dominated to less-expensive, multi-purpose shoes that cost between

$60 and $90 a pair. So it flooded the market with styles of all widths in that

price range.

New Balance also shows more responsiveness to retailers’ own timetables. Nike

requires retailers to take ownership of shoes after they are shipped to its

distribution center in Memphis. New Balance allows retailers to take possession

in the Far East, where most shoes are made. That allows retailers to cut transportation

costs—and get shoes into their stores faster. This is no small consideration

for back-to-school and holiday shopping seasons, when shoe retailers make most

of their profits.

“Nike wants to control everything,” Shanley says—even how its best customers

sell its product in their stores. “That’s just the way they do things. It’s

not a collaborative process with Nike.”

Nothing illustrates this disconnect more than Nike’s ongoing tiff with Foot

Locker. In late 2002, Foot Locker, recognizing customers weren’t as willing

to pay for high-priced sneakers as they had been in years past, began reducing

the shelf space for Nike’s high-end shoes in favor of lower-priced shoes from

New Balance, K-Swiss and Adidas.

Instead of providing more shoes in this new sweet spot, Nike’s response was

punitive. The company stopped supplying Foot Locker with its most-popular shoes,

including the Jordan IX model.

“That sums up the difference,” Shanley says. “We’re talking about Nike’s biggest

retailer here. New Balance does everything they can … to get retailers what

they need. Nike tells retailers what they’re going to get.”

Hitting Stride

Nike officials would not comment on New Balance or its growing popularity, much like a marathon runner refusing to look back at a

competitor closing in. But, the way things are going, New Balance will soon

be breathing down Nike’s neck.

Though overall sales of athletic shoes in the U.S. have fallen since 1997, research

firm Mintel Inc. predicts sales will grow 2% percent a year through 2007. Serious

growth for any single company will require taking market share away from other

players, and it’s precisely why Holland’s system for codifying what weekend

warriors want is so important. Right now, it’s New Balance that’s taking share.

According to the National Sporting Goods Association, Nike sold $134.6 million

worth of athletic shoes in the U.S. in 1997, while New Balance sold only $10.9

million. By 2002, Nike sales had fallen to $89.5 million, while New Balance

sales quadrupled to $39.7 million.

“New Balance is the real comer of the group,” Shanley says. “They are focused

in a way that we’ve never seen from a Nike or a Reebok or any other athletic-shoe

company. They understand the importance of offering narrow and wide shoe sizes

and they build relationships with their retail partners.”

Product manager O’Brien sees Holland’s system as an essential mechanism for

wrestling away a chunk of Nike’s basketball-shoe market share.

“When I took over three years ago, product planning was more of a manual process,”

he says. “Meetings took longer, everything took longer.” Now, meetings go faster.

And results are better. “I’ve been able to plan my business more effectively.

I don’t make as many mistakes.”

For example, every time a customer buys a pair of New Balance shoes from any

of the 3,600-plus Foot Locker retail store locations, that data is transmitted

from the Foot Locker point-of-sale system directly to New Balance headquarters

in Boston. The exact same size, model and color of shoe is then reordered for

that particular retail location, guaranteeing a steady and predictable flow

of inventory for the Foot Locker locations.

Nike doesn’t have the same relationship with Foot Locker, which forces Foot

Locker buyers to order Nike shoes six months in advance of shipment. That’s

a long time in an industry that can be turned upside down by something as simple

as a hip-hop artist wearing a pair of shoes in a music video or, more acutely,

by sexual-assault charges leveled against a superstar-athlete endorser.

Foot Locker isn’t the only retailer New Balance has that arrangement with. “We

have more than 50 retailers who do it,” says Mescon. All of New Balance’s major

retail “partners,” including Nordstrom and The Sports Authority, provide the

data, as do a number of smaller regional shoe chains. New Balance takes the

risk of creating more shoes—as long as its partners supply the information

about which shoes sell as soon as they’re sold.

