Manufacturing Athletic Shoes in the USA

New Balance Athletic Shoe, Inc., provides insight into the use of robotics technology in the production of footwear. Following is an excerpt from their presentation at the 2004 Robotics Industry Forum:

We (New Balance) stitch our uppers on computer controlled vision stitching machines where a camera controls the sewing head of the machine and tracks the outside edge of the leather or fabric so the stitching line is precise.  These machines are quite expensive, but allow us to significantly reduce the minutes of labor.  We use robots to place adhesives, highly automated embroidery machines and other automatic machines to reduce labor. A long term view allows us to pay for and justify these investments. 

Editor’s Note: This paper and others are available in the Robotics Industry Forum Proceedings. Click here.

Today I would like to tell you about New Balance and describe how we are able to continue to manufacture athletic shoes in the USA and increase domestic manufacturing jobs.

First let me tell you about our company.  New Balance Athletic Shoe is a private corporation headquartered in Boston, MA.  In 2002, world-wide sales of New Balance footwear and apparel was approximately $1.3B.  In the US, our footwear market share is approximately 12-15%, which puts us neck in neck or slightly ahead of Reebok and Adidas for the number two position.  Nike is the leader with 35-39%.  Many other small companies share the remainder.  New Balance has seen outstanding growth over the past 8 years with our market share growing more than 6 times in a basically flat market.

New Balance is the only remaining manufacturer of athletic shoes in the US.  Nike, Reebok and Adidas import 100% of their products from Asia, mainly China, where the average wage in the 'very best' factories is $.30-$.40 per hour.  While New Balance also imports shoes from China, we continue to operate 5 manufacturing plants in the US:  three in Maine and two in Massachusetts.  In addition, one of our Asian partners opened a factory in Ontario, CA in 1999 to make shoes exclusively for New Balance.

Combined, these six plants produced 7.3M pairs in 2002.

The plants employ 1,450 full-time, permanent, well paid associates.  We opened our most recent plant in Norway, Maine in 1997 and together with our California partner have doubled total factory employment while increasing output by 3 ½ times over the past 6 years.  Investment in plant and equipment has exceeded $50M.

This growth is in dramatic contrast to the continuing reduction in domestic manufacturing of jobs that has occurred relentlessly in most industries and especially in domestic footwear manufacturing.

I'm sure there are two questions going through your minds at this time.  1) Why do we do it, and 2) How do we do it.

Why
First let me comment about why.  As I mentioned, New Balance is a private company and therefore has the ability to take a long-term outlook.  The company's ownership has a deep and abiding commitment to maintain and strengthen manufacturing in the US.

Domestic manufacturing is also synergistic to the core values and business strategies that the company emphasizes.  We believe that manufacturing expertise is a great benefit in designing and developing the best high performance shoes.  The hurdles and difficulties faced are viewed as positive challenges, not burdens.  This attitude extends throughout the company, not just in Operations.

One of our brand values is captured by the slogan 'Endorsed by No One':  We put our investments into the products and into customer service rather than expensive athletic endorsements.

Domestic manufacturing also fits comfortably with our other values  1) we focus on fit and performance rather than fashion, 2) we manufacture everyone of our shoes in multiple widths.  Many of you may not be aware, but all other athletic manufacturers normally offer only medium width, which requires a significant compromise of fit if you have a wide or narrow foot.

As an example, one of our most popular shoes, the 991 series, has between mens and womens models over 300 size, width and color combinations.  The uppers of the 991 are cut and stitched in our factories which allows us to replenish inventory for a specific SKU in 2-3 weeks versus a typical imported lead time of 4-5 months.

We pride ourselves on being very responsive to our customers.  We constantly ship single pairs of shoes to independent retailers and with the ability to manufacture close to the market, we are more able to quickly respond to sales demand regardless of  size and width.  Domestic manufacturing therefore fits directly with our sales strategy.

All of these elements (performance not fashion, multiple widths for perfect fit, and quick response to replenish retailer inventory) work together to reinforce our brand and our commitment to US manufacturing.

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How do we do it
In order to continue to manufacture we do not require that we make our US shoes less expensively than we can import.  However, on a consolidated basis, we combine the domestic styles with imported and by getting reasonably close to the imported cost the company succeeds in being a very profitable enterprise.

We have five key manufacturing strategies:

• Pick the right style:  For domestic manufacturing, we select those that are in the highest price point and achieve their market value through technology and rely less on highly labor intensive cosmetics. 
• Import material and components as appropriate.  In a manner similar to the electronics industry, we will import sub-assemblies and components from Asia that represent parts of the shoe that have high labor content. 
• Automation - We stitch our uppers on computer controlled vision stitching machines where a camera controls the sewing head of the machine and tracks the outside edge of the leather or fabric so the stitching line is precise.  These machines are quite expensive, but allow us to significantly reduce the minutes of labor.  We use robots to place adhesives, highly automated embroidery machines and other automatic machines to reduce labor. A long term view allows us to pay for and justify these investments. 
• Methods - Our shoes are assembled by small self-contained teams of 4, 5 or 6 employees.  This is in contrast to Asia, where a typical assembly line has over 100 people and may extend 300 feet.  Although the long assembly line looks efficient, our small team will in fact produce 4 to 5 times more pairs per minute per person than the Asian line. 
• And finally, the most important factor - New Balance has formed an alliance with our factory employees based on trust, commitment and common goals.  15 years ago, New Balance employees worked as individual piece workers, where each person did a single job and was paid for the quantity they produced.  This led to excessive work in process inventory, lack of accountability, and lots of non value-added expense to try to keep things from breaking down.

Then we transitioned to a team based piece work system.  A group of employees would stitch an entire upper or assemble the finished shoe as opposed to working individually.  However, they were still compensated by how many pairs they made.  The team approach benefited the overall production process, but management still had to micro manage and there was little employee input.  There was also lots of stress and pressure throughout the factory. 

Over the past 2 years, we have completely gone away from piece work.

We now have a salaried (hourly) work force whose individual pay rate is based on their own skill level, ability to perform multiple jobs, team work, involvement in factory improvement teams (known as Win Teams), and leadership.  Employees that best exhibit these traits are certified to be the 'masters' and receive the highest wage.  This has achieved excellent results, far better than we imagined.  Our employees now not only continue to achieve high output, but have been remarkable in finding ways to eliminate waste and other indirect costs.

One example - in the computerized stitching department in one of our factories, we previously had (under the team based piece work system), 20 operators and 3 rework people.  Now we have 0 rework people, and 23 operators, with a significant increase in productivity.  The workers themselves developed this approach to not require rework personnel.  We in management could have had Industrial Engineering perform analysis after analysis and never have been able to eliminate those rework positions.  The employees were the only ones that could have done this.  They realize that their job security is based on New Balance remaining competitive.  Production is up, cost is down and employees were leaders in this improvement.

Another win has been the reduction we have achieved in maintenance mechanics, supervision and other indirect hourly personnel.  In almost all cases these improvements were based on initiatives developed by the associates.

In order to make this transition to hourly pay, we invested thousands of hours in employee training, training not only in job skills, but in teamwork concepts, effective interpersonal communication, problem solving and the economics of our factories and company versus competition.  Our objective was to ensure that the employees fully understand all the factors that go into allowing us to make shoes in the US and thereby  become total partners in this effort and achievement.

The concept is straight forward - form an alliance with your associates based on trust, commitment and common goals.  Mean it and reinforce it with your actions.

Thank you very much.