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New Balance nearly faded into irrelevance in the athletic shoe

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New Balance nearly faded into irrelevance in the athletic shoe Powered By Docstoc
					SHOE
   FITS
BY SEAN GALLAGHER AND LARRY BARRETT




New Balance nearly faded into irrelevance in the athletic
shoe business six years ago. Since then, it has figured out
how to work with retail partners and accurately figure out
what weekend athletes want. Now, it’s the second-largest
producer of running shoes and gaining fast on No. 1. That’s
driving Nike, long the undisputed leader in the U.S., nuts.




PHOTOGRAPH BY JILL GREENBERG
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A
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                            NEW BALANCE ATHLETIC SHOE BASE CASE
 B A L A N C E




                            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 ath-
                            letes, as well as Dunham boots, PF Flyers “casual footwear,” athletic apparel and accessories.
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                            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,
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                            Reebok and Adidas—without disrupting manufacturing and warehouse operations.
                            BASELINE GOALS:
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                                      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
                                      operations.




                         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                         tomers’ histories—down to the last size-13 triple-E basket-
                         to back it up? Why did those orders slip another month?                              ball shoe that was ordered—for every retailer they do busi-
                         What are you going to do to get back on plan today?”                                 ness with in North America.
                             This isn’t how you expected your week to start. But the                              The “Top Accounts” report is Holland’s personal cre-
                         personal attention isn’t unique today—Tompkins is calling                            ation, an outgrowth of an overhaul she directed of how New
                         every salesman whose top account has fallen behind on pur-                           Balance figures out what shoes it will need to put into the
                         chases. The source of his omniscience: The “Top Accounts’’                           market, months before they are needed. Now its factories
                         report, an update distributed at noon every Monday that                              produce fewer wasted pairs of shoes, and retailers sell more
                         gives New Balance managers a clear-eyed look at sales figures                        of what customers want.
                         for the past, present, and forecasted future.                                            It’s Economics 101: Matching demand with supply. But
                             “The salespeople have nowhere to hide,” says sales plan-                         the not-so-simple execution of better forecasting has helped
                         ning manager Teresa Holland, who is responsible for making                           New Balance spring back from near irrelevance in the ath-
                         sure the company’s forecasts are accurate, both in the United                        letic-shoe market six years ago. The company is giving mar-
                         States and in foreign markets.                                                       ket-leader Nike fits in its approach to the feet of both
                             She smiles as she remembers that Monday in July, the day                         weekend warriors, where the volume is, and serious athletes,
                         her software project changed the way New Balance execu-                              where the profit is greatest. “No other brand is threatening
                         tives run the company.                                                               [Nike] for dominance,’’ in both running and athletic shoes,
                             Tompkins and other top managers at the company’s                                 says David Campbell, a financial analyst at Davenport & Co.
                         headquarters in Boston, Mass., can now view a finely de-                                 The company’s sales worldwide have more than doubled,
                         tailed report for each style of shoe in New Balance’s lineup:                        from $560 million in 1997 t0 $1.3 billion in 2002. The 131%
                         the to-date sales for the year and month for each major re-                          growth in sales have occurred during a period in which over-
                         tailer that New Balance serves; the sales of that shoe (or its                       all sales of athletic shoes in the U.S.—its home market—
                         predecessor) for the same period last year at that retailer; the                     have fallen from $545 million to $503 million, according to
BASELINE NOVEMBER 2003




                         orders for that retailer that have yet to be filled by New                           the National Sporting Goods Association.
                         Balance’s factory or warehouse; and what the sales rep had                               Most critically, Holland’s project is helping to keep the
                         forecast for the current month. In addition, the report in-                          company from experiencing the troubles that became a
                         cludes “sell-through” data—the number of the shoes actually                          nightmare for Nike, whose founder Phil Knight two years
                         sold by the retailer in the past week and month.                                     ago claimed his company lost $100 million in sales when it
                             So it isn’t hard for Tompkins to call a salesman when or-                        tried to put in place a new system for managing manufac-
                         ders don’t meet forecast. And the salesman is not likely to be                       turing and distribution.
                         very surprised that the call came in. Every member of New                                Now, the swoosh can hear New Balance’s footsteps.
44                       Balance’s sales force has access to every last detail of cus-                        Where Nike controlled 24.7% of the athletic shoe market in
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                                                                                                                                                    B A L A N C E
1997, that’s down to 17.8%. The big gainer? New Balance, at            NEW BALANCE PLAYER ROSTER
7.9%, up from 2%. And while Nike claims to have improved
its system for managing its inventory and is spreading that
                                                                       INSIDERS                             template-driven system
system around the world, the company said on September 18                                                   that sales representatives
that its revenue in the U.S. was down 2%, to $1.25 billion, in         Jim Davis,                           could live with. Then she




                                                                                                                                                    N E W
the first quarter of its current fiscal year. Its athletic-                             Chairman            personally made sure they
                                                                                        and CEO             were trained properly, so the
footwear business declined 5% from a year ago.                                          Davis               system got adopted. Now




                                                                                                                                                    0 9 3
    Keeping retailers like The Sports Authority and Foot                                bought New          she is spearheading the
                                                                                        Balance for         deployment of the new
Locker happy is key to the New Balance comeback. Foot                                   $100,000 in         system in Europe and Africa.




                                                                                                                                                    C A S E
Locker, for instance, is the world’s largest athletic-shoe re-                          1972—on             To think: she joined New
tailer, with annual sales of more than $4.5 billion. The New                            the day of          Balance to cut down on
                                                                                        the Boston          professional travel.
York-based chain has been engaged in a well-publicized spat                             Marathon.
with Nike over the pricing and promotion of Nike’s high-end            At the time, the company             PARTNERS
shoes. At one point, Nike refused to ship its most profitable          made 30 pairs of running
                                                                       shoes a day. The former              Phillip Sandstrom,
shoes to Foot Locker—either to keep those products from                electronics salesman and his                          CFO and
being included in some of the chain’s free-shoe promotions             wife, Anne, now executive                             Chief
                                                                       vice president of administra-                         Systems
or, as some analysts believe, to punish the retailer for re-           tion at New Balance, remain                           Architect,
ducing the amount of shelf space it allocated to Nike’s most           the sole owners of New                                SRC
expensive shoes.                                                       Balance today. Davis spends                           Software
                                                                       less time running these days,                         As the
    New Balance, on the other hand, “really takes care” of             as he tends to his collection                         director of
its retailers, says Foot Locker treasurer Peter Brown. “They           of sports cars.                                       consulting
do an outstanding job of getting the right shoes to us in a                                                                  services,
                                                                       Jim Tompkins,                        Sandstrom had an early
timely fashion.”                                                       President and COO                    hand in the New Balance
                                                                       A former product and sales           project—one of SRC’s first to
                                                                       manager, he keeps the                provide sales planning. One
LIFE IN A THOUSAND STYLES
                                                                       troops marching. Tompkins            of SRC’s founders,
Today, every one of New Balance’s 160 sales reps in North              initiated the creation of            Sandstrom was a manage-
America uses the system Holland willed into existence to               weekly Top Account reports           ment consultant for Arthur
                                                                       as a baton to keep New               Young in the early 1980s,
forecast the business for all their accounts a full 18 months          Balance’s sales force in step.       and is an expert in system
into the future. The forecasts cover nearly 1,000 styles of            He even leads a New                  design.
shoes and, in some cases, colors within a style. They esti-            Balance team annually in the
                                                                       International Nijmegen Four          John Stoll,
mate apparel sales as well. In all, they’re predicting the per-        Days March, the world’s              Consultant, SRC Software
formance of more than 100,000 different pieces of                      largest walking event.               Stoll is the primary consult-
                                                                                                            ant working on New
merchandise, with monthly updates.                                     Stan Mescon,                         Balance’s deployments of
    New Balance has concentrated on improving its plan-                Sales and Product                    SRC products; helping
ning. But that doesn’t mean that demand for its shoes auto-            Planning Manager                     Holland and her counter-
                                                                       The 21-year New Balance              parts in finance get up to
matically increases. First, New Balance establishes how its            veteran makes sure enough            speed on new features in
shoes will distinguish themselves from rivals—and then it              New Balance shoes are in             the software as they
must figure out how many of those shoes its retailers want.            stock around the world. In           become available. His pri-
                                                                       addition to forecasting              mary focus: Help New
    New Balance shoes, for instance, are not about style. “Y ou        demand, his team creates             Balance plan its budget and
have to understand that there are two distinct camps when              statistical models that              smooth out spikes in its
                                                                       determine the distribution of        cash flow.
it comes to selling athletic shoes,” says Wells Fargo Securities       sizes made for each style of
analyst John Shanley. “Nike and Reebok are fascinated with             shoe. Mescon can run five            Stephen Reiff,
capturing [the] fashion-oriented market. New Balance sticks            kilometers in 26 minutes,            Chief Technology Officer,
                                                                       16 seconds.                          SRC Software
to reliability and performance in their running shoes. It’s                                                 Also an SRC founder, Reiff
that simple.”                                                          Elaine Ritchie,                      oversaw creation of the soft-
    The company’s strategy means it puts more shoes in its             Director of                          ware’s current architecture
                                                                       Information Services                 in 1996. He is chief architect
product lineup that serve the average, aging athlete. In tech-         Ritchie made sure that New           of the Web components of
nical terms: it supplies shoes in many more widths, so that            Balance’s hardware, soft-            SRC’s planning systems—
                                                                       ware and communications              including the Web check-out
Baby Boomers with flattening feet are more comfortable as              network was up to the task           function that cut the pain
they jog or drive to the hoop.                                         of handing out forecasting           from New Balance’s data
    The result is a loyal following among runners. At the Chi-         templates to sales reps; tak-        distribution.
                                                                       ing filled-out forms back; and
cago Marathon last month, about 500 runners lined up at                rolling them up into useful          Matthew Serra,
                                                                                                                                                       BASELINE NOVEMBER 2003




