Opportunities for Increasing Markets and Employment in the Shoe Industry Volume 1 U.S. DEPARTMENT OF COMMERCE ECONOMIC DEVELOPMENT ADMINISTRATION This technical assistance study was accomplished by professional consultants under contract with the Economic Development Administration. The statements, findings, conclusions, recommendations, and other data in this report are solely those of the contractor and do not necessarily reflect the views of the Economic Development Administration. Volume One Contains: "SUMMARY REPORT" "A LAST-GRADING SYSTEM FOR THE MEN'S SHOE INDUSTRY" by W. R. Purcell, Jr. Summary and Final Report Opportunities for Increasing Markets and Employment in the Shoe Industry (Nonrubber) In Two Volumes Volume 1 prepared by Battelle Memorial Institute J. R. Miller, R. L. Crosby, G. L. Robinson, W. R. Purcell, Jr., N. H. Gaber, R. W. Hale, and W. L. Swager for the U.S. DEPARTMENT OF COMMERCE John T. Connor, Secretary Ross D. Davis, Assistant Secretary and Director of Economic Development For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402 Price $1.00 FOREWORD Technical progress in manufacturing methods and new concepts in marketing have in the past contributed to both greater productivity and improved service to consumers in the American economy. This study, conducted under an EDA technical assistance contract by the Battelle Memorial Institute, Columbus, Ohio, recommends ways to achieve substantial savings, increase markets and expand employment in the shoe industry. The study provides a step-by-step guide for industry leaders at several levels for putting into effect the recommended improvements. Its emphasis on the use of up-to-date research and promotional techniques in the sizing, production and marketing of shoes gives the study particular importance for shoe manufacturers, distributors and retailers. Ross D. Davis Assistant Secretary and Director of Economic Development SUMMARY REPORT TABLE OF CONTENTS Page INTRODUCTION 1 Objectives and Scope 1 Methodology 2 MAJOR RECOMMENDATIONS 3 I. Last- Grading 3 II. Inventory Management 4 III. Research and Development 4 IV. Exports 5 A NEW LAST- GRADING SYSTEM FOR MEN'S SHOES ... 7 EXECUTIVE SUMMARY 7 Analyses 7 1. Fit 7 2. Inventory Reduction 9 3. Geometric- Machinery Automation 13 4. Changeover Costs 14 5. Merchandising 16 6. Total Evaluation 18 Recommendations 18 Developmental Testing Program 18 Preparation for Retail Introduction 19 Feasibility Studies on Women's and Children's Last- Grading Systems 19 OPPORTUNITIES FOR INCREASED PROFITS THROUGH INVENTORY MANAGEMENT IN THE UNITED STATES SHOE- MANUFACTURING INDUSTRY 29 EXECUTIVE SUMMARY 29 Analysis 29 Recommendations 30 RESEARCH AND DEVELOPMENT IN THE UNITED STATES SHOE INDUSTRY 35 EXECUTIVE SUMMARY 35 Analysis 35 Recommendations 37 TABLE OF CONTENTS (Continued) Page The Leaders 37 Manufacturers Without Research Today 38 The Industry 39 OPPORTUNITIES FOR INCREASING EXPORTS 41 EXECUTIVE SUMMARY 41 Analysis 41 Management 42 Marketing 42 Recommendations 44 Phase I 44 Phase II 45 Phase HI 46 LIST OF TABLES Table 1. Key Specifications of Men's Last-Grading Systems 10 Table 2. Summary Evaluation of After- Tax Economic Effects of the Five Last- Grading Systems 20 Table 3. Guidesheet for Estimation of Company Savings and Costs From Conversion to Dynametric II 21 Table 4. Recommendations and Suggested Key Steps (Inventory Management) 34 LIST OF FIGURES Figure 1. Steps Toward the Introduction of Dynametric II 26 Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://www.archive.org/details/summaryfinalrepoOObatt SUMMARY REPORT on OPPORTUNITIES FOR INCREASING MARKETS AND EMPLOYMENT IN THE SHOE INDUSTRY (NONRUBBER) to OFFICE OF PROGRAM DEVELOPMENT ECONOMIC DEVELOPMENT ADMINISTRATION UNITED STATES DEPARTMENT OF COMMERCE by J. R. Miller, R. L. Crosby, G. L. Robinson, W. R. Purcell, Jr. , N. H. Gaber, R. W. Hale, and W. L. Swager INTRODUCTION On June 28, 1965, Battelle Memorial Institute was awarded a research contract (Contract No. C- 340-65) from the Economic Development Administration (then the Area Redevelopment Administration) of the United States Department of Commerce, on "Opportunities for Increasing Markets and Employment in the Shoe Industry (Non- rubber)". This report presents the results of the research in summary form, and a companion report presents comprehensive information on each of four tasks performed in the research program. Objectives and Scope The research program was defined to include three principal elements: (1) An estimation of the opportunities for increasing exports, (2) An appraisal of the opportunities for developing, acquiring, and using improved materials and manufacturing technology, and (3) An investigation of practical ways to reduce inventories. Each of the first two elements was carried out as a single task, and the third element was divided into two related but distinct tasks. The first of the two inventory reduction tasks focused upon the subject of shoe last grading, or systems of shoe sizes and widths, with the major objective of seeking ways to reduce inventories by reducing the number of sizes and widths. Because a reasonable amount of data and information were available related to last grading for men's shoes and far fewer data were available for women's and children's shoes, the Sponsor and Battelle agreed to concentrate on the significance of last- grading systems in the men's shoe business. The last-grading task involved considerations other than inventories — for example, automation — but was made a major portion of the inventory- reduction ele- ment because of its high potential benefits in this area, because of interest on the part of shoe manufacturers, and because this task was particularly appropriate for industry- wide research. The other inventory task was an overall analysis of the shoe inventory situation and of potential improvements, with emphasis upon evaluation of electronic data process- ing as a tool for inventory reduction. All four research tasks were pursued with the objective of improving the United States shoe industry's sales, profits, and economic health in order to increase employment in the industry. Methodology The research methodology for all elements of the program included a literature review and extensive contact with the industry and related parties, particularly in the early stages of research. In all, well over ZOO contacts were made with shoe execu- tives, technical experts, supply- industry executives, trade-association per sonnel, and relevant individuals in Europe. The export task included about 50 American contacts; detailed analysis of extensive shoe export- import data from the Business and Defense Services Administration of the Department of Commerce, and over 30 interviews abroad to investigate shoe-export opportunities in detail. An "objectives network" was then developed to systematically evaluate (1) history, present status, and trends in the United States shoe industry and in various foreign shoe markets; (2) tariffs and "hidden barriers" to exports; and (3) attitudes of United States shoe manufacturers toward exporting, in order to construct a comprehensive overall picture of export opportunities and to develop realistic recommendations. The methodology for the research- and- development task included over 20 inter- views with leading United States shoe manufacturers to ascertain accomplishments, attitudes, and present capabilities in United States shoe-industry research, and several case studies were prepared. A number of interviews were held with leading suppliers to the shoe industry and with outside parties performing shoe research to investigate trends in the industry's research environment. And a visit to Europe was undertaken to make a detailed analysis of the British Shoe and Allied Trades Research Association (SATRA) and to study the research activities of leading European shoe manufacturers. The information thus collected was then analyzed to develop a realistic picture of pres- ent and emerging needs and opportunities in research facing United States shoe manu- facturers and to develop practical recommendations to individual manufacturers and to the industry in research and development. The research methodology of the inventory- reduction element involved analysis of industry and Government statistics, company annual reports, and other publicly avail- able literature, as well as over 30 visits to shoe companies, From the data thus gath- ered, a comprehensive picture was developed of distribution channels, storage points, and inventory levels throughout the shoe industry and trade, as a basis for both inventory- reduction research tasks. The task addressed to the overall inventory pic- ture, with emphasis on electronic data processing, also included study of trends in, present capabilities and problems in, and present shoe industry use of, two major new inventory- management tools: electronic data processing and scientific inventory con- trol. This information was used to estimate the potential value of these new inventory- management techniques to the shoe industry and to develop several recommendations for individual manufacturers, for manufacturers in cooperation with retailers, and for the industry, for improved customer service at reduced inventory cost. The last-grading research procedure included, in addition to the shoe- industry visits and inventory statistical analyses mentioned above, visits to several last manu- facturers and to the principal United States centers of shoe-fit research; and extensive continued contact with both United Shoe Machinery Corporation (USM) and Genesco, Incorporated, the originators of the two new men's last-grading systems, and with Mr. Robert Rhoades of Woodard & Wright Division of Vulcan Corporation. Analysis of various existing and proposed last-grading systems was performed on (1) fit; (2) in- ventory reduction; (3) automation effects; (4) costs of changing to the new system; and (5) merchandising effects (including style), as described in the last-grading research summary in this report. Results of Battelle analyses were reviewed in detail with USM, Genesco, and Mr. Rhoades, and improved through these reviews. Finally, a particular new grading system was developed and recommended and a program of action to test and convert to the new system was outlined. The major recommendations emerging from the Battelle program are listed in the next section, and the principal research results, conclusions, and recommendations emerging from each research task are summarized in subsequent pages. MAJOR RECOMMENDATIONS I. Last- Grading (1) The industry and trade associations and those manufacturers of men's shoes who are interested in gaining the benefits of the Dynametric II System should support a care- ful, objective developmental test of Dynametric II now; if test results are favorable, they should convert fully to the new system as rapidly as possible. (2) Manufacturers adopting the new system, and the industry and trade associations, should cooperate in a joint program for retail introduction of the system, including education of retailers and consumers. (3) The industry and individual manufacturers of women's and children's shoes should support feasibility studies to determine whether similar major benefits can be achieved through revision of women's and children's grading systems. II. Inventory Management (1) Individual shoe manufacturers should investigate scientific inventory control and EDP systems and introduce them where economically justified. (Z) Individual shoe manufacturers and retailers should investigate and implement agree- ments for manufacturer- retailer data sharing and automatic replenishment of re- tailer stock. Methods are available for individual manufacturers and retailers to accomplish this step, but an industry-wide study should be made of the problems in- volved, the data requirements, and the appropriate methods of implementing this step. Such a study would be of value to individual companies, and it would eliminate considerable duplication of effort. (3) A universal coding language for marking, capturing, and processing stock- keeping- unit data should be developed by representatives of shoe manufacturers and retailers on an industry-wide basis. (4) Individual shoe manufacturers, with cooperation from their retailers, should investi- gate and implement the best available methods of source marking shoes with stock- keeping-unit data where required by data- sharing agreements. An industry-wide study is also recommended to reduce costly duplication of effort and to lead to im- proved and standardized marking methods. (5) Individual retailers, in cooperation with manufacturers, should investigate and im- plement methods of capturing stock-keeping-unit data at the point of sale to the con- sumer and feeding the data back to the manufacturer. Again, an industry-wide study is recommended to reduce costly duplication of effort and to provide standardized methods. (6) A feasibility study should be conducted to determine whether a research program to investigate the cyclic behavior of key variables in the United States shoe industry (e. g. , retail sales; retailers' orders; manufacturers' shipments, production, in- ventories, and leather orders; and prices of leather and hides) would be worthwhile. It is likely that such a study would lead to important reductions in costs caused by shoe business cycles. III. Research and Development (1) United States shoe manufacturers that presently carry out research have an impor- tant competitive advantage and should keep and increase their advantage by (a) Increasing company research strength (b) Performing joint work with chemical companies (c) Supporting all cooperative shoe- research programs (d) Initiating a major cooperative program among the leaders to apply new outside technologies for automated manufacture of shoes, thereby using their technical and financial strength to move farther ahead of United States and foreign competitors. 