The Real Strategies in Shoe Manufacturing

investing in plant upgrade options A and C and also consolidating the production of 500 models/styles of branded footwear in a single 12-million pair plant in the Asia-Pacific (to only incur the payment of $14 million in production run setup costs one time).

The objective of these establishments, apart from achieving labor cost savings, was to spread risk. Initially, the various production sites were capable of producing the same types of shoes, indicating an insignificant degree of specialization in the production units. However, in recent years ECCO had strived to narrow each unit and capitalize on its core competencies.

The timing of capacity changes also needs to be taken into consideration to achieve maximum efficenty given that demands of their products varies with seasonal changes. The ability to react to market demand changes quickly will determine manufacturers flexibility in keeping up with these demands. Manufacturers needs facilities to produce, whether warehouses to store its raw materials or finished goods, or manufacturing plants to produce their products. Services facilities are needed by certain manufacturing industries such as consumer electronics to cater for returns. Distribution centres also determine the efficenty of production distribution and un-nesessary inventory holding will result in higher holding cost. Such facilities require large investments and are integral of the manufacturer’s supply chain strategy and thus proper planning is needed when making these decisions regardong the size, location which affect the overall operations. How manufacturers run their productions also determine how successful will they be in terms of productivity and quality levels. Different types of equipment and processes also affect the cost and output of the manufacturing plant. Information systems that flow both upstream and downstream affects the forecasting, planning, inventory and production levels, they must be robust to ensure the manufacturing firm is able to react accordingly to changing demands and variations. In addition to their internal environment,

Question 4: Take into account the answer to question 1 and the supplier’s new policy outlined in question 2 and the warehouse’s new policy in question 3. Then determine Low’s new EOQ.

Production management is the organising and planning of staff and assets required to produce products and services, this could be ranging from organising staff to install equipment located on another continent through to the selection and purchasing of new plant to increase production in a manufacturing facility.

Obviously, there is a big number of driving forces in the athletic footwear industry. Each of these driving forces has different impacts—some of them can have a more considerable effect than others on figuring out how much cross-company differences influence market shares and a number of units sold. The first line of most influential factors includes comparative prices, S/Q ratings, and a number of models offered among the footwear competitors. These three most important competitive forces affect customer decisions of which athletic footwear brand to choose. Furthermore, the decisions of customers whether to purchase one brand or another are also influenced by such forces as advertising, celebrity endorsements, the number of independent retail

The next task is to provide the optimum number of shoelaces to order, using appropriate cost balancing. The economic order quantity (EOQ) is the order amount that allows for an optimum level of materials at the lowest cost possible. There is a demand ofr 300,000 shoelaces per year. The setup cost is $125 per order. There is a $.10 holding cost per unit. The optimal order quantity recommended is 27,386.13 shoelaces per order, with a maximum inventory of 27,386.13. This means that we will order just the amount of shoelaces needed to fulfill current production orders. The average inventory is 13,693.06 shoelaces. There will be approximately 10.95 orders per year. The annual setup cost is $1,369.31, and the annual holding cost is $1,369.31. This makes the total cost per year $2, 738.61. This decision tool allows us to calculate the correct amount needed per order to ensure that we are lowering operating and holding costs, while keeping production properly stocked.

Traditionally, the shoe industry was seasonal and based on projections of future trends. Retail stores would need to place orders several months before the shoes would even hit the shelves. As orders were made early in the year, manufacturers would begin production for shipment later in the year. Since inventory supply depended on expected sales, stock could not be quickly replenished as it ran out. The executives at Crocs decided to branch out from the traditional production schedules and develop a lean production model. As sales increased or decreased, Crocs managed to speed up and slow down production throughout the year to quickly replenish depleted inventory. Since the shoes were easily made with the foam mold design, rapid production and order fulfillment came easily for Crocs. This approach attracted the attention of many footwear retailers. With Crocs shoes being made to order, stores could more easily control inventory without worrying about a

EOQ as described everywhere is “the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models”. This model uses the following assumptions:

Customer demand and product preference should be focused on to produce more of what the customer wants and to allow for stock reduction.

By the use of Porter’s Five Forces model to analysis the athletic footwear market around the world; our strategy is to cut the price of footwear in the Year 11 and 12, and to increase budget of advertisement and to bid celebrity endorsements in order to boost the sales volume in a competitive industry .

Nike subcontracts the production process of its footwear to 900 contract factories located worldwide with Asian developing countries such as China, Indonesia and Vietnam accounting for the bulk of total world production. Production of the footwear is based on a vertically integrated model. In the primary stage, raw materials such as rubber, leather and plastic are extracted from places located in close proximity from the factories. In the secondary stage, the extracted resources are sent to the factories or “Sweatshops” for manufacturing. It should be noted that the whole production process of Nike footwear are being carried out by independent private contractors.

In order to achieve excellent production capacity and reducing the overall costs the production manager has to find an optimal structure of aggregate planning which will help achieving qualitative and quantitative aspects of the organization.

The athletic shoe industry will be first analyzed by the Porter’s Five Forces framework. The well-known Porter’s Five Forces is a model that analyzes an industry and helps firms develop a business strategy. The five forces model focuses on six forces that will determine the attractiveness of this industry: (1) the risk of entry by potential competitors, (2) the intensity of rivalry among established companies within an industry, (3) the bargaining power of buyers, (4) the bargaining power of suppliers, (5) the closeness of substitutes to an industry 's products, and (6) the power of complement providers (Hill, Jones, & Schilling, 2015).

2. Analyze ECCO’s global value chain. How well does this configuration match the drivers in the industry?