New Balance’s mobile marketing van to try on the compa-                reports and analyses. Ritchie        CEO, Foot Locker Inc.
ny’s 991 running shoe. The van carried every available size            manages New Balance’s 40-            Serra makes sure the
                                                                       person information technol-          nation’s biggest athletic-shoe
and width of the men’s and women’s 991; all told, 140 pairs            ogy staff.                           retailer and New Balance are
of shoes.                                                                                                   operating in simpatico—
                                                                       Teresa Holland,                      unlike Foot Locker’s recent
    Greg Thompson, a 43-year-old from South Bend, Ind.,                Sales Planning Manager               history with Nike. One telltale
has run in 14 marathons. “New Balance is all I ever wear,” he          Mescon’s implementer.                sign: Foot Locker was one of
says. “Everything else hurts my feet. If I don’t wear these            Holland took a rag-tag set of        the first retailers to share
                                                                       forecasting reports, from            sales data with New Balance
shoes, that”—he points to a bunion on the inside of his left           computer printouts to Excel          and agree to have shoes
foot near the big toe—“would rip out [the material].”                  sheets to handwritten notes,         sent to stores automatically,             45
                                                                       and turned it into a single          based on what the data said.
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                             GOTCHA! COLLABORATIVE SALES FORECASTING
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                            BACKGROUND: New Balance felt a burn in its purse strings, not its hamstrings, when it tried to collect demand forecasts
                            from its 120-member sales force. Forecasts were hard to fill out. Few forms were turned in. Telephone connections discouraged
                            users from even trying. Predictions of sales from the field were supplanted by the best guesses of executives at headquarters
                            of what should get made and could get sold.
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                            PROBLEM: Trying to use the wrong tools. New Balance                                Balance’s demand-forecasting and manufacturing-plan-
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                            had forecasting and business-intelligence tools, but they                          ning systems could recognize it.
                            required online access to large amounts of data in order
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                            to be completed. The sales force was on the go and its                             PROBLEM: Information on expected orders had to be
                            members were disconnected most of the time. So, the                                rolled up by hand, retyped manually from each individ-
                            reps ended up manually punching numbers from print-                                ual forecast into a single consolidated one. Linking
                            outs of reports out into Excel spreadsheets on their hard                          spreadsheets together to build an aggregate view was
                            drives or entering unsupported estimates.                                          unreliable, and the size of the data sets in Excel often
                            RESOLUTION: Sales planning manager Teresa Holland                                  caused Holland’s system to crash while she was trying to
                            brought in SRC Software, of Portland, Ore., because it                             pull the data together for analysis.
                            provides “distributable workbooks,” compressed data files                          RESOLUTION: Because all data is in a preset format,
                            that can be pulled up and viewed through Microsoft Excel                           a consolidated sales-forecasting sheet can automatically
                            spreadsheets. The files can act as a personalized data                             roll up individual forecasts. Holland now just has to “click
                            warehouse, allowing sales reps to analyze information                              a button” to order the aggregation.
                            from New Balance’s enterprise-planning system without
                            having to be connected.                                                            PROBLEM: Sending data to sales reps caused the net-
                                                                                                               work to slow to a crawl. At the end of each month,
                            PROBLEM: The lack of access to real data made col-                                 New Balance would send 10 to 15 megabytes of sales
                            laborating with retailers to create forecasts on a                                 data to each of its 120 salespeople in e-mail attach-
                            style-by-style level difficult, if not pointless. And put-                         ments. The transmissions exceeded both available band-
                            ting data into Excel sheets by hand led to errors when                             width and mail-storage capacity. Representatives found
                            sales reps typed in the wrong numbers for shoe styles.                             downloads could take more than an hour over dial-up
                            They also often changed the formatting of the spread-                              connections. That prevented them from sending in orders
                            sheets. Those two problems meant long hours of proof-                              or getting mail from customers and managers.
                            ing data back at headquarters if the information was to                            RESOLUTION: A Web-based check-out and check-in
                            be used at all.                                                                    system. Sales reps now upload and download files, when
                            RESOLUTION: SRC’s approach to workbook files                                       they can. Since sales reps check-in and check out files on
                            meant Holland could lock down the format of how                                    their own schedules, there’s no spike in network traffic.
                            data could be submitted. That meant a sales represen-                              No longer are all reps sent files at the same time.
                            tative could only enter data in the manner that New                                                                                                —S.G.



                         ANY WHICH WAY BUT RIGHT                                                              For salespeople paid on commission, that’s like taking money
                         Since New Balance’s focus is on the everyday athlete, it gar-                        out of their wallets.
                         ners a fairly stable clientele, based on predictable demo-                               The problems multiplied for Holland. The format of the
                         graphics. That makes it easier to forecast demand accurately.                        electronic spreadsheets was not protected. That meant, first
                            Neither New Balance’s sales force nor Holland really had                          of all, that reps would delete columns, type in the wrong
                         the tools to deliver accurate forecasts until about two                              style names, and move information around as they saw fit.
                         years ago.                                                                           Holland became more a proofreader than a planner; it would
                            Back then, Holland supplied a template in a Microsoft                             take at least a day for her to validate the information on each
                         Excel spreadsheet that sales representatives would fill in                           sheet she did receive and put the answers into the correct
                         with their monthly forecasts.                                                        form for collating and analyzing. “It wasn’t a very stream-
                            But there was no statistical reliablity.                                          lined process,” she says.
                            When Holland first got to New Balance in 1999, she was                                Even then, rolling up the data was hard. She tried to
                         supposed to collect forecasts from about half of the com-                            combine the forecasts into a single table, where a planner
                         pany’s 120 sales representatives, compile them and create                            could see combined results but also ‘pivot’ into other tables
BASELINE NOVEMBER 2003