5 and 6 (2) The manufacturers without research today should begin now to develop a research capability. Manufacturers too small to support company research should cooperate. Companies without research capabilities will have to depend heavily on cooperative research, particularly in the early stages. (3) The United States shoe industry should work toward cooperative research by taking the following steps through the trade associations (a) Establish a United States shoe technical- information center (b) Encourage United States companies' membership in SATRA, and ex- plore possible new arrangements between the United States industry and SATRA (c) Organize an industry committee to study and promote the benefits that can be achieved from cooperative research (d) Standardize nomenclature and dimensional definitions, to provide a common technical language as a basis for cooperative research. IV. Exports (1) Ascertain the interests of American shoe manufacturers and develop a foreign trade mission. (2) Form a mutual selling cooperative to represent a full line of shoes, leather, and component parts typical of its membership. Study and then penetrate key major markets through the use of proven American merchandising techniques. Develop the image of quality American footwear. (3) Export shoes, leather, and component parts and grow with the industries within those countries that have less developed markets. As markets develop and as tariffs be- come restrictive, take the next step and develop marketing capabilities within those countries. (4) As the success of the initial mutual American shoe cooperative grows and becomes recognized, proceed to expand through development of sister cooperatives. 7 A NEW LAST- GRADING SYSTEM FOR MEN'S SHOES by W. R. Purcell, Jr. EXECUTIVE SUMMARY Analyses Last- grading systems were evaluated from the viewpoint of the economic health of shoe- manufacturing companies. The areas investigated included: (1) Fit (2) Inventory reduction (3) Geometric automation (4) Changeover costs (5) Merchanising (a) Style (b) Understanding by retail salesman (c) Acceptance by consumers (d) Acceptance by retailer Five last-grading systems — the traditional "Arithmetic", USM's Geometric, Genesco's Dynamic Fitting Concept (DFC), and two new systems emerging from the anal- yses, Dynametric I and D nametric II — were evaluated with respect to each of the above considerations. These evaluations were then combined to provide a total rating for each system, and the best system was selected. Finally, broad guidelines for appropriate action of individual companies and of the industry as a whole were developed. See the full report for more detailed explanations of the research summarized below. 1. Fit While shoe fit is an extremely complex subject involving many factors difficult to measure or evaluate, sufficient knowledge of the subject now exists to permit analysis of the effects of last grading on fit in a manner that avoids involvement in other complexities of fit. Information available today is sufficient for practical improvement of a system designed during the Civil War. The technique used by Battelle for evaluating the fitting quality of each proposed last-grading system is based on the "fit- tolerance ellipse", a graphical result of re- search performed at SATRA and further pursued at United Shoe Machinery Corporation. This technique provides a method for determining the range of feet that can be fit to a given fit standard with any particular size and width; thus, it can be used to determine whether any last- grading system can fit all normal feet to a certain standard of fit. The minimum standard of fit used to evaluate each proposed new last- grading sys- tem was the fit standard of the present Arithmetic System. To be judged acceptable, any new system had to exhibit a standard of fit at least as good as that of the Arithmetic Sys- tem, as measured by the fit- tolerance-ellipse technique. The fit-tolerance- ellipse concept used by Battelle in development of a fit test emerged from scientific fitting experiments at SATRA and USM. The concept supports and helps to explain (1) research results developed elsewhere (notably at Genesco); (2) fitting methods of experienced retail shoe salesmen; and (3) practical observations and policies of shoe executives. The fit- tolerance-ellipse concept is shown to be rea- sonable by its consistency with observations and actions of practical, experienced shoe men throughout the industry. The fit- tolerance ellipse shows that the present Arithmetic System has excessive and unnecessary "fit overlap" along the "size-width diagonal". That is, it shows that about half the feet that could be fit well with an 8-1/2D could also be fit well with a 9C; each size-width is unnecessarily similar to that one-half size larger and one width nar- rower. The ellipse indicates that it is possible to reduce the number of size-widths by about 33 percent without any detrimental effect on standard of fit, by rearranging sizes and widths in a manner that reduces this unnecessary fit overlap. The ellipse test shows that Genesco's new DFC system does just this. DFC re- duces the number of size-widths 33 percent by reducing fit overlap, while retaining a standard of fit as good as that of the Arithmetic System. The ellipse test also shows that it is possible to achieve the same 33 percent re- duction in number of size-widths with the same good fit without changing to DFC grade rate. Two proportional- grade systems have been shown to provide these benefits while retaining the present fit standard*: (1) Dynametric I (2) Dynametric II In Dynametric I, there are 5 geometric points between sizes in length and in girth (very close to the Arithmetic half sizes), and 12 or 13 geometric points between widths (about 1-1/2 times the distance between Arithmetic widths). In Dynametric II, there are 7 or 8 geometric points be- tween sizes in length and in girth (very nearly three- quarter- sizes) and 7 or 8 points between widths (very nearly the present Arithmetic width system). •These new systems are named "Dynametric" because they combine the benefits of Genesco's Dynamic Fitting Concept and USM's Geometric. Either of these systems offers a standard of fit as good as that of the Arithmetic System, while at the same time reducing the number of size-widths about 33 percent. Battelle has found no valid reason for believing that there are any fit advantages in adopting a reduced grade rate such as that of DFC. As shown below, there are strong economic advantages to the present grade rate. Table 1 describes the key technical specifications of all five grading systems: the present Arithmetic System, USM's Geometric System, DFC, and the new Dynametric I and Dynametric II Systems. 2. Inventory Reduction Battelle' s inventory analysis of men's last- grading systems was designed to: (1) Estimate industry-wide savings to manufacturers and retailers from each proposed grading system to provide a basis for an industry-wide decision among the various systems; and (2) Provide information for a guide sheet for each shoe company to use in estimating its own inventory savings from the recommended system as a basis for that company's decision for or against converting to the new system. In order to obtain these results, several questions had to be answered. Each ques- tion is listed below together with a brief description of Battelle's analysis and a state- ment of the result: (1) What percentage reduction in number of size-widths (shoes of different dimensions) will each system permit without reducing sales (the number of feet that can be fit) in multiple- width tariffs and in single- width tariffs? An answer to this question for each grading system was developed using Du Pont/ NFMA data on shoe sales by size and width, together with the fit- tolerance ellipse, indi- cating which feet can be fit by each size-width in each system. The results of the analy- ses are indicated in the following tabulation: Percent Reduction in Number o( Size-Widths With No Lose in Sales Grading Single- Width Mult iple- Width System Tariff Tariff Arithmetic Geometric DFC Some reduction, but less than 30 percent, probably about 15 percent( a ) 33 Dynametric I 33 Dynametric 11 Reduction greater than DFC but less than 30 percent; probably about 20 percent' 3 1 33 (a) Single- width manufacturers and reta ilers will be able to offer a second width without incre asing the numbe: r of stock units, with DFC or with Dyna- metric 11. Because single-width fir me a re not faced v /ith such serious inventory pr oblei ns, many will add a second width to increase i sales These figures ahow Dynametric 11 requirin g abo ut 5 per- cent fe wer shoes than DFC to fit a g iven : aumber of feet in a single width because of the adva: itage of propor tional grade. a X eg rt 41 O co 00 £ 0) 4> > 0'5 cfl ft £ Pi (0 -r £ Pi i fl u ■iH a) •rH nD « h v£J H-» 41 *--- Xi ^~- rC S !» Cfl >> ,—. tn >> fl -rH Pi •i- 1 .s u fl •H a cu fl 4) < *j +j • H -*-* vO s iJ ft* lO *- ft cfl B co ft in cfl CO nj •rH •H cu X X 4J X 41 (H O a u ^H a) u ft ft 3 ft cfl ft ft cr ft CO < < < cfl cfl a -p- „ fl u 2 X fl ,-^ ■h - 43 6 4) cfl M u g ft cfl C O • H cfl 4> 4J £ ft ft fl 41 a *H X Jh • — * O ft O un H-> Sh ft u Cfl * .2 w u O ft ft i o ft o ft u ft 4) 4) rfl H . — 1 0} CD i 4) Z nJ i 4) ft fl o *~ ' L0 ? 4) O o- u !-i M ft ,fl ft ft H rt T3 nj o > h K i— t -~-- CO ft CO >> Q fl •" T3 h2 0) CO !2 « o ^ ft _T CO ^ s a o •rH H-> o ft o u ft T) 4) o en O ^, u 3 CO? £ rC ■H CO M ro ni CO a CO 3 u u — C7 X OJ r*-) 4) r^ H 41 u ccJ h ft 3 X ft O 1 H < ^ Pi u • tH •H +J -M M CO OJ h tti H 41 a a ■H ni X CO ft ft cfl 4) o g § ft r< O m 1 n m ™ > ■s 1 - h ^^ « s s a r° 1 1" H +j en /h x3 +j 11 O co 4) C 4) co "S H >^ M O co >, lTI . en CLcn ri co Cfl N co O "S CO ft ID 3 ri ° " 01 01 *-* J3 O u- « J3 O „ O & •s ,ZJ 5 ed '5b C o 4! o o o CO d( s ed o JS cd £ H 11 (Z) What percentage reduction in average shoe inventory will result from each 1 percent reduction in number of size-widths carried? This question was answered through standard mathematical inventory- analysis techniques. The analysis indicated that for each 1 percent reduction in number of size- widths offered, average inventories will be reduced by a little over 1/2 percent. A 33 percent reduction in number of size- widths should lead to a finished- goods inventory reduction of 20 percent. (3) What is the industry-wide dollar value of manufacturers' and retailers' inventories of men's shoes, in multiple- width tariffs and in single- width tariffs? This question cannot be answered precisely, but rough estimates were developed to indicate industry-wide gains from inventory reduction with a new grading system. Analy- sis included study of data from the National Footwear Manufacturers' Association, the New England Shoe and Leather Association, Boot & Shoe Recorder, Footwear News, an- nual reports of publicly owned shoe companies, Department of Commerce reports, and several books. Discussions with shoe executives was anofcer important source. It was found that industry-wide inventories of men's shoes could not be precisely measured but could be estimated with sufficient accuracy to support a practical decision on last grading. The breakdown of total- inventory figures into single-width and multiple- width shoes was estimated through a breakdown by retail-price grouping; most men's shoes retailing above $9. 00 are offered in multiple widths and most below $9. 00 in a single width. The following industry-wide total men's shoe-inventory figures were developed: Retail- Dollar Inventories of Men's Shoes Price (at Cost or Factory Prices), millions of dollars Range, Factories dollars (Work-in- Proce ss) In-Stock In-Store Owners Manufacturers^ 3 ' 0-9.00 (Including owned 9. 00 up retail outlets) _ Total 14 54 68 5 65 70 9 50 59 Total 28 169 197 Retaile rs (Not owned by manufacturers) 0-9. 00 9. 00 up Total 8 21 29 33 250 283 41 271 312 Total (Manufacturers and retailers) 0-9. 00 9. 