Second Wind

Automatic replenishment, though, can be stultifying. Taken to the extreme, it

would mean New Balance would never introduce new products—a guarantee of

death even for a company that has tried to limit the influence of fast-changing

fashion on its shoe sales.

So while Mescon will make sure New Balance’s popular 991 running shoe is always

in stock at its retail outlets, “fringe” styles—such as the company’s Dunham-brand

“adventure sports” styles, suited to endeavors like mountain biking and rock

climbing—aren’t restocked the same way.

With Holland’s system, New Balance now gets a living, breathing snapshot of

which shoes are selling, where they’re selling and, indirectly, why they’re

selling.

“Sell-through” data from each retailer is dumped into a massive text file each

week. That file gets pulled into a Dimensional Insight database, so it can be

analyzed in detail—by shoe style, by color, by size, by width, and by retailer.

New Balance executives view the results electronically and can click deeper

for further details.

“The sell-through data is the first indication [if] things are going

off our plan,” Mescon says. This allows the executives to increase or decrease

planned production faster than waiting for a sales rep to confer with a customer

before adjusting a forecast. And the collaboration with retailers makes it easier

to accommodate unexpected demands, such as the re-introduction of PF Flyer sneakers.

That brand is remembered mainly by the parents of urban and suburban youth,

but retailers expect the retro shoe to sell well. New Balance plans to meet

that demand.

Meanwhile, Nike will continue merely to allocate supply, instead of sating demand.

The current example: new sneakers based on a $90-million endorsement deal with

high-school basketball wunderkind LeBron James. If he’s the next Michael Jordan,

he’ll be the face and endorsement meal ticket for professional basketball for

the next decade.

However, Nike is deliberately rationing the supply of the LeBron James shoes

to its retailers in the name of maintaining “buzz.”

“The shoes should be in the hands of retailers to sell on Dec. 26,” Shanley

says. “But [Nike’s] not going to give retailers as many pairs as they

want. It’s frustrating for the retailers because they know the demand’s going

to be enormous. But this is standard for Nike.”

While Nike and Foot Locker officials say they’ve reached a truce of sorts in

their squabble, Foot Locker will not be receiving any LeBron James shoes until

early 2004.

“Are we happy about this?” asks Foot Locker’s Brown. “No. But we’re working

with Nike to make sure we get these shoes in the future.”

In the meantime, Holland continues to tweak both the format of New Balance’s

forecasts as well as the data they’re built on. The aim is to give the sales

force information that will gain new customers or keep existing ones.

For instance, Holland recently figured out a way to pop out “open orders” from

the system, says Vandemore.

By pulling data on factory runs from the manufacturing-planning system and comparing

that to records of orders placed by its retailers, the tweak now lets a sales

coordinator like Vandemore know which customers’ orders haven’t been fulfilled.

That extra piece of data lets reps tell individual customers what product is

stuck in the pipeline and how it will affect their inventory levels when it

finally arrives. As a result, the reps can revise follow-on sales accordingly—before

customers are alienated.

Holland also has developed a means of measuring each sales rep’s forecasting

prowess. She compares the accuracy of their latest forecasts against their forecasts

of six months earlier—and actual orders for the current month. “We chose

a six-month window because that’s when we’re making our buy decisions,” i.e.,

instructing factories on what to manufacture.

“What we’re hoping to see,” Holland says, “is that as their forecasts get better,

our forecast also gets better. We’ve been doing that now for about a year. At

this point it seems to be getting better.”

New Balance’s O’Brien—the man with 200 styles to manage—says forecasts

are making a tough job easier. “I would say we’ve had easily a 50% improvement

in accuracy. I can’t say that it has meant a 50% improvement in how we handle

our inventory, but it makes our decisions maybe 25% better. I have more faith

in my numbers.”

The Final Kick

Of course, the impact of the improved forecasting really is most immediate and

visceral on the individual salesperson. The performance of every single salesperson

is laid bare to every single member of senior management. Visibility of the

numbers fosters communication, Holland says. Like Tompkins’ phone calls.