                         overall predictions of what shoes and clothes the company’s                          that carried the underlying data from different regions or
                         factories should turn out and when.                                                  representatives.
                            But she was lucky if she got 20 sheets back each month.                               “I tried to create this huge pivot table,” she says. “But
                         “We were just barely into collecting rep’s forecasts,’’ she recalls.                 the file was so large that it would crash on my computer. It
                            The problem for the sales representatives was filling out                         was basically impossible to do much analysis off of it.”
                         the sheets consumed a lot of time—as much as a day for the                               The information from the field was next to useless.
                         forecasts of larger accounts. They had to pore through reams                         “When we sat in forecast meetings we weren’t relying on
                         of printouts to plug answers into Holland’s rows and col-                            the reps too much,” says Holland. “It was just feedback.
48                       umns. And time spent forecasting is not time spent closing.                          We really had to kind of decide what the forecast was with-
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                            BASE TECHNOLOGIES                                                                  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
                            New Balance has turned its                                                         number plus some gut estimate of growth for the coming year.
                            sales force into a network of                                                          The sales force would disavow the quotas, even as foot-
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                            demand forecasters. They are                                                       wear flew off the factory floor. “They would say, ‘Those
                                                                                                               weren’t our numbers, those were your numbers,’ ” says Stan
                            charged with precision predict-
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                                                                                                               Mescon, the head of New Balance’s sales-planning
                            ing on a shoestring, using a                                                       department. So New Balance often got stuck with excess
                            small set of low-cost tools. Here’s
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                                                                                                               inventory.
                            the lean lineup:                                                                       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.”
                            DEMAND FORECASTING
                                                                                                               The management, after consulting with New Balance’s ma-
                            APPLICATION                      PRODUCT                         SUPPLIER
                                                                                                               jor retailers, would set a general sales goal, while leaving the
                            Field-sales                      SRC Sales Planning              SRC Software      details of how to hit that target to the sales force.
                            forecasting                                                                            The approach required information sharing on an
                            Statistical analysis,  Agilisys                                  Agilisys          unprecedented level—not just with the sales force, but with
                            long-range forecasting                                                             retailers as well.
                            Report handling                  SRC Web Checkout                SRC Software          New Balance’s management and sales team began meet-
                                                             SRC Process Control                               ing with executives of its top retailers each season, to
                            Data input                       Microsoft Excel                 Microsoft         develop a consensus on goals for overall sales.
                                                                                                                   The retailer’s buyers and merchandisers, along with New
                            Database                         Microsoft SQL Server            Microsoft
                                                                                                               Balance’s product teams and sales force, hash out the details
                            Remote access                    MetaFrame                       Citrix            of reaching the agreed-on goals, down to production runs for
                                                                                                               each shoe style.
                            BUSINESS INTELLIGENCE                                                                  In theory, New Balance would have the ability to manage
                            APPLICATION                      PRODUCT                         SUPPLIER
                                                                                                               its marketplace account by account, region by region. But to
                                                                                                               make it work, Holland’s spreadsheets had to be replaced
                            Retail-sales analysis            DI:Atlantis                     Dimensional       completely.
                                                                                             Insight
                                                                                                                   In 1997, New Balance brought in iProcess demand-plan-
                            Executive dashboard              DI:Diver                        Dimensional       ning software from the manufacturing-software division of
                                                                                             Insight
                                                                                                               SCT Corp. in Malvern, Pa. The software ran on Windows NT
                                                                                                               and could pull in data from files generated by the company’s
                            ENTERPRISE RESOURCE PLANNING                                                       existing planning system.
                            APPLICATION                      PRODUCT                         SUPPLIER              The software helped Mescon’s team take into account
                                                                                                               such predictors of demand as general economic indicators,
                            General ledger,                  System21                        Geac
                            order management,                                                                  current orders, historic sales data and competitive plans.
                            manufacturing                                                                      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
                            OPERATING SYSTEMS                                                                  capacity.
                            New Balance’s planning software runs on the IBM OS/400 op-                             But it wasn’t what Holland was looking for. “When we do
                            erating system. All other software runs on Microsoft Windows                       the [overall] New Balance forecast,” says Holland, “what
                            Server 2000 and Windows clients.
                                                                                                               we’ve realized is that the sales reps really are the ones who
                                                                                                               know what’s happening with each of their accounts. We
                            SOURCES: NEW BALANCE, SRC SOFTWARE, DIMENSIONAL INSIGHT, GEAC, AGILISYS, CITRIX,
                            BASELINE RESEARCH                                                                  wanted to be able to give them a tool [with which] to fore-
                                                                                                               cast more accurately.”

                                                                                                               STATISTICAL LOCKDOWN
                         out their input.”                                                                     So Holland brought in a sales-forecasting application from
                            The seat-of-the-pants approach meant sudden spikes in                              a small company in Portland called SRC Software (See Dos-
BASELINE NOVEMBER 2003




                         orders to factories for some products and backlogs of oth-                            sier, p. 60). SRC was founded 20 years ago by Phil Sandstrom,
                         ers. In some cases, plants overseas would be geared up, on a                          now the company’s chief financial officer and chief systems
                         contract basis. Then there would be deep valleys of produc-                           architect, and Stephen Reiff, the chief technology officer,
                         tion, when inventory that had piled up was sold off.                                  out of frustration with the software tool of the day—the
                         New Balance executives won’t reveal actual numbers, but                               Lotus 1-2-3 spreadsheet. That software couldn’t handle the
                         they admit that there was difficulty in getting orders to                             thousands of records’ worth of data, and didn’t have the se-
                         customers on time.                                                                    curity that was needed for financial forecasting.
                                                                                                                   With the SRC system, information about customers can
50                       BREAKING FREE FROM THE PACK                                                           be distilled for each sales rep from corporate databases. The
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                             ROADBLOCK: UNEQUIPPED SALES REPS
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                                                                                                                                   It took only a few days of programming and
                             THE OBSTACLE:
                                                                                                                               debugging to get historical data out of New
                             Choosing to design and make any product more than six months before it
                                                                                                                               Balance’s general-ledger system in a formatted
                             will get sold is a dicey proposition. Meeting demand that far in advance
                                                                                                                               file. That file could then be transferred by SRC’s
                             means the sales force has to have a solid view of what consumers want
                                                                                                                               software into a Microsoft SQL Server database
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                             and when they’re going to want it.
                                                                                                                               on a regular schedule. Meanwhile, Holland went
                                If the tools sales reps are given to report what they do see are faulty,
                                                                                                                               to work building the templates that sales reps
                             they will rebel. Or, at least, not comply with whatever demand-forecasting
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                                                                                                                               would be asked to fill out.
                             system is in place.
                                                                                                                                   By the spring of 2001, the system was ready to
                                 That was the case at New Balance. Sales representatives were given
 C A S E




                                                                                                                               use. Holland started distributing software and
                             cumbersome spreadsheets to fill out. Those that bothered to actually par-
                                                                                                                               training the sales force at New Balance’s regional
                             ticipate in the ad hoc forecasting process often altered the sheets to make
                                                                                                                               sales offices in April. She did additional training
                             it easier or quicker. This meant New Balance ended up relying on mis-
                                                                                                                               on the software at the company’s annual sales
                             matched historical data presented in Excel spreadsheets.
                                                                                                                               meeting in Acapulco in June. By summer, the
                                The lack of tools that worked the way its sales representatives worked—
                                                                                                                               forecasts were starting to roll in.
                             or that reported data the way New Balance needed—undermined the
                                                                                                                                   For the first time, New Balance sales man-
                             whole effort. Instead of getting 60 forecasts a month from sales represen-
                                                                                                                               agers could tell which representatives could best
                             tatives, only 20 out of 120 would report in. And even then, the data in the
                                                                                                                               predict orders and could recognize who was re-
                             sheets could not be rolled up, because of the alterations.
                                                                                                                               sponsible for managing problems with key ac-
                                The end result: excess inventory and an inability to produce and deliver
                                                                                                                               counts when they arose.
                             the models, colors and sizes of shoes needed by retailers.
                                                                                                                                   “We really didn’t have any checks and balances
                             THE RESPONSE:                                                                                     before SRC,” says Steve Prince, the West Coast
                             IMPROVE THE TOOLS: New Balance implemented a demand-forecasting                                   regional sales manager for New Balance. “What
                             system that made it easy to enter data—and made it impossible to enter                            SRC has done is added accountability to every-
                             data in any manner that could not be collated, analyzed and redistributed                         one’s role.”
                             effectively.                                                                                          Sales managers review each forecast that
                                                                                                                               comes in, and generate their own “recap” reports.
                             TAKE TIME TO TRAIN: Familiarizing a sales team with how the forecasting                           If orders from an account such as Nordstrom
                             system will work is always the first step. Teach how to enter and pull out                        have deviated from the forecast, it shows up in
                             data. Then make sure the salesperson’s willingness to comply becomes                              those reports—and the sales manager can move
                             part of every performance review.                                                                 to find out why immediately.