00 up Total 14 54 68 13 86 99 42 300 342 69 440 509 (a) Includes all inventories of integrated shoe companies. (4) What do the above answers show that each last- grading system could achieve i n industry-wide dollar reductions in inventories? The research results presented above indicate the following rough estimate of industry-wide dollar reductions in men's shoe inventories: 12 Grading System Arithmetic Owners of Inventories Manufacturers Retailers Total Total Dollar Reductions in Inventories of Men's Shoes (at Cost or Factory Prices), millions of dollars Geometric Manufacturers Retailers Total DFC Manufacturers Retailers Total 26 57 83 Dynametric I Manufacturers Retailers Total 25 54 79 Dynametric II Manufacturers Retailers Total 27 59 86 (5) What annual savings in inventory carrying costs would result from these inventory reductions? This question was answered by applying to the inventory reductions shown above a factor indicating the annual cost of holding these inventories (including interest on money tied up, warehouse costs, costs of keeping track of inventories, and markdown costs). Development of the cost factor is described in more detail in the Battelle report on shoe- inventory management. The analysis indicated annual cost savings equal to 20 percent of the inventory re- duction before taxes, or 10 percent after tax. It should be noted that these savings are in addition to the cash- flow benefits from the reduction of inventories. Thus, total economic benefits to the industry and the trade from inventory reduc- tion would be roughly as shown on the following page: 13 Economic Benefits, millions of dollars Grading System Arithmetic Owners of Inventories Manufacturers Retailers Total Total Dollar Reductions in Inventories of Men's Shoes (At Cost or Factory Prices) Total Annual-Cost Reductions from Reduced Inventories (After Tax Adjustments) Geometric Manufacturers Retailers Total DFC Manufacturers Retailers Total 26 57 83 2. 6 5. 7 8. 3 Dynametric I Manufacturers Retailers Total 25 54 79 2. 5 5. 4 7. 9 Dynametric II Manufacturers Retailers Total 27 59 86 2. 7 5, 9 8. 6 3. Geometric- Machinery Automation Evaluation of the relative economic value of the various last- grading systems through automation based on geometric principles requires: (1) evaluation of the prob- able net economic benefits to shoe manufacturers from geometric automation if the grad- ing system were fully consistent with geometric principles, and (2) evaluation of the ex- tent to which each proposed grading system is consistent with geometric principles. It became apparent in the research that there are many unpredictable factors involved in future geometric-machinery development, use, and value, and only a very rough esti- mate of economic benefits was possible. The match of the various grading systems with principles of geometric automation design were shown to be as follows: Grading System Arithmetic Geometric DFC Dynametric I Dynametric II Consistency with Geometric Automation Principles Heel Forepart No Yes Yes Yes Yes No Yes No Yes Yes 14 Economic evaluation of potential benefits from geometric-principle- based automa- tion, derived from analysis of the benefits from the limited geometric machinery now in use and from study of all labor costs that geometric automation might affect, and con- sideration of the factors likely to affect development and use of various geometric ma- chines, indicated that the net annual economic benefits (after taxes) to all manufacturers of men's shoes from geometric automation might be something like $1.6 million for heel-end operations and $6. 4 million for forepart operations. Thus, total economic benefits from geometric automation offered by each grading system might be: Rough Estimate of Total Net Annual After- Tax Economic Benefits to Men's Shoe Manufacturers From Geometric Automation Once Accepted by System Industry, millions of dollars Arithmetic Geometric 8. DFC 1.6 Dynametric I 8. Dynametric II 8. These savings estimates are only rough estimates; the eventual benefits to the industry from geometric automation could be considerably higher or considerably lower. 4. Changeover Costs The principal cost question in selecting a new last- grading system with new sizes and widths is replacement of lasts. Other costs will be insignificant in comparison to savings from inventory reductions, if one of the reduced-inventory systems is adopted. A major consideration in estimation of abnormal last- replacement costs is speed of conversion to the new grading system; if the new system is introduced only in new styles (phasing in of the new system), then last costs will not be significantly affected by adoption of a new system, but conversion to the new system will be very slow and bene- fits (inventory savings, etc. ) will not be fully realized for many years. On the other hand, a faster conversion, which would provide the economic benefits of the new system more quickly, would cost the industry up to about $15 million after taxes, depending on how many of today's lasts could be used in the new system. Analysis of the inventory savings of retailers with DFC, Dynametric I, or Dyna- metric II, together with discussions with shoe executives, suggests that once one of these systems successfully passes sales tests for several key retailers, then most retailers will demand more and more shoes in the new system because of the great inventory sav- ings (about $50 to $55 million) to the trade. Thus, retailers will force manufacturers to convert present styles to the new system as fast as possible once the system is accepted. It is therefore extremely important to manufacturers that the new system be such that some of today's lasts be usable in the new system; if they cannot then the cost to all manufacturers of new lasts will be about $15 million, offsetting over half the inventory- reduction gains to manufacturers. 15 The Arithmetic system obviously involves no abnormal last- conversion costs. The Geometric System offers no inventory savings to retailers and thus can be intro- duced by phasing in at relatively little abnormal cost. DFC, Dynametric I, and Dynametric II cannot be introduced by phasing in because their inventory- reduction benefits to retailers will lead retailers to demand a faster changeover once the new system is proven. But half of the lasts required for either Dynametric I or Dynametric II can be supplied from manufacturers' present last sup- plies, if arithmetic-fraction intermediate specifications (see Table 1) are used. Thus, costs can be halved for a fast changeover to either Dynametric I or Dynametric II by: (1) Converting present styles to fractionally graded intermediate specifica- tions in the chosen Dynametric system, and (2) Introducing final-specification (geometric-point) lasts only as new styles are introduced. In this way, the Dynametric I or Dynametric II sizes and widths and tariff- reduction benefits could be brought into effect quickly, at much reduced conversion cost. The development of capability to use geometric machinery would be more gradual, but the incremental cost of acquiring lasts usable with geometric machinery would be extremely low. Since all DFC size-widths are new, all DFC lasts must be new. Thus the last- replacement costs to the whole industry for conversion to each sys- tem are as follows: After-Tax Costs of Converting to New Grading Las ts( a ), millions System of dollars Arithmetic Geometric DFC 15. Dynametric I 7. 5 Dynametric II 7. 5 (a) The figures listed here indicate estimated additional 1 ast costs above the normal. Costs of new retail foot-measurement devices to the entire industry are estimated at about $3 million if a new device is introduced. The present "Brannock Device" could be adjusted to Dynametric I or Dynametric II with a stick-on overlay at much lower cost, but it may well be worth the $3 million investment to introduce a new girth- measuring device for Dynametric I or Dynametric II, both to improve foot measurement and to sell consumers on the new system's fitting quality. This ought to be decided by industry merchandising experts. In view of the great inventory- reduction benefits to retailers from DFC, Dyna- metric I, or Dynametric II, it is' reasonable to expect that retailers will bear the costs of the new retail foot- measurement device; thus, manufacturers would pay this cost only for stores they own (about $1. 3 million). 16 Conversion Costs of New Retail Foot- Measurement Devices Grading (After Tax), mi .11 ions of d ollars System Manufacturers Ret ailers Arithmetic Geometric DFC 0.6 2 Dynametric I 0. 6 2 Dynametric II 0. 6 2 Other costs of conversion to the new system will include industry education and consumer advertising. Genesco's experience with DFC shows that these tasks can be accomplished within the existing programs of management, selling, and advertising at little or no additional cost. In fact, it seems reasonable to expect that a new system can help manufacturers make their existing selling and advertising programs more effective. Conversion to a new grading system with a reduced tariff will provide major bene- fits to last manufacturers. It may well double the business of manufacturers of men's lasts over the next several years while conversion is taking place. After conversion is completed, their business will probably be about what it would be with the present sys- tem: use of more lasts in each size and width, and, possibly, increased numbers of styles, will offset the reduced number of sizes and widths. And, of course, the im- proved economic health of shoe manufacturers caused by the new system will be in the interest of last manufacturers. 5. Merchandising Study of merchandising effects of a new sizing system for men's shoes showed that there are four key factors to be considered: (1) Effects on styling freedom (2) Retail salesmen's ability to use the new system (3) Consumer's acceptance of the new system (4) Retail managers' motivation to adopt the new system. The whole concept of a new grading system for good fit with a reduced tariff has absolutely no effect on styling freedom. Style is concerned with last shapes, and a grad- ing tariff is concerned with last sizes. The geometric "engineered features" designed to permit automation (which can be modified or ignored in any system of sizes and widths) do have some effect on styling freedom, but there is very strong evidence that they do not cause any serious styling problems either. Overall, the selection of a grading sys- tem will not limit styling. Retail salesmen's understanding of and ability to use a new sizing system appears critical to the system's initial acceptance. If the system seems unfamiliar, many re- tail salesmen will resist it at the outset. More important, lack of understanding by 17 retail salesmen will cause some poor fitting at first, leading to strong negative reac- tions from both consumers and retail salesmen. Retail salesmen's initial understanding of and ability to use a new sizing system will be determined primarily by the ease with which the new system can be related to the old system. Of the five systems under consideration, DFC is clearly the most dif- ficult to relate to the present system in terms of sizes and widths. The Arithmetic System and the Geometric System represent no change from the present system. Dyna- metric I and Dynametric II can each be explained in terms of the present system in just a few words: Dynametric I : "Present sizes, widths farther apart" Dynametric II: "Present widths, three-quarter sizes". Overlay sheets for conversion from present size-widths to Dynametric I or Dyna- metric II size-widths are correspondingly simple. DFC cannot be explained to retail salesmen in terms of the present system this easily, and conversion from the present system to DFC is considerably more difficult (particularly if the first shoe tried on doesn't fit), because of the change in DFC grade rate. Genesco's experience to date with DFC has not shown a great problem in retail- salesman understanding, but this experience does not eliminate the possibility of prob- lems in industry-wide retail conversion to a new system; and such a problem would be more likely with DFC than with any of the other systems. Thus, the five grading systems can be ranked as follows with respect to possible problems of retail salesmen's initial use of the system: Possibility of Major Problem Grading Resulting From Initial Inability System of Retail Salesmen to Use System Arithmetic None Geometric None DFC Greatest possibility Dynametric I Small possibility (Because of its similarity to present system) Dynametric II Small possibility (Because of its similarity to present system) Genesco's experience with DFC thus far shows that if the system is introduced to the consumer in the right manner, consumer acceptance of the new grading system will be no problem for any system that provides good fit and is understood and accepted by retailers. In fact, it appears from Genesco's experience with DFC and from observa- tion of the shoe industry's merchandising skill that a new grading system can be made a powerful merchandising advantage for the companies that introduce it first and best, and possibly for the entire men's shoe industry. Retail managers' acceptance of a new grading system will be affected positively by gains resulting from retail inventory reduction and by consumer merchandising op- portunities. The chief potential blocks to retail managers' acceptance of a new system would be the inability of retail salesmen to use the new system or poor consumer ac- ceptance stemming from poor introduction of the new system. Again, both Dynametric systems offer a key advantage here because they are easier to explain to retail salesmen than DFC. It also bears special mention again that the great potential inventory- reduction savings for retailers possible through DFC, Dynametric I, or Dynametric II can be made a very powerful motivation to acceptance by retail managers. 