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At New Balance, Supply Chain Constraints Unlock New Sourcing Hubs

New Balance senior vice president of strategic sourcing and quality Duncan Scott’s current favorite is the RC Elite running shoe, which touts a carbon fiber plate to aid with performance.

It’s a fitting favorite for the footwear veteran whose career has also included time at VF Corp., Adidas and Reebok, with responsiveness and agility key in handling logistics disruptions expected to persist much longer than many had ever anticipated.

“I think that we are definitely seeing longer term disruption,” Scott said during Reuters’ Supply Chain Execution USA conference in Chicago last week. “We do not expect supply and demand to equalize any time soon. We’re seeing at least into 2023 and probably into 2024 before things start to go back and normalize a little bit closer to the way things were, and that’s a challenge for us and we’re trying to prepare accordingly.”

The Boston-based company, which had sales of $4.4 billion last year, is pulling a number of levers to navigate the market conditions.

One part of that is domestic manufacturing, which not only addresses supply chain challenges, but also allows the shoe company’s designs to be more responsive to consumer tastes at a localized level.

“That [domestic manufacturing] is one answer. We’re evolving that. We have more in-house processes now, so we’re a little bit less reliant on outside processors,” Scott said.

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The company began production in January inside its new factory in Methuen, Mass., which saw a $20 million renovation prior to the start of manufacturing. New Balance said in late March, when it announced the factory’s opening, that the facility was producing the company’s MADE 990v5 model running shoe and had plans to more than double its production capabilities this year.

The opening of the new facility brings the company’s total number of stateside factories to five across Maine and Massachusetts. The facilities employ about 1,000 people who handle cutting, molding and assembly. There’s also a New Balance factory in the U.K. and other locations globally where local production takes place and makes sense, Scott said.

“I think [local production], particularly because of logistics issues, is going to grow,” he said. “It is also a specific kind of production that we want to do here and a lot of that is for product that we need to be able to react very quickly in the market and meet our customers’ needs.”

Manufacturing locally also offers a craftsmanship story that is specifically demanded by a certain set of customers and, in some cases, U.S.-made product is exported to key markets such as Japan, China and Europe.

At the same time, the executive said there’s no denying the scale and purchasing power manufacturers in Asia and now other parts of the world can offer.

The company has diversified to alternatives outside of China or begun nearsourcing critical components and materials closer to factories to hedge against logistical challenges. New Balance, like many other companies, has also adjusted its product calendars when necessary.

While many companies, like New Balance, are diversifying their manufacturing and sourcing partners, it’s not an overnight process, Scott pointed out, adding it can’t be forced or sped up through legislation. This is particularly true given most manufacturers are still reliant on places such as China for their materials, meaning they’re still subject to logistical wait times given the supply chain constraints.

“I think that you can’t really legislate your way into onshoring or nearshoring,” he said. “It has to happen naturally.”

The executive offered a number of takes on the upsides of factories and suppliers in different parts of the world.

Indonesia, he pointed out, has made significant strides in its port infrastructure, high speed rail and highways systems to support goods movement. At the same time, the supplier base is also diversifying. He also pointed to India making headway as a sourcing hub, while Africa has advantages given favorable trade agreements with the U.S. and Europe. Meanwhile, Latin America, in places such as Central America and Mexico, can offer speed-to-market capabilities.