                             MAKE THE SALES FORCE ACCOUNTABLE: Naturally, sales representatives                                HITTING THE LIMIT
                             tend to turn in optimistic forecasts, to maximize the amount of product on          To jump-start that accountability, Holland
                             hand when a customer wants to buy. But excess inventory is costly.                  brought Kris Vandemore, the sales coordinator
                             Reward accurate forecasters. Terminate wishful thinkers.                            for the West Coast office, along with her to the
                                                                                                                 SRC users conference in Anaheim that February.
                             COLLABORATE WITH CUSTOMERS: No sales-forecasting system works if
                                                                                                                 She then guided Vandemore through the process
                             retailers or other business partners aren’t consulted. Collaboration with
                                                                                                                 of building reports in SRC’s software.
                             retailers not only gives sales representatives more-accurate estimates of
                                                                                                                     But there was a major hurdle to giving
                             future demand, but an opportunity to describe new products coming on
                                                                                                                 Vandemore and other employees in remote of-
                             the market and boost orders.                                             —L.B.
                                                                                                                 fices full access to the data in SRC—bandwidth.
                                                                                                                 The SRC server for sales forecasting was located
                            reps download the information from a secure Web site as                  in the Boston headquarters, and SRC’s client software used
                            each month ends. Using the data and consulting with cus-                 to create reports requires a direct connection to that data-
                            tomers, each sales rep updates the forecast of each cus-                 base. That made using the software over the wide-area net-
                            tomer’s orders, not just for the rest of the current year, but           work connection back to Boston painfully slow from
                            for the following year as well. Then, instead of using a mal-            Vandemore’s California office.
                            leable spreadsheet, sales reps enter their revisions in                      To solve the problem, Holland made the client software
                            a locked-down template created by a “master user” such                   available through a Citrix terminal server. That allowed re-
                            as Holland.                                                                                                 mote employees to build
                                The template makes it easier for the sales rep to fill out          PROJECT PLANNER                     their own reports from the
BASELINE NOVEMBER 2003




                            required information and a snap for the system to roll up all           YOU WANT TO KNOW WHAT                 forecast data on a com-
                            the forecasts. If the sales reps send in their new predictions          DEMAND WILL BE, NOT WHAT                puter with a high-speed
                            before the dawn of the first Monday of the month, by noon               IT WAS. HERE’S HOW TO GET              connection to the data-
                                                                                                    STARTED. (FOLDOUT)
                            Holland can shoot back consolidated reports and breakouts                                                   base and SRC application
                            by account and product.                                                                                     server; they could then
                                In early 2001, Holland and Tom Murdock, a manager in                 send workbooks based on those report formats to the re-
                            New Balance’s 30-person information-technology depart-                   gional sales managers and others by e-mail.
                            ment, started to depl0y the software with the aid of an SRC                  Lack of bandwidth created other problems. Typically,
52                          consulting team.                                                         sales reps were being sent three forecasts to update—one
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  FOLLOWING FOOTWEAR, STEP BY STEP




                                                                                                                                                                   B A L A N C E
   A pair of men’s 991 running shoes, grey, size 13D, has just                     Prince. “If we see things that don’t make sense, we dig
   left the Foot Locker athletic-shoe store in Towson, Md. And a                   down and find out why.”
   replacement pair is coming. Soon.                                                  Noting that Foot Lockers in the Eastern Region are moving




                                                                                                                                                                   N E W
      How New Balance replaces the 991, a bread-and-butter                         more 991 Greys than expected, sales planning manager Stan
   running shoe designed for mildly flat-footed runners, exem-                                 Mescon tells material suppliers and manufacturing




                                                                                                                                                                   0 9 3
   plifies how it intends to keep picking up ground on Nike,                                      managers to get ready to bump up production.
   still the dominant producer of sports shoes. New                                                 “We can adjust our inventory plans faster




                                                                                                                                                                   C A S E
   Balance can grab share by making sure no sale of its                                                than the sales rep can update his fore-
   most popular shoes gets missed. That means                                                             cast,” says Mescon.
   automating the replacement of the heart of its lineup.                                                        The sale also goes into the SRC
      As with a can of soup at a grocery, the key is the bar                                                        sales-planning database, which
   code identifying the shoe that just left the store.                                                               the sales force downloads at
      Scanning the code on a box of shoes at the cash                                                                the end of each month.
   register launches the electronic steps that lead to                                                               Armed with proof of greater-
   the arrival of a new pair in Towson.                                                                            than-expected sales, a New
      The code is used to subtract the shoes from                                                                   Balance sales representative
   the store’s inventory records, and simultaneously                                                                suggests to Foot Locker’s
   send a record of the sale to New Balance. That trig-                                                            regional manager that in-store
   gers the order for a replacement pair.                                                                      stock of 991 running shoes should
      At New Balance headquarters, the sale goes into a busi-                      be increased, so no sales are lost. The Foot Locker manager
   ness-intelligence database, known as DI:Atlantis. This infor-                   agrees. The sales rep changes his business plan—and sales
   mation library gives executives a snapshot of the current                       forecast—accordingly.
   shoe market—by style, size and width of every shoe at every                        At a monthly forecasting meeting, the sales-planning team
   store in which it battles for consumer favor. If 991s have                      reviews the combined effect of scores of revised sales plans
   suddenly gotten hot throughout Maryland, two pairs may get                      from the field. Using a statistical engine from Agilisys, the
   sent to Towson, instead of one.                                                 team revises forecasts for all product lines, up to four years
      That decision will get made on the following Monday,                         into the future.
   when executives study the weekly “Top Accounts” report,                            But for now, the result is much simpler. The Foot Locker in
   which combines the DI:Atlantis data with information from                       Towson keeps just enough men’s grey, size 13D 991 running
   the sales-forecasting system. “We’re looking at the top 25                      shoes in stock to satisfy any slightly flat-footed runners who
   accounts to check the validity of the forecast,” says Steve                     may walk in during the next week.                           —S.G.




