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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
C A S E
A
093
D I S S E C T I O N
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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.
N E W
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:
C A S E
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
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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
B A L A N C E
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.
N E W
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
C A S E
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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B A L A N C E
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-
N E W
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
C A S E
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
B A L A N C E
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
N E W
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
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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
564851956357363544859326434563954653065773675612543627457923151843212118513646752325648519563573635448593264345639546530657736756125436274579231521185136467523256485195635
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.
