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May 16, 2005

Trimming the fat | A new approach to manufacturing at Norridgewock plant has operations running lean and mean

The main manufacturing floor at New Balance's Norridgewock facility is tightly packed. Workers stand shoulder-to-shoulder in the 40,000-square-foot, low-ceilinged room tucked mostly below ground. Sewing machines and other manufacturing equipment are carefully lined up just inches away from each other. The machinery ends at the far edge of the manufacturing floor, a few feet from a humming conveyor belt ready to haul cases of finished running shoes ˆ— stitched, laced and packed ˆ— up to the factory's loading dock.
To the untrained eye, it might seem like the factory is close to running out of room and is ripe for expansion. Maybe a few thousand square feet of space would do ˆ— just enough to get a handful of sewing and embroidery machines off of the main floor.

But Jeff Williams, the divisional manufacturing manager in charge of operations in Norridgewock and another New Balance factory in Lawrence, Mass., likes the floor just the way it is. In fact, sticking the bulk of the factory's manufacturing operation in one room is exactly what Williams planned to do last July, when he and a number of New Balance workers took advantage of a two-week break in production to re-jigger the factory's operations. By the end of the two weeks, Williams and his crew had reduced the facility's live manufacturing space by half, from 80,000 sq. ft. to roughly 40,000 sq. ft., leaving a big chunk of the available floor space empty.

The move was carefully planned: Williams and a handful of local New Balance managers, including Raye Wentworth, the plant operations manager in Norridgewock, had worked for more than six months to map out where every piece of equipment should go, down to the last sewing machine and sole press. For Williams, it was the beginning of a wholesale change in the way athletic shoes are manufactured in Norridgewock. And for New Balance, it was the beginning of a company-wide shift in manufacturing strategy.

The basis for such a radical change in manufacturing methods? Toyota. The change instituted by Williams and the rest of the employees at the Norridgewock plant follows the tenets of lean manufacturing, a technique developed over decades by managers at the Japanese automaker and popularized in the United States in the 1980s. The gospel according to the Toyota Production System is based upon the minimization of waste ˆ— both in materials and labor ˆ— through careful analysis of manufacturing processes. "It's really a new way of thinking," says Rosemary Presnar, operations manager at the Augusta-based Maine Manufacturing Extension Partnership, which offers business assistance to Maine manufacturers. "It's understanding the waste in the processes and the waste in the value that you're producing for your customers. Some people can't see the forest for the trees. They're working too hard and not seeing what's being wasted."

And as manufacturing jobs are leaving the United States in droves, companies like New Balance are looking at new strategies such as lean manufacturing in hopes of boosting production, maximizing efficiency and reducing the impact of outsized labor costs compared with overseas markets. In Maine, the migration of manufacturing jobs has been particularly striking: Once a hotbed of manufacturing activity, the state lost roughly 20,000 ˆ— or 24% ˆ— of its manufacturing jobs during the 10 years through 2004, according to the Maine Department of Labor.

And the situation isn't expected to improve anytime soon; a new MDOL report estimates that the state will lose another 9,200 manufacturing jobs through 2012. (Meanwhile, numbers for Maine's shoe industry are similarly bleak: Nearly 27,000 people worked in footwear manufacturing in 1968, compared to roughly 1,700 last year.) But despite the grim statistics, manufacturing remains a big component of Maine's economy ˆ— in 2004, manufacturing jobs still employed 10% of Maine's workforce ˆ— and many manufacturers here are looking for new ways to compete with overseas manufacturers in order to stay stateside.

As a result, a number of Maine companies have looked to lean manufacturing to become more competitive. At New Balance, the changes have been nearly revolutionary. Chairman and CEO Jim Davis expects each of the company's four other U.S.-based factories to adopt the practices. "We will do it in all the plants," he says, "and if it continues to be successful, we'll be able to bring more shoes onshore from China to the U.S., which will be a first."

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New Balance is in the unique position of being the lone athletic shoemaker still churning out a portion of its inventory in the United States. Competitors like Nike and Reebok outsource their entire manufacturing volume to third-party manufacturers in countries like China, Indonesia and Vietnam, fattening their bottom lines with the overseas availability of cheap labor and materials. "The other companies don't manufacture anything," says John Horan, publisher of Sporting Goods Intelligence, a industry newsletter based in Glen Mills, Penn. "Nike doesn't own a single factory, Adidas has closed all its factories and Reebok only owns a printing facility for its licensing business."

The "made in the U.S.A." tag is of great importance to Jim Davis, even though he acknowledges that not every New Balance shoe can be manufactured domestically. Currently, about 30% of New Balance shoes are manufactured stateside; the rest are outsourced to facilities in China and Vietnam. "The number used to be 50-50," says Williams, "but New Balance has grown so dramatically in the last five or six years that we just can't keep pace with the sales."