for major accounts, one for small retailers and one for New                          to react to changing customer sentiment is huge. Sean
Balance company stores in their territories. To help prepare                         O’Brien, product manager for New Balance’s cross trainer,
the forecasts, 15 megabytes of data were being sent out to                           basketball and tennis lines, estimates that he’s been able to
each sales rep.                                                                      improve his capacity planning by 25%.
    That exceeded the limits set in New Balance’s e-mail sys-                            That translates to more efficient production. Sales-plan-
tem for the amount of data that could be sent in and out of                          ning chief Stan Mescon says that since the implementation
each mailbox. Holland was affected, too. As she started to                           of SRC the number of shoes left in inventory when New
send out the files to more and more salespeople, she ex-                             Balance discontinues a style has dropped on average by
ceeded the storage quota of her e-mail account.                                      about 8%.
    Meanwhile, the sales reps were going nuts. They had slow                             It also means New Balance can react more quickly to re-
connections. “I would e-mail these workbooks as attach-                              tailers’ needs, a quality that chains such as Foot Locker and
ments to salespeople,” she says, “and they would just clog up                        The Sports Authority say has been the single-largest reason
their e-mail. They might be trying to send out an order,                             it has been taking market share from Nike.
might be trying to get through to a customer, and they would                             New Balance’s ability to ship orders to its retailers, on
freak out because it took an hour to download their mail.”                           time and complete, has “gone up between 5% and 10%” per
    SRC solved the problem with a Web check-out system.                              retailer, says Mescon. That means fewer back orders, a
Sales reps now download forecast workbooks at their                                  smoother management of inventory by retailers, and more
                                                                                                                                                                      BASELINE NOVEMBER 2003




convenience. When they’re ready to report in, reps check off                         shoes on customers’ feet.
the forecasts that have been completed, and the correct
workbook files are automatically uploaded for collection,                            JUST DO IT YOURSELF
slicing and dicing by “master users” such as Holland and                             That’s driving Nike executives crazy.
Vandemore.                                                                              “Nike is a manufacturer, but really it’s just a marketing
    The result is a much more accurate picture each month                            company,” says Wells Fargo’s Shanley. “New Balance is a pure
of what New Balance’s future looks like. Since New Balance                           manufacturing company and, in my opinion, that’s why
has a six-month lead time for delivery from its factories and                        they’re gaining on Nike. They understand how to use tech-
overseas suppliers, shaving a month from the time it takes                           nology to gain an advantage on their competitors.”                              57
 B A L A N C E



                              Retailers say Nike has been on top for so long that it no                         Jim Davis had created. For example, a single product man-
                          longer feels the need to be responsive to its customers’ de-                          ager and two assistants now “take charge” of more than 200
                          mands. In fact, Nike operates much like the playground bully.                         different styles of cross-training, tennis and basketball shoes.
                              “Nike tells its retailers what shoes they’re going to get—                            It’s that kind of focus that has helped New Balance sur-
                          in what styles and sizes and colors—and retailers just have                           pass Reebok and Adidas to stand second only to Nike in the
 N E W




                          to accept it,” says one athletic-shoe industry analyst based in                       sale of running shoes. For all types of athletic shoes, New
                          California. “New Balance works with the retailers and calls                           Balance ranks third, behind Nike and Reebok.
 0 9 3




                          them partners. Nike never refers to anyone as a partner.                                  New Balance’s core customers—serious runners and mid-
                          They determine what the retailers are going to get and if                             dle-aged weekend warriors—aren’t swayed by superstar en-
 C A S E




                          they don’t like it, what are they going to do?”                                       dorsements and fancy advertising campaigns.
                              Where “Just Do It” is Nike’s tagline, New Balance’s phi-                              Moreover, because it had started talking to its retailers,
                                                                                                                                   New Balance discovered that the sweet
                                                                                                                                   spot of sales had shifted from the $120-to-
                           NEW BALANCE UNDERSTANDS HOW TO                                                                          $160 basketball shoes that Nike dominat-
                           USE TECHNOLOGY TO GAIN ADVANTAGE                                                                        ed to less-expensive, multi-purpose shoes
                           OVER THEIR COMPETITORS.                                                                                 that cost between $60 and $90 a pair. So it
                                                                                                                                   flooded the market with styles of all widths
                                                                                                                                   in that price range.
                          losophy might be described as “Just do it yourself.”                                      New Balance also shows more responsiveness to retailers’
                              Take Holland, as an example. She didn’t start out as a                            own timetables. Nike requires retailers to take ownership
                          champion of new methods of gathering, presenting and act-                             of shoes after they are shipped to its distribution center in
                          ing on statistics. But she doesn’t shy away from doing what-                          Memphis. New Balance allows retailers to take possession in
                          ever it takes to get an answer. At her previous job, for a                            the Far East, where most shoes are made. That allows re-
                          consulting firm that designs compensation packages for                                tailers to cut transportation costs—and get shoes into their
                          overseas employees of multinational corporations, she trav-                           stores faster. This is no small consideration for back-to-
                          eled the world “comparing the cost of Skippy peanut butter                            school and holiday shopping seasons, when shoe retailers
                          in Boston versus Bangkok,” she says. Only with precise lo-                            make most of their profits.
                          cal data could she calculate the appropriate cost-of-living                               “Nike wants to control everything,” Shanley says—even
                          adjustments for each country.                                                         how its best customers sell its product in their stores. “That’s
                              Holland joined New Balance partly so she wouldn’t have                            just the way they do things. It’s not a collaborative process
                          to travel so much. But she also bought into the take-charge                           with Nike.”
                          culture, which she felt chairman and chief executive officer                              Nothing illustrates this disconnect more than Nike’s on-

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                           LONG STRANGE TRIP
                           NIKE FINALLY REGAINS FOOTING                                                        The supply-chain software was supposed to reduce the
                                                                                                             amount of rubber, canvas and other materials that Nike
                           Nike could not “just do it” when it tried to straighten out a                     needed to produce its shoes. It was also supposed to help
                           newly installed system for speeding materials through its                         make sure Nike built more of the shoes customers wanted
                           factories and into the marketplace.                                               and fewer of the ones they didn’t.
                              In fact, it has taken nearly three years for the shoemak-                        Instead, Nike was left with far too many of the wrong
                           er’s profits and shares to rebound after its 2001 disclosure                      shoes and not nearly enough pairs of its hottest sellers.
                           of difficulties with its deployment of supply-chain software.                       While i2 executives stayed silent, Nike chief executive
                              Yes, the Beaverton, Ore., firm said on Sept. 18 its ability to                 officer Phil Knight erupted. During one infamous conference
                           closely watch the movement of goods from raw materials                            call, he incredulously complained, “This is what we get for
                           through factories to retailers is finally paying off—not only                     our $400 million, huh?”
                           has the company reduced inventory in the pipeline, but the                          Well, actually, Phil, the total cost of i2’s demand-forecast-
                           effort has also boosted gross margins and net profits in the                      ing and supply-chain-management software was only about
                           first quarter of its current fiscal year.                                         $40 million. The other $360 million alluded to was being
                              Gross margins reached 43.0%, up from 41.4% a year ago.                         spent over five years—on customer-relationship and enter-
                           Net income rose to $261 million, from a loss of $49 million.                      prise-planning software from SAP.
                           “The positive effects of the tighter supply chain and cleaner                       Managing and integrating two projects of this magnitude
BASELINE NOVEMBER 2003




                           inventories drove 75% of the improvement” in gross profit                         may have been dicier than Nike had anticipated.
                           margins, says chief financial officer Donald Blair.                                 Nike says it continued to work with both SAP and i2. But
                              In the spring of 2001, Nike blamed i2 Technologies for a                       Gartner Inc. analyst Karen Peterson says i2’s relative inex-
                           massive sales-and-earnings shortfall. Nike posted a profit of                     perience in delivering supply-chain systems for the apparel
                           only $97 million that quarter—at least $48 million below                          and footwear industry and Nike’s demands put the project
                           forecast. Nike said the culprit was i2’s demand-forecasting                       at risk from the get-go.
                           and supply-chain-management systems.                                                Nike officials decline at this point to comment on the i2

58
                                                                                                                                                                      B A L A N C E
   going tiff with Foot Locker. In late 2002, Foot Locker, rec-                          Nike sales had fallen to $89.5 million, while New Balance
   ognizing customers weren’t as willing to pay for high-priced                          sales quadrupled to $39.7 million.
   sneakers as they had been in years past, began reducing the                                “New Balance is the real comer of the group,” Shanley
   shelf space for Nike’s high-end shoes in favor of lower-priced                        says. “They are focused in a way that we’ve never seen from
   shoes from New Balance, K-Swiss and Adidas.                                           a Nike or a Reebok or any other athletic-shoe company.