6. Total Evaluation The total net value of each grading system to the industry in terms of estimated dollar costs and gains where estimates are possible, and in terms of other major fac- tors where dollar estimates cannot be developed, is given in Table 2. A guidesheet for calculating net value to an individual company is shown in Table 3. Table 2 shows that DFC is the best system now in use from the viewpoint of the shoe industry as a whole. But both Dynametric I and Dynametric II appear to be even better than DFC, and Dynametric II appears best of all. Analysis of the value to indi- vidual companies using the guidesheet in Table 3 will, for most companies, show the same result; DFC is the best system now in use, and Dynametric II is best of all, con- siderably better even than DFC. Of course, Dynametric II has not yet been proven in retail sales the way DFC has. That is the next step. Recommendations In view of the very high net gains to the industry from Dynametric II indicated in the preceding analyses, the next steps taken by men's shoe manufacturers should be addressed to planning for introduction of the Dynametric II grading system. However, certain things ought to be done to ensure that introduction of the new system is success- ful. A developmental testing program should be carried out first to make sure that the specific details of the new lasts are right for fit and for shoe production; and a program of consumer and retailer education should then be undertaken so that the new system will meet with favorable reaction at retail. To determine whether similar large gains can be achieved through revision of women's and children's last-grading systems, feasibility studies should be initiated. Developmental Testing Program An outline of necessary major steps in the two programs in preparation for intro- duction of Dynametric II, namely, the Development Testing Program and Preparation for Retail Introduction Program, is presented in Figure 1. In Program I, Develop- mental Testing, the objective is to ensure that Dynametric II is designed in the best way for retail acceptance and for efficient shoe manufacture. 19 Steps (1) and (2) should be performed by an expert maker of quality men's lasts, Step (3) should be performed at a factory known for manufacture of men's shoes that fit well, and Steps (4) through (7) should be performed under the direction of a man who is familiar with last grading and with statistical and experimental techniques, and who can maintain an impartial, objective position. The overall developmental testing program should be performed on an industry- wide basis. If individual manufacturers attempt this work independently, much money will be wasted because all of them will be trying to do the same thing. Furthermore, if one manufacturer acts too hastily, he might introduce Dynametric II in a poor manner, creating a bad retail reaction and spoiling the opportunities for other companies as well as for himself. It would probably be best for the industry if the entire Dynametric II Developmental Testing Program were directed by an objective outsider familiar with the subject. The director should rely heavily upon top shoe men where appropriate, such as in develop- ment of technical details of lasts, in manufacture of shoes, in carrying out the retail test, and in development of a new retail foot- measuring device. The Developmental Testing Program should be completed in approximately 1 year. Preparation for Retail Introduction The Retail Introduction Preparation Program (see Figure 1) should be based on results of the Developmental Testing Program, but planning of the Retail Introduction Preparation Program should start now. Some of the steps in this program will be carried out individually by each com- pany. For example, design of company advertising featuring Dynametric II and selec- tion of new styles for introduction in Dynametric II. Other steps, such as planning of industry-wide advertising for Dynametric II and preparation of a retailer- education booklet, should be carried out jointly by the industry. The industry should form a committee of leading merchandisers of men's shoes chaired by a shoe man who can take the industry-wide viewpoint, to: (1) Carry out the steps best performed jointly by the industry (2) Coordinate the overall Retail Introduction Preparation Program, includ- ing steps performed by individual companies, to achieve a strong, industry-wide introduction program. The Retail Introduction Preparation Program should be completed within 1 year so that introduction can be begun upon completion of the Developmental Testing Program. Feasibility Studies on Women's and Children's Last- Grading Systems These very high benefits to the men's shoe industry and trade from a new men's shoe grading system suggest that there may be similar potential gains from revision of 20 W H O W W u I— I o S3 O u w < H pci W H >=4 CO < CO W H CO g 1—1 Q < O i H CO < W < 00 1 1 fl rd G •H r* d h rd & 4J a rd 4J !h en o fn Ph O a H-> CJ 1—1 rd h h 0) X +J o a rd i — i rd 3 G M CI In < d O d •H cfl ,_, 03 3 m PI u d 01 < p -p u cs a 4-1 3 rd G O rd s a •i— i H i d o 4-> fc a X) H-» rt to H >> O CO d a CO CO 00 a 1 to 00 a i 01 00 G CD CD c to CD ■ i-r •i-H 3 0) 1 — 1 x> i — i ■r-H rd CO CD . — 1 rd •rH rd CO "g a CO U CD •H rH r— < I— 1 rd •T-< CO d CD a CO rH (P rd u •rH M-H o u cd u CI i — i rd a ■rH G ■rH rH G X) 3 rd a -rH •r~* G J-H G •rH XI G 3 co CO in in in 00 o o o o O o CD a H H-» CD -t-H a o rH CD < u Q in in XI o o o rd G >^ Q lO in rs] oo" X) o o O a CJ •H rH +-> > Q 21 TABLE 3. GUIDESHEET FOR ESTIMATION OF COMPANY SAVINGS AND COSTS FROM CONVERSION TO DYNAMETRIC II INVENTORY SAVINGS A. Finished- Goods Inventory Reduction (1) Average dollar value of finished- goods inventory (in- stock plus in- store) of men's shoes carried in more than one width . . $ (2) Multiplied by 20 percent x . 20 (3) Equals multiple- width finished- goods inventory reduction $ (4) Average dollar finished- goods inventory (in- stock plus in- store) of men's shoes carried in only one width $ (5) Multiplied by 1 1 percent x . 11 (6) Equals single- width finished- goods inventory reduction $ (7) Total of items (3) and (6) above equals total finished- goods inventory reduction .... B. Raw Materia ls and Work-in- Process Inventory Reductions (1) Average dollar raw materials and work-in- process inventory for production of multiple- width men's shoes $ (2) Multiplied by 4 percent x . 04 (3) Equals multiple -width raw materials and work-in-process inventory reduction (4) Average dollar raw materials and work-in- process inventory for production of single- width men's shoes $ (5) Multiplied by 2 percent x . 02 (6) Equals single-width raw materials and work-in-process inventory reduction 22 TABLE 3. (Continued) (7) Total of items (3) and (6) above equals total raw materials and work-in-process inventory reduction C. Total Inventory Reductions (1) Total of items (A. 7) and (B. 7) above equals total inventory reduction D. Annual Inventory Savings (1) Total inventory reduction (item C. 1 above) $ (2) Multiplied by 10 percent x . 10 (3) Equals total annual net after-tax cost savings from reduced inventories II. GEOMETRIC AUTOMATION SAVINGS (Rough Estimate) (1) Total factory-price value of annual production of men's shoes .... $ (2) Multiplied by 7 percent x . 07 (3) Equals total costs that geometric automation might affect $ (4) Multiplied by 37 percent x . 37 (5) Equals possible future pretax annual savings if geometric automation is used $ (6) Multiplied by 50 percent .... x . 50 (7) Equals rough estimate of probable future annual pretax savings from geometric automation (labor savings less annual machine costs) .... $ (8) Multiplied by 50 percent .... x . 50 (9) Equals rough estimate of probable future annual after-tax net savings from geometric automation 23 TABLE 3. (Continued) in. CHANGEOVER COSTS A. Changeover of Lasts (1) Number of pairs of men's lasts now on hand in styles that will be produced this year $ (Z) Multiplied by 50 percent x . 50 (3) Equals number of new Dynametric II lasts that must be purchased on changeover (4) Multiplied by $3. 00 per pair (after-tax cost) x $3. 00 (5) Equals cost of changeover of lasts to Dynametric II $ B. Last Positioning Plates (1) Number of pairs of men's lasts purchased annually (Z) Multiplied by $0. 60 (after-tax cost) . x $0. 60 (3) Equals annual cost of last positioning plates for geometric automation (this cost will be much lower until most lasts are converted to point grading, by phasing-in new styles) $ C. Retail Foot Measuring Devices (1) Number of retail outlets owned, selling men's shoes (Z) Multiplied by three measuring devices per average store x 3 (3) Equals number of retail foot-measuring devices required . . . (4) Multiplied by cost per Dynametric II foot-measuring device (only a few dollars if converted Brannock Devices are used, up to $50. 00 if new devices are used). . x (5) Equals cost of foot- measuring devices $ 24 TABLE 3. (Continued) IV. TOTAL NET GAIN OR COST A. Gain or Cost in First Few Years (1) Total inventory reduction (Item I. C. 1 above) + $ (Z) Minus cost of changeover of lasts (Item in. A. 5) - $ (3) Minus cost of retail foot- measuring devices (Item III. C. 5) - $ (4) Equals total net gain (+) or cost (-) in first 3 years or so B. Annual Gain or Cost in Subsequent Years (1) Annual net savings from reduced inventories (I. D. 3. ) + $ (2) Plus estimated annual net savings from geometric automation (II. 9) . + $ (3) Minus annual net cost of last- positioning plates (III. B. 3) - $ (4) Equals net annual gain (+) or cost (-) in subsequent years 25 and 26 women's and/or children's grading systems. Manufacturers and retailers of these shoes will be very interested in exploring this possibility. However, there are some important differences between grading of men's shoes on the one hand and grading of women's and children's shoes on the other, such as the facts that: (1) There has been no large-scale foot- measurement program in the United States on women's or children's feet similar to the Fort Knox Program. (2) There has not been nearly so much research on women's or children's grading systems, either from the tariff- reduction viewpoint or from the geometric automation viewpoint, as has been performed by USM and Genesco on men's grading systems. (3) Grading and fit analysis is more complex for women and for children than for men. It is more difficult for women because much greater variations in style, heel height, and key points of fit will require separate analysis of various women's shoe types; and it is more dif- ficult for children because the very great percentage differences be- tween smallest and largest feet have created a need for several grad- ing systems. For these reasons, it is not now possible to judge whether major grading- system improvements can be achieved for women's or children's shoes. A feasibility study is required to determine whether such gains are possible. In view of the demonstrated very high gains from revision of the men's grading system, it is recommended that feasibility studies be initiated now to determine whether similar gains can be achieved by the women's and children's shoe manufacturers. If such gains are shown to be possible, then last-grading research programs like the pres- ent one should be initiated for women's and children's grading systems. 27 and 28 29 OPPORTUNITIES FOR INCREASED PROFITS THROUGH INVENTORY MANAGEMENT IN THE UNITED STATES SHOE- MANUFACTURING INDUSTRY by G. L. Robinson EXECUTIVE SUMMARY Analysis The United States shoe-manufacturing industry has a high inventory investment in comparison to profits — so high that the annual costs of carrying inventory often exceed net profits for the individual shoe manufacturer. A number of factors contribute to large inventory costs for shoe manufacturers. They include the large number of shoe size-widths; consumer demand for variety; cycles in sales, production, inventories, and leather prices; frequent style changes; increasing retailer demand for in-stock service; information and transportation delays; and lack of current consumer-demand data. Re- tail walkouts substantially reduce profit potential for shoe manufacturers as well as re- tailers. These and other factors make efficient inventory management a difficult prob- lem that is too complex for solution by traditional methods. However, because inventories are so large and important in the shoe industry, and because of two relatively new tools for inventory management, opportunities for improvement of profits through inventory management are especially good in the shoe industry. Two post-World War II developments — scientific inventory control and electronic data processing (EDP) — now provide unprecedented opportunities for improvements in inventory management. By using scientific inventory control, some companies in vari- ous industries have reduced inventories by as much as 50 percent and simultaneously have given improved delivery to their customers. Some large shoe companies, now only in the early stages of applying EDP and scientific inventory control, have achieved or expect to achieve inventory cost reductions of 20 to 40 percent, and at the same time improve customer service. Electronic data processing refers to the use of electronic computers for much faster and more accurate handling of large quantities of information. EDP alone can of- fer major gains in inventory management through reduction of clerical costs, faster use of up-to-date information, and reduced data-handling errors. Scientific inventory con- trol refers to the use of mathematical analysis to develop better inventory policies so that the best customer service can be offered at the lowest cost. Scientific inventory control can be used without EDP, and for some small companies that cannot afford use of computers this is the best strategy — but EDP permits much more sophisticated and effective use of scientific inventory control by permitting rapid and systematic mathe- matical analysis of large quantities of data. For most medium and larger companies, EDP and scientific inventory control together can offer the greatest gains. These new techniques offer the highest potential gains to integrated or branded manufacturers with large finished-goods inventories, but they can also provide signifi- cant benefits to all manufacturers in management of raw-materials inventories. 