But there are other benefits to domestic manufacturing besides the patriotic undertones that come with an American flag sticker slapped on the shoebox. New Balance is significantly closer to its retailers in the U.S. market, which last year made up 72% of the company's $1.5 billion in sales. That means New Balance can fill orders and ship them to customers much more quickly than its competitors, keeping a lid on inventory costs and shipping. That's helped the company keep its top-tier position in the highly competitive U.S. athletic footwear market. For the past five years, the company's share of the $14.4 billion domestic market has been beaten only by Nike and Reebok according to SGI. Last year, New Balance's U.S. sales rose by 14.7%. "New Balance has done a good job giving themselves a very unique position because of their domestic manufacturing," says SGI's Horan. "That enables New Balance to do a lot more just-in-time fulfillment, which is something that the other guys can't do because they're ordering everything five weeks in advance from China."

Since Davis bought the company in 1972 ˆ— on the day of the 75th running of the Boston Marathon ˆ— New Balance's manufacturing has expanded to five U.S.-based factories from just one in Watertown, Mass. These days, New Balance's domestic manufacturing takes place in three Maine factories ˆ— in Norridgewock, Norway and Skowhegan ˆ— and two Massachusetts locations in Boston and Lawrence. (The company operates a manufacturing facility in the United Kingdom to better serve the European market, and an independent supplier runs a factory in California that produces New Balance shoes.) The firm last year sold 36 million pairs of athletic shoes in the United States, and has expanded its business to include work boots under the Dunham brand and lacrosse-equipment-maker Warrior Lacrosse, which it bought in early 2004. During the past decade, New Balance says it has increased by 45% the number of its U.S.-based manufacturing jobs.

To keep manufacturing in the United States, Davis and the rest of the New Balance executive team have had to keep a tight rein on the costs associated with production. (As a privately held company, New Balance is able to take a longer-term view of its market, rather than having to appease shareholders on a quarter-by-quarter basis, according to Horan.) In most cases, getting a handle on costs has meant looking for ways to streamline the process through better technology or shifts in methodology. For years, the company relied on an assembly line process where each worker specialized at one task. In the late 80s, that changed to a team-based approach, where workers learned different skills and were encouraged to collaborate with each other. The switch was a success, says Williams, and slashed the amount of work-in-process (the amount of time material or product is sitting around waiting to be worked on) during the production cycle from 12-14 days to just eight days. "It made production more dependable," he says.

The circle game
Meanwhile, Davis says he's worked hard to instill a culture of empowerment in New Balance's employees. These days, for example, employees receive an hourly wage instead of being paid based on how many shoes they make ˆ— a hallmark of the footwear industry that Williams says bred equal parts competition and poor quality. ("If you pay for speed, that's what you get," he says. "If you pay for quality, you'll get quality.") In the 1970s, when Davis took over, he describes the manufacturing environment as "authoritarian"; managers lorded over employees, cracking the proverbial whip to boost production. Williams recalls shoe factories in the 1970s being "dirty," with "everyone out for themselves. Everyone felt threatened every day, and that's how [the management] motivated them," he says.

In the mid-70s, Davis developed a joint venture with a Japanese company to create New Balance Japan and got a firsthand look at the kinds of management techniques then revolutionizing the Japanese economy. The concept of quality circles, which stressed problem solving through participation and collaboration, particularly intrigued Davis. "I started thinking that way and instilling that empowerment into the factories early on," says Davis. "But it takes a long, long time for [employees] to get used to trusting the management and trusting themselves in terms of having the confidence to say, 'We're not doing this properly, let's do it this way.'"

These days, says Davis, the bottom-up philosophy at New Balance encourages employees at all levels of the company to think of ways to make the company run more efficiently. That's what spurred Jeff Williams, a 23-year New Balance employee, to institute the recent changes at the Norridgewock plant. The manufacturing shift came in response to a 2003 challenge Davis put to the New Balance management team to cut the amount of time it takes to ship an order from 17 weeks to two weeks. "It was quite a challenge," says Williams. "But if you don't ask for it, you don't get it."

In order to cut the order-to-ship cycle, production at each plant needed to be reduced. In Norridgewock, that job fell to Williams, who needed to build a shoe in five days instead of eight. So Williams, an enthusiastic presence on the manufacturing floor who prefers cowboy boots over wingtips, began brainstorming with the Norridgewock team, including Raye Wentworth, a 22-year New Balance veteran who transitioned into the manufacturing side of the operation just a few years ago after spending nearly two decades handling corporate finances.