                                                                                                                                                                      N E W
      Instead of providing more shoes in this new sweet spot,                            They understand the importance of offering narrow and
   Nike’s response was punitive. The company stopped sup-                                wide shoe sizes and they build relationships with their re-




                                                                                                                                                                      0 9 3
   plying Foot Locker with its most-popular shoes, including                             tail partners.”
   the Jordan IX model.                                                                      Product manager O’Brien sees Holland’s system as an es-




                                                                                                                                                                      C A S E
      “That sums up the difference,” Shanley says. “We’re talk-                          sential mechanism for wrestling away a chunk of Nike’s bas-
   ing about Nike’s biggest retailer here. New Balance does                              ketball-shoe market share.
   everything they can ... to get retailers what
   they need. Nike tells retailers what they’re
   going to get.”                                             ‘NEW BALANCE [GETS] RETAILERS WHAT
                                                                  THEY NEED. NIKE TELLS RETAILERS
   HITTING STRIDE                                                     WHAT THEY’RE GOING TO GET.’
   Nike officials would not comment on New
   Balance or its growing popularity (see
   Model chart, p. 62), much like a marathon runner refusing to                             “When I took over three years ago, product planning was
   look back at a competitor closing in. But, the way things are                         more of a manual process,” he says. “Meetings took longer,
   going, New Balance will soon be breathing down Nike’s                                 everything took longer.” Now, meetings go faster. And results
   neck.                                                                                 are better. “I’ve been able to plan my business more effec-
       Though overall sales of athletic shoes in the U.S. have                           tively. I don’t make as many mistakes.”
   fallen since 1997, research firm Mintel Inc. predicts sales will                         For example, every time a customer buys a pair of New
   grow 2% percent a year through 2007. Serious growth for                               Balance shoes from any of the 3,600-plus Foot Locker retail
   any single company will require taking market share away                              store locations, that data is transmitted from the Foot
   from other players, and it’s precisely why Holland’s system                           Locker point-of-sale system directly to New Balance head-
   for codifying what weekend warriors want is so important.                             quarters in Boston. The exact same size, model and color of
   Right now, it’s New Balance that’s taking share.                                      shoe is then reordered for that particular retail location,
       According to the National Sporting Goods Association,                             guaranteeing a steady and predictable flow of inventory for
   Nike sold $134.6 million worth of athletic shoes in the U.S.                          the Foot Locker locations.
   in 1997, while New Balance sold only $10.9 million. By 2002,                             Nike doesn’t have the same relationship with Foot

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    meltdown. Yet, despite the inventory glut and contentious                         adjustments to already-customized software in order to
    public posturing, Nike continues to use i2 as its sole sup-                       accommodate busier manufacturing schedules, tighter ship-
    plier of supply-chain and demand-forecasting software.                            ping dates, and the exponential growth in its customer list.
       “The biggest lesson we learned was that we need to                                When the i2 implementation began in March 1999, Nike
    have more communication with the customer before we                               had to customize the new system to accommodate years
    begin designing the supply-chain software,” says i2 presi-                        of idiosyncratic modifications of its original demand-fore-
    dent of solutions operations, Pallab Chatterjee. “We’re sup-                      casting system. Analysts say these modifications bogged
    ply-chain experts, not shoe experts.”                                             down the system, leaving users waiting as long as three
       Nike’s technology team had built and maintained its own                        minutes for a single screen to load.
    demand-management system. In practice, the system                                   At the same time, Nike was installing SAP software to
    meant that shoe orders from retailers were placed six                             help take orders from customers and get those orders
    months ahead of delivery. Once those orders were placed,                          through manufacturing. Because it had difficulty matching
    Nike would pass them along to its contract manufacturers                          up information from SAP and i2, Nike was sending inaccu-
    in the Far East.                                                                  rate orders to manufacturers and was unable to uncover
       This system worked just fine throughout the 1980s, when                        the errors until it was too late.
    Nike made its remarkable transition from an also-ran in the                         Tens of thousands of shoes were sitting at the end of
    athletic-shoe industry—it was just the 12th-largest shoe                          assembly lines in Asia that no retailer wanted. In the end,
                                                                                                                                                                         BASELINE NOVEMBER 2003




    manufacturer in 1984—to the undisputed leader.                                    Nike had to dump these excess shoes at bargain-basement
       By 2000, Nike’s annual sales had surged to $9 billion and                      prices, eroding profits and forestalling orders for its hottest
    the complexity of its manufacturing system expanded in                            brands, such as Air Jordan sneakers.
    lockstep. Some of the more fashionable shoes, such as                               “Trends are what makes this industry so unpredictable,”
    Nike’s flagship Air Jordan sneaker, required as many as 136                       says John Shanley, an analyst at Wells Fargo Securities. “Not
    individual manufacturing steps.                                                   having the right shoes in the stores in that short window of
       As Nike grew, its programmers had made thousands of                            opportunity is disastrous.”                                —L.B.


                                                                                                                                                                        59
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 B A L A N C E



                         Locker, which forces Foot Locker buyers to order Nike shoes         DOSSIER: SRC SOFTWARE
                         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
                                                                                              ON THE BUTTON
                         video or, more acutely, by sexual-assault charges leveled
 N E W




                                                                                              SRC may be helping companies such as New Balance
                         against a superstar-athlete endorser.                                Athletic Shoe gaze into the future. But most of SRC’s
                             Foot Locker isn’t the only retailer New Balance has that         prospective customers are just trying to get a handle on the
 0 9 3




                         arrangement with. “We have more than 50 retailers who do             19-year-old company’s past, and how it got where it is today.
                         it,” says Mescon. All of New Balance’s major retail “part-               The company was founded by two former accountants
                                                                                              who set out to provide financial-planning software to
 C A S E