30 Although traditional methods of inventory management still predominate in the shoe industry, there is an accelerating trend among the leaders toward use of EDP for inven- tory control and for other uses. At present, there is very little use of scientific inven- tory control in the shoe industry, even among the companies using EDP; but there are indications that several companies will soon be using scientific inventory control. Com- puter companies have recently made major advances in developing new ways of helping industries like the shoe industry to improve inventory management. Within a few years, use of both EDP and scientific inventory control will accelerate in the shoe industry, and the leaders in these areas will have gained a major competitive advantage in efficiency and in merchandising. Thus, there are strong reasons for each individual shoe manufacturer to actively pursue the opportunities in EDP and scientific inventory management — to investigate the potential gains to the company and to introduce these new methods of inventory manage- ment where they prove economical. But this is not the only area of promise. These same techniques offer the same opportunities to shoe retailers. Manufacturers' cooperation with retailers in certain areas of inventory management, through EDP and scientific inventory management, of- fers manufacturers further benefits — including more dependable and up-to-date informa- tion on retail sales, more efficient schedules of shipments to retail outlets, and increased sales resulting from improved retailer inventory- service levels. The majority of shoe manufacturers do not now receive up-to-date, accurate data on the retail sales of their products. This "information gap" creates a need for manu- facturers to obtain the cooperation of retailers in capturing point-of-sale data and trans- mitting them on a timely basis to the manufacturers. Such feedback data would be valu- able to manufacturers in establishing consumer-demand patterns, forecasting future demand, adjusting production schedules and inventories in anticipation of demand, taking timely markdowns, and planning introduction of new styles. Conversely, retailers can benefit from services provided by manufacturers such as source marking and automatic stock replenishment. Retailers with EDP facilities can also benefit from manufacturers supplying them with shipment data in a machine-language format. This would permit en- tries to the retailers' computer-inventory records to be made readily upon receipt of shipments, without the expense of preparing punched cards or other input media. A sys- tem that reduces lost sales due to walkouts by keeping the retailer in stock with items customers want is needed by both retailers and manufacturers. Although the loss to a re- tailer from walkouts is immediate and direct, the cost to manufacturers due to lost sales resulting from retail walkouts is substantial. Automatic stock-replenishment agreements between retailers and manufacturers can reduce lost sales for both through improved retailer in-stock service of manufacturers' products. Recommendations On the basis of the opportunities for profit improvement through inventory manage- ment that exist in the United States shoe industry, the following measures are recommended: 31 Recommendation 1 Individual shoe manufacturers should investigate scientific inventory- control and EDP systems and introduce them where economically justified. The shoe and leather industry has the third highest ratio of inventories to gross profits (5.2 to 1) of any industry in the United States, based on 1961-62 data. At least 20 shoe manufacturers are now using EDP for inventory- control applications, but very few are using scientific inventory control. However, several integrated companies in the United States shoe industry, in various stages of implementing computer-based inventory control systems, have achieved or anticipate inventory reductions in the range of 20 per- cent to 40 percent. In implementing scientific inventory control it is common that a net inventory reduction and improved customer service are achieved, although inventories of selected items are often increased in order to balance stocks and meet service goals. It is clear that a potential exists for a large number of shoe manufacturers to improve their profit position through scientific inventory control. In many cases, EDP equipment may be required to obtain the benefits of scientific inventory control, although in smaller companies significant reductions in inventory costs can often be achieved by manual sys- tems. Smaller companies that cannot justify the acquisition of computer facilities can utilize service bureaus or business-information utilities when computers are required. The current rapid development of computer capacity, speed, and time-sharing capabili- ties, coupled with decreasing costs, is making the use of EDP systems profitable to small manufacturers that could not consider such possibilities only a few years ago. Any individual manufacturer must, of course, evaluate the many factors peculiar to his own business before embarking on a new inventory-management system. The capital equipment and other expenditures for EDP must be justified by the benefits to be gained in all phases of a company's operations and not just by the reduced inventory car- rying costs alone. However, it is extremely important to consider the benefits to be gained from the use of a computer as an aid to management decision-making, in addition to its use in replacement of clerical labor. Only when a computer is used in the analysis of complex management problems can it provide maximum payoff. It is generally necessary for a company to perform a substantial amount of "sys- tems" work in preparing for a computer installation, and this period of preparation may take several years. A specialized staff or the services of a consulting firm will gener- ally be required to perform the necessary systems-analysis work. The major phases involved in planning, installing, and implementing an EDP-based scientific inventory- control system are listed in Table 1 as the key steps for Recommendation 1. Many of the smaller shoe manufacturers, especially unbranded-shoe manufacturers, cannot justify use of EDP today. But even if a company cannot currently justify installing EDP, it should anticipate needs several years in advance, when the opportunities will be greater and the costs lower, and initiate the planning for a computer installation early enough so that the necessary groundwork will be accomplished by the time the need exists. Smaller companies that cannot justify use of EDP should still investigate the use of sci- entific inventory control as a means of achieving important objectives of lower costs and improved customer service. 32 Recommendation 2 Individual shoe manufacturers and retailers should investigate and implement agreements for manufacturer- retailer data sharing and automatic replenishment of retailer stock. Methods are available for individual manufacturers and retailers to accomplish this step, but an industry-wide study should be made of the problems involved, the data requirements, and the appro- priate methods of implementing this step. Such a study would be of value to individual companies, and it would eliminate considerable duplication of effort. The data- sharing step basically requires data marking by manufacturers; data col- lection at the point of sale by the retailer; feedback of the data to the manufacturer; and processing the data by the manufacturer, retailer, or a service bureau. Key steps re- garding these factors are covered in other recommendations below. Feedback of timely and accurate data on retail sales would provide the shoe manufacturer with much valuable information. It would enable the manufacturer to greatly improve forecasts of sales trends for different styles, regions, and price ranges. It would permit improved pro- duction planning and scheduling, with reductions of costly production fluctuations. Mar- keting plans for introduction of new styles could be made with far more confidence and less risk. Automatic replenishment of retailer stocks would require the feedback of retail- sales data to the manufacturer. It would be based on reorder rules previously agreed to by manufacturer and retailer. For both branded and unbranded manufacturers, it should result in fewer lost sales due to retail stockouts and in improved forecasts of sales. For the retailer, automatic stock replenishment should improve customer service, reduce walkouts, reduce markdown losses, and reduce labor costs for inventory review and ordering. Recommendation 3 A universal coding language for marking, capturing, and processing stock-keeping-unit data should be developed by representatives of shoe manufacturers and retailers on an industry-wide basis. This step is necessary to permit manufacturers and retailers to achieve full bene- fits from data sharing and EDP. Without a common coding language, efficient computer programs could not be written to accommodate input data from various sources. Industry-wide cooperation of shoe manufacturers and retailers will be required to deve- lop and reach agreement on a coding language. Associations such as the National Foot- wear Manufacturers Association, New England Shoe and Leather Association, National Shoe Retailers Association, Volume Footwear Retailers Association, and National Retail Merchants Association, could perform valuable coordinative functions in developing a coding language. Recommendation 4 Individual shoe manufacturers, with cooperation from their retailers, should investigate and implement the best available 33 methods of source -marking shoes with stock-keeping-unit data where required by data- sharing' agreements. An industry- wide study is also recommended to reduce costly duplication of effort and to lead to improved and standardized marking methods. It is generally less expensive for the manufacturer to mark shoes than it is for the retailer; furthermore, if retail-sales data are fed back to the manufacturer, it is in his interest to mark the shoes to ensure that feedback data are in the desired format. Recommendation 5 Individual retailers, in cooperation with manufacturers, should investigate and implement methods of capturing stock-keeping- unit data at the point of sale to the consumer and feeding the data back to the manufacturer. Again, an industry-wide study is recommended to reduce costly duplication of effort and to provide standardized methods. A number of methods of capturing data at the point of sale exist, including various types of tags, cards, cash registers, and sales checks, as previously discussed. But the best method for one retailer may not be best for another. The retailer's choice should consider manufacturers' requirements for data feedback. An industry-wide study is needed to provide guidelines and basic information about various methods of capturing data and their applicability to different types of retailers. The manufacturers' data re- quirements should be recognized in the results of the industry-wide study. Recommendations 3, 4, and 5 are necessary for full and effective implementation of Recommendation 2. Recommendation 6 A feasibility study should be conducted to determine whether a research program to investigate the cyclic behavior of key variables in the United States shoe industry (e.g., retail sales; retailers' orders; manufacturers' shipments, production, in- ventories, and leather orders; and prices of leather and hides) would be worthwhile. It is likely that such a study would lead to important reductions in costs caused by shoe business cycles. Such a research program might give insights into the cause-and-effect relationships among the key shoe industry variables which could, in turn, lead to industry-wide measures to control specific variables to produce an improved operating environment for the industry. No guarantee could be made for the results of such a research program, but it might result in quantitative predictions such as (1) the effects on industry sales of changing the timing of seasonal advertising campaigns, (2) the effects on leather prices, of increased use of synthetic materials for shoe uppers, and (3) the effects on manufac- turers' production fluctuations, if timely and accurate feedback of retail sales data was obtained. 34 These recommendations are summarized in chart form in Table 4, together with suggested key steps necessary for implementation. TABLE 4. RECOMMENDATIONS AND SUGGESTED KEY STEPS Recommendations To Be Carried Out By Suggested Key Steps Investigate scientific inventory control and EDP systems and introduce them where economically justified Individual shoe manufacturers 2(a). 4(a). 