Executive Word -- Manufacturing In The U.S. Pays Off

New Balance CEO outlines benefits of maintaining domestic production.

Jim Davis CEO New Balance Athletic Shoe Inc. Boston

Born: 1943

Education: Degree in biology/chemistry from Middlebury College,Vermont, 1966.

Career Highlights: 1965: Started out in a private real-estate acquisition and management firm in Boston. 1967: Became a sales engineer at the Trapelo Division of L.F.E. Corp., Waltham, Mass. 1970: Became marketing manager at Applied Geodata Systems, a division of the TechVen Association Inc., Cambridge, Mass. 1972: Bought New Balance, then a six-person company making 30 pairs of running shoes per day.

Interests: Serves on the board of directors of the Sports Museum of New England and The Children's Museum in Boston.

Family: Wife, Anne, and two children.

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While many -- if not most -- other U.S. manufacturers race to move their manufacturing plants offshore, New Balance Athletic Shoe Inc. of Boston remains committed to investing in and expanding its U.S. manufacturing capacity. Indeed, last year, the company became the only athletic shoe company with production facilities in the U.S. Since 1998 New Balance has increased U.S. manufacturing output by 70% and overseas manufacturing by 200%. In 2001, the company moved up to third in U.S. sales of athletic footwear, behind rivals Nike and Reebok, and fourth in worldwide sales, according to the latest statistics from the newsletter Sporting Goods Intelligence.

IW Editor-in-Chief Patricia Panchak recently spoke to Davis about why he's committed to manufacturing in the U.S., and how he's able to stay competitive with low-cost overseas manufacturers.

IW: Why is it important for you to manufacture in the United States?

Davis: It's really part of our culture. When I became involved with the company 30 years ago, all we did was manufacture here. It steadily grew from there. Now we manufacture a lot of product overseas as well, but to a large extent that's because our sales increase faster than our ability to manufacture here.

IW: But a lot of manufacturers have long histories in the U.S., and they've moved manufacturing off shore . . .

Davis: We've made large investments over time in terms of human capital, in terms of equipment and training extensively, and in empowering our associates, our employees, so that they are able to effectively compete with the low wages from the Far East.

IW: What specifically have you done to empower your employees?

Davis: What we've done is share with them all the information that we have in terms of the manufacturing process and the costs involved. We say, 'If this shoe takes $15 to manufacturer in China, we have to meet that,' and we ask [them] how we can most effectively do that. The teams that we have in the factory are all cross-trained, and they are becoming more and more self-directed as time goes on. As a result, they come up with all kinds of new ways, new techniques, new processes in which we can increase the productivity. It's really a continuous-improvement process.

IW: Still, some people ask, 'Why can't everything be manufactured overseas?'

Davis: Well what happens if we had a war with China? Where would we get our boots?

IW: As far as the percentage that you manufacturer here and abroad, can you give us a breakdown?

Davis: It's about 25% here and 75% imported, in units.

IW: How do you decide how much to manufacture in the U.S.?

Davis: As I indicated: Our ability to increase our manufacturing has not been able to keep up with our sales. Each of our U.S. manufacturing facilities has a capacity limit, and it takes significant time and resources to expand [it].

IW: In the meantime, all your athletic footwear competitors are overseas.

Davis: We feel that we make better shoes here, because we can control the quality better. But we also make better shoes abroad because we know how to make shoes. Whereas our competitors will design a shoe, and they'll send it over and say to those guys 'make it,' we usually tell them how to make it better.

IW: So, one of the benefits of domestic manufacturing is that it gives you a better understanding of the manufacturing process, which helps you make a better product?

Davis: No question about it.

IW: What are the other ways you benefit by manufacturing in the U.S.?

Davis: We're closer to the market. We're able to work more closely with our retailers and get the product to our consumer quicker. We ship product to our retailers every day. Most of our competitors ask you to order six months in advance. We share the risk with the retailer so that he or she isn't caught with obsolete inventory and a lot of markdowns. One of the other things that differentiates us -- and is a reason for sharing the risk -- is we make all of our shoes in multiple widths. A retailer doesn't have the storage capacity to keep a lot of product for every single width and size, so we hold on to it in our own distribution center and ship it to them as they need it. It's really developing a close working partnership with the retailer so that we can accommodate their requirements. Another point I want to make is that we probably wouldn't be a domestic manufacturer if we were a public company. . .

IW: That was one of my next questions . . .

Davis: . . . primarily because we would probably be more profitable if we made all of our shoes abroad. But again, we think it's important to manufacture here.

IW: You're willing to leave that profit on the table?

Davis: Yes. We provide better services because [we manufacture in the U.S.]. There are secondary issues [but] it's hard to come up with a dollar figure. The products that we make abroad, we feel, are better because of our experience in terms of domestic manufacturing. We think that the fact that we make them here, the quality is better. We're better designers . . . The width sizing is a major, major factor.

IW: Do other athletic shoe manufacturers offer width sizing?

Davis: They haven't until recently. They try to emulate what we do, but it's very difficult for them, because again, they have to look in the crystal ball and figure out what they're going to be selling six months from now. Some will offer widths available in one model, where we have committed to multiple widths in all of our styles.

IW: So is that a barrier to entry, for companies who might try to compete with you on that point?

Davis: No question. As I said before, they don't know how to make shoes. We've been doing it for 40 years. So over that 40-year period you learn a lot. It would be virtually impossible for our competitors to make shoes domestically today. The things we do, nobody else does. We have developed techniques, methodology, even equipment that does not exist in the industry -- most of it has come from our associates.

IW: So you have machines that nobody else has?

Davis: We do have some that we've developed. Not all are totally designed by us, but many are modified by us to a large extent. In some cases we will sit with a manufacturer and tell them what our requirements are and see if they'll develop a machine for us.

IW: What are the top three strategies that help you to continue to manufacture in the U.S.?

Davis: It's really having the right people: That's the key. There are a lot of secondary strategies but the main thing is having the right people who are ready to make that commitment. And then it's training, it's investment, it's commitment . . . Training is a big part of it. You have to be certain to train the folks. You can't just ask them to do something without the proper training.

IW: And you have a 'unique compensation program' according to your press materials. . .

Davis: Yes. New Balance has implemented a new compensation program that rewards associates for developing their skills in three key areas: 1) technical skills, 2) quality focus and 3) involvement in suggesting and implementing improvements in the way we run the business. We support this with extensive job skills training as well as 18 hours of classroom training.

IW: What are some of the other strategies that help you?

Davis: It's providing the right machinery, developing new [manufacturing] techniques and empowering the associates so they continuously improve the process. There's another component here too. There's a certain satisfaction derived from our folks through corporate responsibility. We try to encourage them to be involved in the communities where we have facilities. We're involved in a number of things like Habitat for Humanity, Race for the Cure (for breast cancer) with the Komen Foundation and Girls on the Run. Basically the idea is that you're not here solely to make a profit. You're here to give back, too. The philosophy here is, we wouldn't be doing as well as we are if all the people who work here weren't so committed. It's because of them we're able to do well, it's because of them we're able to give back.

E-mail nominations for Executive Word to Editor-in-Chief Patricia Panchak at [email protected].

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