                         ners,” including Nordstrom and The Sports Authority, pro-
                                                                                              healthcare and financial-services firms. Now, the Portland,
                         vide the data, as do a number of smaller regional shoe chains.                                          Ore., company supplies
                         New Balance takes the risk of creating more shoes—as long                                               ‘integrated’ software that
                                                                                                THE COMPANY                      reduces errors and speeds
                         as its partners supply the information about which shoes
                                                                                                HEADQUARTERS: 13190 SW           up the budgeting process.
                         sell as soon as they’re sold.                                          68th Pkwy., Portland, OR 97223      “We used to take five
                                                                                                PHONE: (800) 544-3477            or six runs at our budget;
                         SECOND WIND                                                            TICKER: Private, 70% owned by    last year [using SRC], we
                         Automatic replenishment, though, can be stultifying. Taken             Vista Equity Partners            did it in two,” says John
                         to the extreme, it would mean New Balance would never in-              URL: www.srcsoftware.com         Westwood, senior vice pres-
                                                                                                                                 ident and controller at
                         troduce new products—a guarantee of death even for a com-              EMPLOYEES: 70
                                                                                                                                 Bancorp Rhode Island.
                         pany that has tried to limit the influence of fast-changing            BUSINESS: Provides financial-
                                                                                                                                    Cable programmer
                                                                                                planning software
                         fashion on its shoe sales.                                                                              C-SPAN is “a pretty mature
                                                                                                FOUNDED: 1984                    organization, and our
                             So while Mescon will make sure New Balance’s popular
                                                                                                FOUNDERS: Chief financial        revenues are pretty well
                         991 running shoe is always in stock at its retail outlets,             officer Philip Sandstrom; chief  known,” says vice president
                         “fringe” styles—such as the company’s Dunham-brand “ad-                technology officer Stephen D.    of finance Jana Fay. “But
                         venture sports” styles, suited to endeavors like mountain              Reiff—the “S” and the “R” in the SRC has helped us pull our
                                                                                                company name
                         biking and rock climbing—aren’t restocked the same way.                                                 budgeting act together.”
                                                                                                FINANCIALS: Estimated               Before deploying SRC’s
                             With Holland’s system, New Balance now gets a living,              revenues of $14.4M in 2002       software, her budget
                         breathing snapshot of which shoes are selling, where they’re           PRODUCTS: Three sets of          process started in
                         selling and, indirectly, why they’re selling.                          performance-management           November and lasted offi-
                             “Sell-through” data from each retailer is dumped into a            software. Key modules include    cially until March—but she
                                                                                                SRC Budgeting, SRC Payroll       was often “still fixing things
                         massive text file each week. That file gets pulled into a Di-
                                                                                                Planning, SRC Forecasting, and   in April and into May.”
                         mensional Insight database, so it can be analyzed in detail—           SRC Productivity Management
                                                                                                                                    With SRC, C-SPAN’s first
                         by shoe style, by color, by size, by width, and by retailer.           MARKET SHARE: SRC’s 2002         budget was ready on time,
                             New Balance executives view the results electronically             revenue represented 1% of ARC    and Fay expects “to get the
                         and can click deeper for further details.                              Advisory Group’s estimate for    bulk of this budgeting cycle
                                                                                                the Worldwide Enterprise
                             “The sell-through data is the first indication [if] things                                          done in about a month.”
                                                                                                Performance Management
                                                                                                                                    SRC, a privately held firm,
                         are going off our plan,” Mescon says. This allows the execu-           Analytics Applications Market
                                                                                                ($1.44B)
                                                                                                                                 said it recorded revenues of
                         tives to increase or decrease planned production faster than                                            less than $15 million last
                         waiting for a sales rep to confer with a customer before ad-           COMPETITORS: Business
                                                                                                                                 year—barely a speck in the
                                                                                                Objects, Hyperion Solutions,
                         justing a forecast. And the collaboration with retailers makes                                          “performance-management”
                                                                                                Cognos
                         it easier to accommodate unexpected demands, such as the                                                field where Hyperion
                                                                                                                                 Solutions and Cognos also
                         re-introduction of PF Flyer sneakers. That brand is remem-           play. Even though it claims to have 2,000 customers and to
                         bered mainly by the parents of urban and suburban youth,             retain 95% of them from year to year, SRC sales representa-
                         but retailers expect the retro shoe to sell well. New Balance        tives continually struggle to convince multinational corpora-
                         plans to meet that demand.                                           tions to entrust their budgeting to a relatively small player.
                                                                                                  “That’s the biggest obstacle we face,” says Alan Cline,
                             Meanwhile, Nike will continue merely to allocate supply,
                                                                                              SRC’s vice president of marketing. “When we lose to
                         instead of sating demand.                                            Hyperion or Cognos, almost without exception, it’s simply
                             The current example: new sneakers based on a $90-mil-
                         lion endorsement deal with high-school basketball wun-
                                                                                              GROWTH, FAST AND SLOW
                         derkind LeBron James. If he’s the next Michael Jordan, he’ll
                                                                                               $15M
                         be the face and endorsement meal ticket for professional
                                                                                                                                                  $14.6M
                         basketball for the next decade.                                         12                               Revenue,
BASELINE NOVEMBER 2003




                                                                                                                                 in millions
                             However, Nike is deliberately rationing the supply of the                   $7.0M
                                                                                                  9
                         LeBron James shoes to its retailers in the name of main-                                               MILESTONES
                                                                                                                                1984: Founded as Sandstrom, Reiff & Co.
                         taining “buzz.”                                                          6                             1987: Name changed to SRC Software
                             “The shoes should be in the hands of retailers to sell on                                          1988: Budget Advisor family of financial-planning
                                                                                                                                      programs released
                                                                                                  3
                         Dec. 26,” Shanley says. “But [Nike’s] not going to give re-                                            1996 Advisor re-released as ‘integrated’ system
                                                                                                                                2002: Vista Equity Partners takes 70% stake
                         tailers as many pairs as they want. It’s frustrating for the re-         0
                                                                                                                 2000       2001               2002        2003
                         tailers because they know the demand’s going to be                           1999

                         enormous. But this is standard for Nike.”
                                                                                             SOURCES: SRC, BASELINE ESTIMATES
60                           While Nike and Foot Locker officials say they’ve reached
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                                                                                                                                                                              B A L A N C E
                                                                             BUDGETING & PLANNING SOFTWARE


                                                                                                                       THE TECHNOLOGY




                                                                                                                                                                              N E W
           because they’re bigger companies.”                 presentations—and we were trying to
               To assuage those fears, SRC execu-             get an answer to a specific question,”                   SRC AIMS TO MINIMIZE THE TRAUMA
           tives must doggedly outline the com-               he says. “SRC’s rep was willing to lis-                  of moving from paper or Excel spread-




                                                                                                                                                                              0 9 3
           pany’s financial position to prospec-              ten to us, and had experience in the
           tive clients. For one thing, customers             industrial environment.”                                 sheets to sophisticated financial plan-
           “need to know we’re going to be                       Users’ affection can be traced                        ning that employs relevant data from




                                                                                                                                                                              C A S E
           around for a long time,” Cline says.               back to the software’s simplicity.                       across a company.
           “In some ways, that’s as important                 “The whole idea of SRC is that it’s a                       Ironically, its tool is an Excel “front
           as showing them that our software                  spreadsheet front end to a database
                                                                                                                       end.” Users enter and massage data in
           is right for their business needs.”                back end,” says Kerlin. (See “The
               Still, SRC’s devotion to privacy can           Technology,’’ at right.) Fay adds that                                        the familiar format of
           get in its way. For instance, SRC says             “it takes a person who’s very comfort-                                        the most widely
           it’s been profitable every year of its             able with Excel, [but] if you know                                            installed electronic
           existence. But it doesn’t back up the              Excel, it’s easier than some                                                  spreadsheet.
           assertion with numbers. And these                  of the other products out there.”
           are accountants.                                      At Blethen Maine Newspapers,                                                 Other vendors’ soft-
                                                                       chief financial officer Ken                     ware can pull data out of Excel sheets,
                                                                       Kraft’s old way of budgeting                    as well. SRC’s difference: Its software
                                                                       on Excel sheets was tortur-                     is built to work as part of Excel itself.
                                                                       ous and time-consuming.
                                                                                                                       When a user clicks on the SRC appli-
                                                                       “Anytime you made a change,
                                                                       it was a labor-intensive                        cation icon, both Excel and the SRC
                                                                       process,” he says. “But with                    software start up.
                                                                       SRC, you just hit a button,                        SRC then performs as if it were an
                                                                       and it changes everything.”                     add-on to Excel, providing a series of
                                                                          Finding supporting informa-
                                                                       tion is also fairly easy. Fay                   navigation buttons and popup menus
                                                                       says she “can figure out                        on the left side of the screen. These
                                                                       what's going out from month-                    allow managers to use particular
                                                                       to-month and year-to-year. I                    SRC functions, such as its “Standard
                                                                       like to drill down to the trans-
                                                                                                                       Budget Methodologies,’’ or SBMs, while
                                                                       action level, to see what’s
            Left to right: CTO Steve Reiff, CFO/Chief Systems Archi-   driving costs.”                                 still employing Excel’s own features.
            tect Phil Sandstrom and President/CEO Tom Malone              Microsoft’s budgeting                           Instead of forcing a user to manually
                                                                       tool isn’t as flexible, says Fay.               enter the various line items and formu-
              At least you’re not buying hype,                C-SPAN uses Microsoft’s Great Plains                     lae of an SBM such as “New Product
           customers say. When C-SPAN was                     accounting software, and Fay says
           in its evaluation process, “Other                  SRC “integrates with it very nicely.”                    Development Costs,” a single
           [vendors] wanted to show glitzy                       For financial types, the simplicity                   command by that name already
           reports—the things that work great in              of SRC means self-sufficiency. “I’m                      “knows” which line items to add from
           the Fortune 100 companies,” says Fay.              an accountant, not a systems                             the database, and which formulae
           From SRC, she got substance instead.               professional,” says New Pig’s Kerlin.
                                                                                                                       to apply.
           “SRC didn't have any marketing mate-               “It takes very little I.T. support to
           rial back then—they sent screen shots              install this system and keep it                             In Excel, changes often have to be
           and we talked a lot,’’ she says. That              running. I don’t need an I.T. person                     repeated manually on a series of
           made her “feel very comfortable with               devoted to keeping SRC going.”                           forms and templates. SRC, instead,
           the people there.”                                    “We used to burn the midnight oil in                  transfers data to and from a database
              Jim Kerlin, controller at industrial            Accounting doing our budgets,” Kraft
           manufacturer New Pig, had a similar                says. “With SRC, that’s all gone away.”                  kept on a standard SQL server. It’s the
           experience. Other vendors “were                       That’s a line item anyone can                         database that stores the changes, not
           inclined to do their dazzling routine              approve.                                                 the spreadsheet.           —JOSHUA WEINBERGER
           [of] prepackaged two-hour PowerPoint                      —LARRY BARRETT AND JOSHUA WEINBERGER