5(a). Investigate and implement manufacturer- retailer agreements for data sharing and automatic replenishment of retailer stock Investigate and implement best available methods of source marking shoes with Stock- keeping-unit data Investigate and implement methods of capturing stock- keeping-unit data at the point of sale to the consumer and tr^.s- mitting the data back to the manufacturer 2(b). Conduct an industry-wide study of problems, data requirements, and methods of imple- menting manufacturer- retailer agreements for data sharing and automatic replenishment of retailer stock 3. Develop a universal coding language for mark- ing, capturing, and processing stock- keeping- unit data 4(b). Conduct an industry-wide study of best avail- able methods of source marking shoes with stock-keeping-unit data 5(b). Conduct an industry-wide study of best avail- able methods of capturing stock- keeping-unit data at the point of sale to the consumer and transmitting the data back to the manufacturer Determine by means of a feasibility study whether a research program to investigate the cyclic behavior of key variables in the United States shoe industry would be worthwhile Individual shoe manufacturers and retailers Industry committee, assisted by a consulting ' firm Consulting firm or research organization A. Conduct feasibility study (make preliminary assessment of payoff) Perform systems analysis by specialized staff or consulting firm (Determine required com- puter program, data requirements, and report formats; develop mathematical inventory models) Install EDP equipment Convert from manual to EDP systems Use EDP for routine clerical tasks Use EDP for business-problem analysis and decision making, plus E Use EDP for simulation and testing manage- ment programs, plus E and F B. A. Shoe manufacturer obtains agreement from selected retailers to work on program B. Hold meeting of manufacturer and retailers to establish data requirements and initiate study of methods for marking, capturing, and transmitting data C. Systems analyst develops mathematical models for use in determining reorder quantities for each retailer D. Conduct engineering study of methods for marking, capturing, and transmitting data E. Manufacturers and retailers negotiate data- sharing and automatic- reordering agreement A. Form industry committee for manufacturer- retailer data sharing, perhaps at joint insti- gation of National Footwear Manufacturers Association and New England Shoe and Leather Association B. Hold meeting of committee, composed of representatives of manufacturers, retailers, and associations to plan program C. Retain consultant to perform study D. Have consultant develop recommendations of detailed approaches for different sizes and types of manufacturers and retailers E. Hold committee meetings periodically to re- view and guide consultant's work and to pub- lish information and recommendations for entire shoe industry A. Have NFMA and NESLA prepare draft scope- of-work statement for use in request for bid B. Have NFMA and NESLA request members' approval of scope-of-work statement and in- dication of willingness to support study C. Send requests for bid to qualified organization^ D. Receive bids and select contractor E. Issue contract 35 RESEARCH AND DEVELOPMENT IN THE UNITED STATES SHOE INDUSTRY A Revolution Presents Major New Needs and Opportunities by Robert L. Crosby EXECUTIVE SUMMARY A revolution in the environment of the nonrubber shoe industry has created a new world of shoe-making in which research will become a major force of competition. For the individual manufacturer and for the whole industry, the revolution requires a new look at research. Analysis Regarding shoe machinery, solutions to the traditional technical problems blocking automation — nonuniformity of materials, complex shapes, and multiple, nonstandard- ized products - are now at hand or on the horizon. Antitrust action has changed the traditional structure of the shoe-machinery industry. These changes present new op- portunities to improve and to automate shoe manufacture, but shoe manufacturers must now play a leading role in machinery development. In the materials area, a competition among large chemical companies for the synthetic -materials market will vastly accelerate the flow of new materials and force manufacturers to adopt well-advertised new materials much faster. CORFAM is the first of many. The chemical giants will also participate in shoe construction, ma- chinery, fit, and style research in order to increase sales of their materials. Faster flows of well-advertised new materials will present much greater needs for testing by shoe manufacturers, and cooperative research with chemical companies will provide some shoe manufacturers with major research and merchandising advantages. Internationally, the acceleration of postwar technology has made European shoe manufacturers stronger competitors and has made Europe an important source of new shoe technology. Executives in the United States shoe industry have begun to search for ways to strengthen company and industry research. In machinery, there are new opportunities and competitive needs for machinery improvements and automation research, and the shoe manufacturers will have to play a leading role because there is not a strong economic incentive for other firms to lead in this area. Accelerating materials development will present new testing needs, and new opportunities for joint testing and merchandising with chemical giants. New materials and machinery will present new opportunities for shoe-construction research. Recent reports have indicated a high payoff from some areas of fit research. And new market- research techniques and tools will lead to better and more efficient merchandising. 36 Among these areas of research, materials testing and machinery-and-production research appear the most promising because they will result in substantial cost savings. Materials testing that can reduce materials costs by only 4 percent would save the in- dustry $52 million dollars every year and boost profits 50 percent for the individual company now earning 4 percent on sales. Machinery-and-production research could, by boosting productivity only 8 percent, also save the industry about $50 million annually and boost profits 50 percent for the manufacturer now making 4 percent on sales. At present, most shoe manufacturers in the United States have no research capa- bility, but a few leaders are carrying on impressive and beneficial research programs. Efforts to begin cooperative research in the industry have not succeeded to date, be- cause the dollars-and-cents benefits of cooperative research have not been recognized by company managements. The individual shoe manufacturer should build his research capability in two phases: first, use research information available outside, and second, begin in-company research. The two key steps in the first phase are: (1) to hire a technical man, and (2) to gather information from SATRA, other shoe manufacturers, suppliers, and the growing technical literature. Cooperative research is a necessity for companies too small to support much company research. The shoe manufacturers with strong research can gain even more from cooperative research because they can use the results faster and better. The re- search leaders have an opportunity to move far ahead of other United States manufac- turers and foreign competitors by cooperatively sponsoring a major program to apply technological advances from other United States industries to automated shoe manufacture. The shoe industry can establish cooperative research through a permanent organ- ization like SATRA and/or through cooperative sponsorship of contract research. Per- manent cooperative research could involve merely joining SATRA, arranging for a North American branch of SATRA, or establishing a separate United States organization like SATRA. One of these three SATRA-related approaches will probably be best for coopera- tion in areas of research where all companies can gain: coordination of shoe-research information, materials testing, machine and production-process improvement, and some other research. The first step should be to join the present British SATRA. In the very promising research area of developing radically new shoe-production methods using new technology from other United States industries, only the technically and financially strongest companies can gain, and SATRA will be of less help. Thus, research in this area should be cooperatively sponsored by the leading United States shoe manufacturers through a United States contract-research organization familiar with these new United States technologies as well as with the shoe industry. 37 Recommendations With all the preceding information in mind — the revolutionary changes in the shoe- research environment, the new needs and opportunities in shoe research, the var- ious ways of creating new research capabilities — what should the shoe manufacturers do next? The answer to this question is different depending on company size and pres- ent status of technical capabilities. The Leaders The research leaders presently have a strong competitive advantage over other shoe manufacturers. Their strategy should be aimed at holding and increasing the ad- vantage — to keep the lead in introducing new materials, manufacturing shoes more ef- ficiently, and generally exploiting the advantages of investment in technology. Toward this end, the first target of each of these companies should be to increase its in-company research capability by progressing through all the steps indicated ear- lier in Table 5 and by expanding research strength above minimum in each step, partic- ularly in the more advanced Step 5 research. The second major target of each leader - again, something to pursue individually for the most part — should be increased cooperation with the chemical giants moving into shoe-industry supply, to gain the valuable research information and merchandising leads that will result from such joint work. The third research target should be to encourage and support all efforts of United States shoe manufacturers to establish cooperative research. The benefits re- ceived by each company from cooperative research will be determined not only by what cooperative research is done but also by the individual company's ability to use the re- search results. Thus the United States leaders, having the strongest and most sophisti- cated in-company research understanding, will inevitably be able to use more results of cooperative research and use them more quickly and more intelligently. The fourth research target of leading United States shoe manufacturers should be to cooperatively sponsor research aimed toward radical new approaches to automated shoe manufacture through application of new technologies developed in other United States industries. This fourth target will not provide as quick a return as the others, but over the longer term it offers the greatest opportunities to move far ahead of even the most advanced foreign shoe manufacturers. The United States leaders have the op- portunity to exploit their technical and financial superiority in such ways that the lag- gards just won't be able to compete; and, through use of new technologies from such advanced United States industries as aerospace and electronics (as well as chemicals), they can move far ahead of even the best foreign firms, which simply don't have the same access to such advanced technologies. They will be exploiting the strongest ad- vantage of United States industry over foreign industry. Development of such major new approaches to shoe manufacture requires re- search considerably beyond the final Stage 5 in-company research, both in technical sophistication and in cost. It requires cooperative sponsorship among the leaders, and it requires that the research be done by an organization that has experience in advanced 38 aerospace, electronics, machine-tool, and chemical technologies as well as a knowl- edge of the shoe industry. It is not clear now just where this research on shoe automation should be focused; therefore, the first step should be a cooperatively sponsored first- stage research pro- gram designed to identify the most promising approaches, and demonstrate the promise. This first- stage program should include a detailed technical- and- economic analysis of present shoe-production processes, identification of obvious approaches to automation, and preliminary evaluation of what could come from further research. It would serve as a basis for more detailed subsequent research. The leading shoe manufacturers should sponsor this first- stage cooperative shoe- automation research program now. Manufacturers Without Research Today The shoe manufacturers without research capabilities today are now - or will be soon - in a very dangerous position. The changes that will bring a new world of ad- vancing technology into the industry, and the increasing advantages the research leaders will gain, demand that the shoe manufacturer move into research and new technology or sink. The larger and medium- sized shoe companies, which can afford and can profit from in- company research, should begin now to move through the steps of research advancement shown in Table 5. The smaller companies are faced with a more serious threat: the cost of just a minimum capability to use outside shoe research is beyond many of them, and others who can afford to move into this first phase of using outside information cannot finance or profit from any internal research, even routine testing. The smallest companies (under one- half- million dollars in sales) will have to find some answer to their prob- lem — possibly merger. The next-larger group of companies, in the range of $500, 000 to $1 million sales, and probably some companies larger than this, will be forced to depend totally on outside research and therefore will virtually require a cooperative research program of some type. Thus, these small shoe manufacturers are placed in the ironic position of being forced to sponsor a cooperative shoe-industry research organization, if one can be established, even though they know the more sophisticated larger companies will gain more from the organization. If the small manufacturers do not cooperate, they will fall behind even faster. The revolution in the shoe- research environment is increasing the importance of company size and company research capability relative to style and merchandising in an industry where size and research have traditionally been insignificant in comparison to style and merchandising. The shoe manufacturer must develop technical capabilities and must overcome problems of size if his company is now too small. He must support cooperative shoe research. And, to escape from a position in which he falls farther and farther behind, he must move up among the research leaders. 