Second Wind

By Larry Barrett  |  Posted 2003-11-01 Print this article Print

New Balance had nearly faded into irrelevance six years ago. Then, accurately forecasting demand for its shoes became a sport for the entire company and its retailing partners. Now it's making up ground quickly, in its footrace with Nike.

Second Wind

Automatic replenishment, though, can be stultifying. Taken to the extreme, it would mean New Balance would never introduce new products—a guarantee of death even for a company that has tried to limit the influence of fast-changing fashion on its shoe sales.

So while Mescon will make sure New Balance's popular 991 running shoe is always in stock at its retail outlets, "fringe" styles—such as the company's Dunham-brand "adventure sports" styles, suited to endeavors like mountain biking and rock climbing—aren't restocked the same way.

With Holland's system, New Balance now gets a living, breathing snapshot of which shoes are selling, where they're selling and, indirectly, why they're selling.

"Sell-through" data from each retailer is dumped into a massive text file each week. That file gets pulled into a Dimensional Insight database, so it can be analyzed in detail—by shoe style, by color, by size, by width, and by retailer.

New Balance executives view the results electronically and can click deeper for further details.

"The sell-through data is the first indication [if] things are going off our plan," Mescon says. This allows the executives to increase or decrease planned production faster than waiting for a sales rep to confer with a customer before adjusting a forecast. And the collaboration with retailers makes it easier to accommodate unexpected demands, such as the re-introduction of PF Flyer sneakers. That brand is remembered mainly by the parents of urban and suburban youth, but retailers expect the retro shoe to sell well. New Balance plans to meet that demand.

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

The current example: new sneakers based on a $90-million endorsement deal with high-school basketball wunderkind LeBron James. If he's the next Michael Jordan, he'll be the face and endorsement meal ticket for professional basketball for the next decade.

However, Nike is deliberately rationing the supply of the LeBron James shoes to its retailers in the name of maintaining "buzz."

"The shoes should be in the hands of retailers to sell on Dec. 26," Shanley says. "But [Nike's] not going to give retailers as many pairs as they want. It's frustrating for the retailers because they know the demand's going to be enormous. But this is standard for Nike."

While Nike and Foot Locker officials say they've reached a truce of sorts in their squabble, Foot Locker will not be receiving any LeBron James shoes until early 2004.

"Are we happy about this?" asks Foot Locker's Brown. "No. But we're working with Nike to make sure we get these shoes in the future."

In the meantime, Holland continues to tweak both the format of New Balance's forecasts as well as the data they're built on. The aim is to give the sales force information that will gain new customers or keep existing ones.

For instance, Holland recently figured out a way to pop out "open orders" from the system, says Vandemore.

By pulling data on factory runs from the manufacturing-planning system and comparing that to records of orders placed by its retailers, the tweak now lets a sales coordinator like Vandemore know which customers' orders haven't been fulfilled. That extra piece of data lets reps tell individual customers what product is stuck in the pipeline and how it will affect their inventory levels when it finally arrives. As a result, the reps can revise follow-on sales accordingly—before customers are alienated.

Holland also has developed a means of measuring each sales rep's forecasting prowess. She compares the accuracy of their latest forecasts against their forecasts of six months earlier—and actual orders for the current month. "We chose a six-month window because that's when we're making our buy decisions," i.e., instructing factories on what to manufacture.

"What we're hoping to see," Holland says, "is that as their forecasts get better, our forecast also gets better. We've been doing that now for about a year. At this point it seems to be getting better."

New Balance's O'Brien—the man with 200 styles to manage—says forecasts are making a tough job easier. "I would say we've had easily a 50% improvement in accuracy. I can't say that it has meant a 50% improvement in how we handle our inventory, but it makes our decisions maybe 25% better. I have more faith in my numbers."

Senior Writer
Larry, of San Carlos, Calif., was a senior writer and editor at CNet, writing analysis, breaking news and opinion stories. He was technology reporter at the San Jose Business Journal from 1996-1997. He graduated with a B.A. from San Jose State University where he was also executive editor of the daily student newspaper.

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