Operations Management and Management Science Case Study

Capacity Planning

New Balance Athletic Shoes

Summary

James Davis is the president and general manager of New Balance Athletic Shoes. The Boston, Massachusetts based company began producing corrective shoes and arch supports in 1906. New Balance garnered a reputation for quality specialty footwear when in the 1950's it began producing running shoes for men. It is the beginning of 1978 and Mr. Davis has a number of important decisions to make regarding the future of his growing company.

In recent years the demand for running shoes has experienced explosive growth. The increasing popularity of the sport of running requires James Davis to carefully evaluate the accuracy of the …show more content…

The most important aspects to note concerning New Balance's distribution, is the over representation in the northeast, and the under representation in the West. While New Balance has been able to maintain a strong market share in the northeast where a majority of its sales representatives are located, the company's market share is low in the west where the largest portion of the running shoe market is located. Due to this under representation, the western sales region represents a great deal of untapped potential for the company. Although having its production facility located in the northeast has helped New Balance build up its market share in that particular region, the company should consider the advantage of having a more westward located facility to help strengthen its presence in the region.

Finally, we are going to address New Balance's various options for capacity expansion. In addition to running a second shift, alternate sites for new facilities have been located in Lawrence, Massachusetts, the state of Texas, and the country of Ireland. The following table details the financial aspects associated with each expansion option. Beginning with the option of starting a second shift, you can see that Mr. Davis' belief that this option is not viable holds true. On the one hand, a second shift is not the best financial decision for New Balance because of both higher expenses (Labor Cost), and