39 The Indus try- To move toward cooperative research in the best interests of all manufacturers, the United States shoe-manufacturing industry should next take the following five steps. The steps can probably best be carried out through the trade associations. (1) Establish a United States shoe information center. The industry can provide a valuable service to all shoe manufac- turers at low cost merely by bringing together all available information on the shoe industry in one library, in a location convenient to United States manufacturers. Information that should be included in the center, carefully filed and cross-filed, includes: (a) Historical information (b) Industry statistics: sales, profits, import/export data, etc. (c) Industry analyses: books, articles, financial- community studies, etc. (d) Company literature: annual reports and other publicly available information (e) Technical literature: articles and publicly available research reports on materials, machinery, fit, etc. (f) Suppliers' product literature: brochures and other information on United States and foreign materials, machines, etc. (g) Shoe- market studies (h) Trade publications. Such a center would help the individual shoe manufacturer to keep informed about the industry and new developments, and would also be of great assistance to the outsider who may have ideas that can help the industry. (2) Work toward greater United States shoe-manufacturer membership in SATRA . The industry should encourage each manufacturer to join SATRA, both for his own benefit and as a step toward cooperative research, and should also explore with SATRA possible arrangements for a new relation- ship between SATRA and the United States shoe industry. (3) Help to develop a new shoe-industry consensus on group research. Lingering hesitancy among United States shoe manufacturers toward cooperation in shoe technology is now the critical barrier to the much- needed (by every manufacturer) cooperative research that could be under- taken. This problem must be resolved by the shoe industry itself, and the 40 form of cooperative research finally established will depend on how shoe- industry attitudes develop. It appears that the best way to approach this critical task would be to establish a permanent shoe- research committee of influential shoe executives, under the trade associations, to first develop new apprecia- tion of the gains for every company from cooperative research; and second, to select a best plan for organization and funding of cooperative research in the light of the new attitudes that develop. The large leading manufac- turers should take the lead in this effort and support it fully, with the knowl- edge that with their greater capabilities they can gain the most from cooper- ative research. (4) Establish a technical basis for cooperative research through standardiza- tion of nomenclature and dimensional definitions. The first technical step in cooperative research, once the right atti- tudes are developed and the organizational and funding plan is finalized, must be standardization of nomenclature and dimensional definitions. This will in no way limit styling freedom, but will merely provide a common language for cooperative technical advancement. Past failures in this area show that this first technical step will have to come after the change in attitudes. Accomplishment of these four steps by the United States shoe industry will lead to strong cooperative research, to the benefit of every shoe manufacturer — to the small manufacturer, who can accomplish research only through cooperation and therefore needs this program; to the larger manufacturer without research today, who will be aided by this program in his research buildup; and to the leaders today, who with their greater understanding of new shoe technology can use the results of the program faster and better. Strong United States cooperative shoe research is a necessary ingredient in the industry's progress in the new world of shoe research. 41 OPPORTUNITIES FOR INCREASING EXPORTS by J. R. Miller EXECUTIVE SUMMARY Analysis There are current export markets available for United States shoes, but they exist as "pocket markets" that open and close according to a number of variable factors and forces. These markets are stratified and exist primarily for highly specialized prod- ucts. American shoes face extreme competition in style, weight, and quality in some major well-developed markets. They also face extreme price competition in some markets, but this is not to be rated as a major, all-inclusive factor to the extent that many industry members suggest. Neither is it an insurmountable barrier to penetra- tion of these markets. There are opportunities for the sale of inexpensive, typically non-American-type shoes in the lesser developed countries (which should interest United States shoe man- ufacturers as a new-product opportunity), as well as opportunities to sell typically American-type products in these and other markets. The size of individual markets must be determined through feasibility studies directed toward specific goals according to specific product lines of specific manufacturers. American shoes generally enjoy an excellent reputation throughout the world. Sizable markets (to many companies) are developing in some countries that appear to be following socioeconomic developments comparable to those that have occurred in the United States. However, restrictions and local regulations prevent these markets from being currently exploited by American manufacturers. The word "sizable" has different connotations to different manufacturers. Some interpret a whole country in terms of one United States city and judge its potential ac- cordingly; others do not. Raising shoe tariffs appears to be one of the earliest trade barriers set up by countries as they develop. Most countries, when they raise barriers make across-the- board restrictions because local industry demands shoe protection. Indirect problems are more difficult to define. These include quota changes and political delays in clearances. However, some markets can be satisfied only by imported shoes. To educate local governments to relieve pressure on certain classes of shoe imports requires time, talent, and money that cannot be profitably invested by one manufacturer alone, which reduces the interest of the individual exporter, export agent, and foreign im- porter of shoes. 42 Success in foreign shoe-marketing efforts requires the same close working rela- tionship as that encouraged in the United States. However, this relationship must also include more patience, an excellent agent, and a capable traveling factory man know- ledgeable in shoe marketing (not necessarily shoe production). It also requires a broad line of products ofttimes not available from a single company. Properly planned, organized, and controlled exporting activity can be a valuable contribution to diversified income. It can add opportunistic production volume, and it can offer low-credit risk. Most licensing ventures have not been in effect long enough for their success to be critically analyzed. Licensing in a comparatively nontechnical industry seemingly has a 3- to 5-year cycle before one or another of the companies involved loses its patience, before funds expire to the point where renegotiation is necessary, or before separation due to desperation takes place. The current success of some companies is well-founded, but that of others can be attributed to having a "currently hot product at the right time ". Management Leading American shoe manufacturers generally have been aware of export po- tentials and international marketing requirements. They have taken advantages of export markets when and where they existed as long as they existed without excessive restrictions. The larger, more aggressive companies have remained in foreign trade partly through licensing. This has given them better ultimate control on imports into this country than otherwise. The development of foreign-production technology and subsequent product equality (combined with lower labor costs) has adversely affected the interest and activity of many United States shoe exporters. The competitive struggle and the particular stage of growth of the American shoe industry have caused American shoe-company manage- ment to carefully weigh the most profitable use of capital. Export activities have not been among those with the highest payoff. The demand on executive time in well- managed companies and the lack of detailed export knowledge in less well-managed companies have caused exports to receive less than top-priority interest or attention. However, there is an expressed interest on the part of several of the more aggressively managed, medium- size companies to explore export potentials. Marketing Shoes seem to involve more unique differences between United States and foreign models than other products; the international shoe trade is not like international trade in clothes, china, cameras, bicycles, automobiles, perfume, jewelry, watches, or toys. The differences of stated size, style, wrench size, metric system, etc. , are readily overcome with conversion tables when sold in different countries. However, the difference in actual fitting shoe size, materials used, and shapes of feet are critical to the success of foreign-made shoes selling here as well as American-made shoes selling abroad. Thus other United States industries' export activities cannot serve as perfect models for the shoe industry. 43 Trends toward more leisure time in the United States, a more affluent society, increased consumption of specialty shoes, and the more casual appearance in shoes have encouraged imports of the less precisely fitting shoe (especially at lower cost) into the United States and their acceptance by the buying public. Conversely, American shoe manufacturers must first educate the foreign public that American shoes do fit better. Foreign buyers must have achieved a standard of living where this difference of superiority can be recognized and valued to such a degree that it results in the purchase of American shoes. Thus, for American shoes to be sold overseas competitively on a broad scale with mass-marketing methods similar to those used in the United States, the exporter must first find comparable foreign markets and then educate those markets. American shoe-marketing know-how is an exportable commodity, but it requires money, time, and talent, which are not readily available, and it does not offer short- range payoff opportunities. Educating children in the more advanced countries in Europe (such as Sweden, Belgium, and Germany) to the better fit and brand-name identification of American shoes will require an estimated marketing investment of more than 5 years. It can be postulated that continuation of European growth will re- quire more marketing ability similar to that of American firms. The growth of the European shoe industry indicates that it is looking to the United States for guidance in marketing and merchandising. It is quite possible for American companies to move into the marketing function of shoes on foreign soil much as other industries have entered the distribution function in other lands. It could be theorized further that the companies or combination of com- panies engaged in this distribution function might not have previous experience in shoe distribution in the United States. The American shoe industry is experienced in micromarketing and in its use in the very stratified shoe markets. It seems highly possible that this experience and development of proven methods in the United States could be applied to shoe distribution in well-developed foreign countries. Initially, this distribution may require a combina- tion of local production and only a small amount of United States shoe importation. How- ever, as the United States gains a further advantage in its second stage of industry growth, it could well become an important source of shoe imports for foreign countries because of price, quality, or other advantages. The labor-differential factor is a major one; however, it is expected to become less and less significant as European labor costs rise, and its role in the more de- veloped foreign economies is gaining new meaning. Increased unionization activities, broad socialistic employee benefits, and other developments appear to be approaching those experienced by the American shoe manufacturer. If actual marketing costs were to be deducted from the wholesale price of branded American products and only partially reflected in foreign-market-promotion allowances, or if incremental cost-accounting methods were to be used, the delivered-price differential to key foreign markets could be made more competitive. Again, if an American-owned marketing company became a part of a given country's shoe industry, it could bring to bear internal political pressure that would favor future importation of American shoes into that country more effectively than could an outsider. 