Inspiration for the changes came from a magazine article, given to Williams by a New Balance manager in Boston, that discussed lean manufacturing techniques. That led Williams in mid-2003 to pick up a copy of Lean Thinking (Simon & Schuster, 1996), a book by James Womack and Daniel Jones that is often credited with bringing lean manufacturing techniques to North American companies. "I got the book and it was like, bang, off we go," says Williams. "I can't really explain why. I'm reading these case studies and thinking about our culture here as a company, and I'm thinking, 'Hey, these aren't extraordinary people. They're people just like us. Why can't we be the best manufacturing company in the world?'"

For the next 12 months, Williams and the management team in Norridgewock ˆ— which included Wentworth, engineers, supervisors and trainers ˆ— planned the shift to lean manufacturing, kicking off the process with an exercise called value-stream mapping, which details in chart form the flow of information and materials needed during each step in the manufacturing process. Ideally, creating such a map allows managers to quickly see inefficiencies in the manufacturing process, where material or labor waste is high, or where work-in-process is unnecessary.

The value-stream map for pre-lean operations at the Norridgewock facility is tacked on a wall in the upstairs conference room; it's a cluttered diagram of boxes and lines. The lower edge shows the work-in-process between each manufacturing step: a day here, a day there. Below that is another map, which Williams says he'd like to be using six months or a year from now. Compared to the upper map, this one is clean and orderly. Just a few lines are connected to the boxed-in steps in the manufacturing process, and much of the map is white space.

From the ground up
When Williams and the Norridgewock team mapped out the manufacturing process in 2003, production on a pair of shoes included just 24 minutes of actual labor, where employees handled material, stitched materials together on uppers and joined the uppers with the shoe soles. But the process from start to finish still took eight days, thanks to loads of work-in-process time between each step. Starting in early 2004, Williams began cutting one day of work-in-process a month until July, when, during the annual two-week production halt, the factory's manufacturing space was condensed and processes were streamlined.

And instead of trimming the production cycle from eight days to five days, Williams reduced the start-to-finish process to just one day. "We had 24 minutes of actual work to build a shoe, but almost eight days of just hanging around," he says. "Now, we cut shoes on one end and pack them at the other end eight hours later. We took about half-a-million dollars of work-in-process right off the floor."

Many of the changes were low-tech and intuitive, says Williams. For example, instead of having to leave their workstations to replenish supplies, workers now use small cards ˆ— called Kanban cards ˆ— to request a new batch of material. One worker makes hourly rounds to pick up the cards, and then circles the floor delivering materials to each workstation. Williams says many of the solutions sound simple, but that instituting a wholesale change in the factory's production method was a difficult transition, and one that required careful planning to keep employees ˆ— from the management staff to the stitchers on the floor ˆ— in the loop. "Number one, we weren't used to it, and no matter how much we like to say we like change, we don't," he says.

Getting the employees on board was a critical step, says Williams, who adds that changing employees' well-rehearsed habits during the 6:30 a.m.-3 p.m. shifts at the factory was a tall order. That required educating each employee on the benefits of lean manufacturing. Williams contacted Maine MEP, which scheduled a training session, called "Lean 101," for 30 management and production staff in Norridgewock last year. "If we didn't have a willing workforce that shared a common goal, we wouldn't try to do this," he says. "We've had to do some education to reach the same level of understanding, but we have a very good trusting relationship [with the workers], and that's all you really need."

A mark of how invested the employees are in Norridgewock's shift to lean manufacturing is the work of Terri Morneau, a stitcher who approached Williams with an idea on how to boost her team's production. Moving the machines and workstations from a straight line into an S-curve, she reasoned, would make it easier to pass materials from one station to the next. Morneau's idea is just one of roughly 130 that Norridgewock employees have submitted since last July; 126 of them have been approved, according to Williams. (He adds that the approved ideas will cut 138.7 miles of walking each year for the factory's employees.) And to keep such ideas coming in, Williams and Wentworth have reduced the amount of red tape workers need to wade through to get an idea implemented. Now, workers need to just relay their ideas to their supervisor, who will vet the idea to make sure it's safe to put into action. "Idea generation is such a big part of the lean manufacturing process," says Williams. "If you don't have your associates thinking about change, it won't work."

Raye Wentworth credits the Norridgewock employees with making the shift to lean manufacturing so successful. And both Williams and Wentworth say employees will continue to push the company's manufacturing processes forward. After all, a primary concept in lean manufacturing is kaizen, or continuous improvement. "We're really proud of what we've done," says Williams. "But we're still so far in the beginning, and there's so much more that we can do. It's like the more you know, the more you find out that you don't know."

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