Tompkins and Fran Allen, New Balance’s vice president of sales, made the first

few rounds of calls. Now they’re

made on a weekly basis by regional sales managers such as Steve Prince.

Sales reps, says Mescon, “are always on the hook, one way or the other.” The

result, he says, is that the reps are becoming better at their business. “The

salespeople are much more accountable, and they’re spending more time managing

the business, especially the larger accounts.”

Part of managing the business means finding ways to continue the torrid rate

of growth that New Balance has seen over the last five years. To do that, the

company intends to create athletic shoes that make women and children consumers

of its footwear on the same scale as the male middle-aged athlete.

To make that happen, the company not only needs to design products that appeal

to the other gender and the younger ages, but to gauge and respond to demands

from all consumers faster and more accurately.

Expansion also will have to come from areas other than shoes. The apparel division,

for example, last year chipped in a paltry $52 million in sales, roughly 4%

of total sales. New Balance executives have laid down an ambitious gauntlet,

asking sales representatives to raise that share to 10% by 2005.

As New Balance gets better control over its demand forecasting, it can afford

to do things that might have been deemed too risky in the past, such as allowing

customers to place their actual orders closer to the delivery date.

Rather than pushing retailers to make orders six months out, New Balance now

can take orders five or even four months in advance of delivery. The company

may even instruct manufacturers to build shoes before it has orders for them,

if its confidence in its forecasting is high enough.

Holland’s system also helps O’Brien deal with his 200 different styles of shoe.

O’Brien has to forecast a basketball-shoe line, for example, which has, he says,

“not just multiple widths but nine different colors.”

Before the collaborative-forecasting system was put in place, O’Brien might

have had to forego sales for fear of picking the wrong kind of shoe to order.

“You don’t want to buy that much inventory of a color that isn’t going to sell,”

he says.

The forecasts now have power. They can make or break a new shoe design. Today,

no new shoe goes to market until it’s a big enough number on a rollup to be

worth building. “We’ve been able to make decisions and cancel a project that

we wouldn’t have cancelled before,” says O’Brien.

“A product manager may say his style is great, but the sales rep says, ‘I’m

only going to grow 10% or 20% with this account and I know I’m not going to

get another five slots on the wall.’ So some of those fringe styles just lose

out,” he says.

Victory Lap?

New Balance is now rolling the system out overseas. Holland took the locked-down

forecasting system to South Africa five months ago. There are only six sales

reps there, all English-speaking and computer-literate. Another 20 countries,

mostly in Europe, came into the fold in September.

New Balance hopes this will lead to the kind of market-share gains globally

that the company has already achieved in North America.

“Everybody has some sort of forecasting here in North America,” Ed Haddad, the

company’s vice president of international operations, says. “But when you go

overseas, except for maybe Adidas in Europe, it’s like stepping off a cliff.”

Is Nike watching what Teresa Holland is up to now? You bet.

New Balance Athletic Shoe Base Case

Headquarters: 20 Guest St., Boston, MA 02135

Phone: (617) 783-4000

Business: The second-largest maker of running shoes in the U.S. and third-largest

maker of all types of athletic shoes of all types. Manufactures a wide range

of shoes for male and female athletes, as well as Dunham boots, PF Flyers “casual

footwear,” athletic apparel and accessories.

Chief Information Officer: Elaine Ritchie, Director of Information Services

Financials: $1.3 billion in sales in 2002. Privately held.

Challenge: Maintain rapid growth and take more market share from top

competitors Nike, Reebok and Adidas—without disrupting manufacturing and

warehouse operations.

Baseline Goals:

Increase monthly sales-forecast reporting from less than 20% of North American

sales force to 100%.

Improve on-time order servicing to major retailers by 10%.

Reduce excess stock from discontinued styles of shoes by 8%.

Spread collaborative sales-forecasting system throughout international

Copyright © 2003 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.