              REFERENCE CHECKS
              C-SPAN                    BLETHEN MAINE             NEW PIG                   BANCORP RHODE             AMERISURE MUTUAL          BAPTIST HEALTH
              Jana Fay                  NEWSPAPERS                Jim Kerlin                ISLAND                    INSURANCE                 CARE CORP.
              VP, Finance               Ken Kraft                 Controller                John Westwood             Rick Fleissner            Chris Bayer
              (202) 626-4859            CFO                       (814) 686-2225            SVP, Controller           Corporate Budget &        Corporate Budget
              Project: Cable pro-       (207) 791-6615            Project: Pennsylva-       (401) 456-5015 x1646      Planning Mgr.             Director
                                                                                                                                                                                 BASELINE MONTH 2003




              grammer selected          Project: Regional         nia-based industrial      Project: The seven-       (248) 426-7955            (850) 434-4066
              SRC in late 1999 for      newspaper company         manufacturer was          year-old regional bank    Project: Insurance        Project: A 13-year
              budgeting, and picked     bought SRC’s budget-      won over by SRC’s         has installed SRC for     firm selected SRC in      SRC customer, the
              up Information            ing and reporting         financial-reporting       payroll budgeting,        2000, over three other    Florida medical-facility
              Advisor soon after.       modules in 2000,          module in February        reporting, and analyt-    firms—not only was        operator was a Lotus-
              Long-term forecasting     and set them up to        2000, and soon after      ics. Individuals use      SRC’s the lowest          based shop—and has
              is left to the parent     handle zero-based         took on the budgeting     Citrix terminals to       bid, but the most         just begun segueing
              organization.             accounting.               software as well.         access the database.      impressive.               to the latest versions.

                                                                                                                                                                                61
 B A L A N C E



                         a truce of sorts in their squabble, Foot Locker will not be re-         Part of managing the business means finding ways to con-
                         ceiving any LeBron James shoes until early 2004.                    tinue the torrid rate of growth that New Balance has seen
                             “Are we happy about this?” asks Foot Locker’s Brown.            over the last five years. To do that, the company intends to
                         “No. But we’re working with Nike to make sure we get these          create athletic shoes that make women and children con-
                         shoes in the future.”                                               sumers of its footwear on the same scale as the male middle-
 N E W




                             In the meantime, Holland continues to tweak both the            aged athlete.
                         format of New Balance’s forecasts as well as the data they’re           To make that happen, the company not only needs to de-
 0 9 3




                         built on. The aim is to give the sales force information that       sign products that appeal to the other gender and the
                         will gain new customers or keep existing ones.                      younger ages, but to gauge and respond to demands from all
 C A S E




                             For instance, Holland recently figured out a way to pop         consumers faster and more accurately.
                         out “open orders” from the system, says Vandemore.                      Expansion also will have to come from areas other than
                             By pulling data on factory runs from the manufacturing-         shoes. The apparel division, for example, last year chipped
                         planning system and comparing that to records of orders             in a paltry $52 million in sales, roughly 4% of total sales.
                         placed by its retailers, the tweak now lets a sales coordina-       New Balance executives have laid down an ambitious gaunt-
                         tor like Vandemore know which customers’ orders haven’t             let, asking sales representatives to raise that share to 10%
                         been fulfilled. That extra piece of data lets reps tell individ-    by 2005.
                         ual customers what product is stuck in the pipeline and how             As New Balance gets better control over its demand fore-
                         it will affect their inventory levels when it finally arrives. As   casting, it can afford to do things that might have been
                         a result, the reps can revise follow-on sales accordingly—be-       deemed too risky in the past, such as allowing customers to
                         fore customers are alienated.                                       place their actual orders closer to the delivery date.
                             Holland also has developed a means of measuring each                Rather than pushing retailers to make orders six months
                                                                                                                out, New Balance now can take orders five
                                                                                                                or even four months in advance of deliv-
                         EVERY SALESPERSON’S PERFORMANCE                                                        ery. The company may even instruct man-
                         IS LAID BARE TO EVERY SINGLE MEMBER                                                    ufacturers to build shoes before it has
                         OF SENIOR MANAGEMENT.                                                                  orders for them, if its confidence in its
                                                                                                                forecasting is high enough.
                                                                                                                    Holland’s system also helps O’Brien
                         sales rep’s forecasting prowess. She compares the accuracy          deal with his 200 different styles of shoe. O’Brien has to
                         of their latest forecasts against their forecasts of six months     forecast a basketball-shoe line, for example, which has, he
                         earlier—and actual orders for the current month. “We chose          says, “not just multiple widths but nine different colors.”
                         a six-month window because that’s when we’re making our                 Before the collaborative-forecasting system was put in
                         buy decisions,” i.e., instructing factories on what to manu-        place, O’Brien might have had to forego sales for fear of
                         facture.                                                            picking the wrong kind of shoe to order. “You don’t want to
                             “What we’re hoping to see,” Holland says, “is that as their     buy that much inventory of a color that isn’t going to sell,”
                         forecasts get better, our forecast also gets better. We’ve been     he says.
                         doing that now for about a year. At this point it seems to be           The forecasts now have power. They can make or break
                         getting better.”                                                    a new shoe design. Today, no new shoe goes to market until
                             New Balance’s O’Brien—the man with 200 styles to man-           it’s a big enough number on a rollup to be worth building.
                         age—says forecasts are making a tough job easier. “I would          “We’ve been able to make decisions and cancel a project that
                         say we’ve had easily a 50% improvement in accuracy. I can’t         we wouldn’t have cancelled before,” says O’Brien.
                         say that it has meant a 50% improvement in how we handle                “A product manager may say his style is great, but the sales
                         our inventory, but it makes our decisions maybe 25% better.         rep says, ‘I’m only going to grow 10% or 20% with this ac-
                         I have more faith in my numbers.”                                   count 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.
                         THE FINAL KICK
                         Of course, the impact of the improved forecasting really is         VICTORY LAP?
                         most immediate and visceral on the individual salesperson.          New Balance is now rolling the system out overseas. Holland
                         The performance of every single salesperson is laid bare to         took the locked-down forecasting system to South Africa
                         every single member of senior management. Visibility of the         five months ago. There are only six sales reps there, all
                         numbers fosters communication, Holland says. Like Tomp-             English-speaking and computer-literate. Another 20 coun-
                         kins’ phone calls.                                                  tries, mostly in Europe, came into the fold in September.
BASELINE NOVEMBER 2003




                            Tompkins and Fran Allen, New Balance’s vice president                New Balance hopes this will lead to the kind of market-
                         of sales, made the first few rounds of calls. Now they’re           share gains globally that the company has already achieved
                         made on a weekly basis by regional sales managers such as           in North America.
                         Steve Prince.                                                           “Everybody has some sort of forecasting here in North
                            Sales reps, says Mescon, “are always on the hook, one way        America,” Ed Haddad, the company’s vice president of in-
                         or the other.” The result, he says, is that the reps are be-        ternational operations, says. “But when you go overseas, ex-
                         coming better at their business. “The salespeople are much          cept for maybe Adidas in Europe, it’s like stepping off a cliff.”
                         more accountable, and they’re spending more time manag-                 Is Nike watching what Teresa Holland is up to now?
64                       ing the business, especially the larger accounts.”                  You bet.

				
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