44 It was concluded that in general Department of Commerce data and services are very good, highly reliable, and readily available, but that they can be used only as a very general guide. The countries suggested by industry field interviews as the best potential markets showed little correlation with the countries that the statistical data indicated to be most promising. In general, public information and volumes of statis- tics can be relied upon only to obtain an indication of where markets may exist. The actual availability of markets at any given time can be determined only through the personal efforts of highly capable personnel able to translate these availabilities into selling opportunities. It was not possible to adeuqately summarize the enormous amount of raw data from the various countries and to establish a numerical priority of potential markets. There was a vast array of data, much of which could be considered pertinent to future shoe -marketing activities. (It might well be desirable to bring this information together in one publication as a guide to subsequent information-retrieval and research-project structuring. ) Attempts to improve future American shoe exports on a broad, continuing scale will require the combined efforts of interested shoe-industry leaders and the United States Department of Commerce. They will need to (1) work with a long-range plan and investment capital to build overseas marketing capability in well-developed countries; (2) build a sales organization(s) that can sell certain types of shoes to under- developed countries, (3) sell other types of shoes to other countries; and (4) sell com- ponents and materials to other countries that have their own developing shoe industries. Exporting shoes to a developing nation is relatively easy during the time that the nation cannot produce enough shoes to satisfy its needs. Beyond that point, as the quality of product required for that market becomes more competitive and as protective tariffs are established, the continued success of an exporter depends on his decision to enter the "international marketing stage" in that country or region. If the exporter can- not, or chooses not to, his volume will decline in that market. He must then find other markets in this early stage of development to maintain his export volume. Those com- panies that define a given market(s) as essential must prepare themselves to become international marketers. Other American companies have faced these same decisions that shoe manufacturers are facing now. Recommendations The following recommendations are divided into three sequential phases. Each phase should be begun only after key elements of the preceding phase have been accom- plished and show positive results. Phase I (1) Make a survey to ascertain the actual, genuine interest in exports on the part of shoe-industry management. Choose ten to twenty companies from the survey on the basis of their past performance, size, products manufactured, product quality, age of management, reputation, and financial condition, in order to include a broad array of factors. Past 45 export experience would not be essential; in fact,, it could be detrimental. Company size would not be critical. Medium- size companies with flexible, decisive professional management would be preferable. The objective is to choose those men most likely to make the program work and in need of such a program in order to export. (2) Plan and execute a foreign-trade mission made up of personnel from approximately ten of the above companies to visit key European countries to study what marketing and distribution situations exist from their in- dividual viewpoints and to survey the problems and opportunities likely to be encountered. Phase II (1) Establish a mutual shoe-marketing cooperative if the trade mission provides positive indications. This would satisfy the greatest number of requirements for success most economically and effectively. Include in the cooperative's membership only those American manufacturers who are interested in a long-range investment and screen the member- ship according to strict criteria. Membership should represent a broad line of products and would require (in all probability) a capitalized initial investment, a finished-goods financing of 45 days, and an agreement to offer a selling price to the cooperative based on an "incremental cost plus". (2) It would be necessary to establish a 3-year budget and to follow the re- quirements for successful export operations that were noted earlier. After initial capitalization by members, it would be necessary to obtain financing, preferably through a New York bank with excellent foreign- trade capabilities. It also would be essential that some provision be made for "seed" money and to protect or guarantee the membership's initial investment through a prearranged, secondary-government financial guarantee. (3) It would be desirable to establish a New York office with a staff made up of a general manager, a traveling salesman experienced in sales training and foreign travel, and an expediter to expedite orders in the United States and clear necessary papers, etc. It is suggested that the general manager have a background in soft- goods merchandising and training and experience in one of the large international merchandising organizations. In other words, he preferably would not have a shoe-industry orientation unless it happened to be gained through the above type of experience. (4) The cooperative would then proceed to participate in foreign trade shows and to survey specific foreign-market potentials. This would be followed by the establishment of a foreign-marketing capability that would penetrate one market at a time through acquisition or through joint foreign capital investment. In some markets, wholesale operations would be most profitable, both initially and ultimately. In other markets, wholesaling may later lead to retailing. In still other markets, conditions may be proper for starting with retail stores to sell only American 46 shoes and related items. Each market would require individual study at a particular time to determine the best plan of action. Initially, it may also be necessary to contract for local production, depending upon the country; but this should be easily negotiable, especially where there is an excess of productive capacity. One of the major advantages of this type of program would be the development of a brand name that, when promoted and used as a slogan, would assist in building recognition of "quality -fitting American footwear". Very few American-brand shoes are known and preferred in foreign markets, especially in non-English-speaking countries. Therefore, to build a common, cooperative brand name would be an advantage. Should other well-known, private American-brand labels gain recognition, they also could be used along with the mutual American shoe-cooperative slogan if their producers were members. This program would build a basis for exclusive import rights when it becomes necessary to exert pressure on the local foreign government for "preferential treatment of products not locally available within that country". It also would be helpful if the close, "informal" relationship with the United States Department of Commerce could assist in gaining preferential treatment in foreign lands. Where marketing efforts are not possible, it would be advantageous to export shoes, leather, and component parts to other markets where a local industry is being developed. Phase III After beachheads of successful marketing activities have been established in Europe and the mutual American shoe cooperative and American members are enjoying a good return on their investment and repaying the "seed" money loan, several alter- native opportunities could develop. Using the successful pattern of the first mutual American shoe cooperative, there might well be sufficient interest on the part of other American manufacturers to form a second mutual American shoe cooperative. If European markets did not provide sufficient available potential, possibly the second cooperative could seek Latin American markets. Later, a third cooperative might be formed to sell in Asia, Africa, India, or other markets as they develop throughout the world. FINAL REPORT TABLE OF CONTENTS INTRODUCTION I. A NEW LAST-GRADING SYSTEM FOR MEN'S SHOES In Volume Two: II. OPPORTUNITIES FOR INCREASED PROFITS THROUGH INVENTORY MANAGEMENT III. RESEARCH AND DEVELOPMENT IN THE UNITED STATES SHOE INDUSTRY. A Revolution Presents Major New Needs and Opportunities IV. OPPORTUNITIES FOR INCREASING EXPORTS FINAL REPORT on OPPORTUNITIES FOR INCREASING MARKETS AND EMPLOYMENT IN THE SHOE INDUSTRY (NONRUBBER) to ECONOMIC DEVELOPMENT ADMINISTRATION UNITED STATES DEPARTMENT OF COMMERCE from BATTELLE MEMORIAL INSTITUTE Columbus Laboratories by J. R. Miller, R. L. Crosby, G. L. Robinson, W. R. Purcell, Jr., N. H. Gaber, R. W. Hale, and W. L. Swager INTRODUCTION On June 28, 1965, Battelle Memorial Institute was awarded a research contract (Contract No. C- 340-65) from the Economic Development Administration (then the Area Redevelopment Administration) of the U. S. Department of Commerce, on "Opportunities for Increasing Markets and Employment in the Shoe Industry (Nonrubber)". This volume presents the results of the research in a series of four separate reports on each of four tasks performed in the research program. Objectives and Scope The research program was defined to include three principal elements: (1) An estimation of the opportunities for increasing exports, (2) An appraisal of the opportunities for developing, acquiring, and using improved materials and manufacturing technology, and (3) An investigation of practical ways to reduce inventories. Each of the first two elements was carried out as a single task, and the third element was divided into two related but distinct tasks. The first of the two inventory reduction tasks focused upon the subject of shoe last grading, or systems of shoe sizes and widths, with the major objective of seeking ways to reduce inventories by reducing the number of sizes and widths. Because a reasonable amount of data and information were available related to last grading for men's shoes and much less information was available for women's and children's shoes, the Sponsor and Battelle agreed to concentrate on the significance of last-grading systems in the men's shoes business. The last-grading task involved considerations other than inventories — for example, automation — but was made a major portion of the inventory- reduction ele- ment because of its high potential benefits in this area, because of interest on the part of shoe manufacturers, and because this task was particularly appropriate for industry- wide research. The other inventory task was an overall analysis of the shoe-inventory situation and of potential improvements, with emphasis upon evaluation of electronic data proces- sing as a tool for inventory reduction. All four research tasks were pursued with the objective of improving the United States shoe industry's sales, profits, and economic health in order to increase employ- ment in the industry. Methodology The research methodology for all elements of the program included a literature re- view and extensive contact with the industry and related parties, particularly in the early stages of research. In all, well over 200 contacts were made with shoe executives, technical experts, supply- industry executives, trade-association personnel, and relevant individuals in Europe. The export task included about 50 American contacts, detailed analysis of exten- sive shoe export-import data from the Business and Defense Services Administration of the Department of Commerce, and over 30 interviews abroad to investigate shoe-export opportunities in detail. An "objectives network" was then developed to systematically evaluate (1) history, present status, and trends in the United States shoe industry and in various foreign shoe markets; (2) tariffs and "hidden barriers" to exports; and (3) atti- tudes of United States shoe manufacturers toward exporting, in order to construct a comprehensive overall picture of export opportunities and to develop realistic recommendations. The methodology for the research-and-development task included over 20 inter- views with leading United States shoe manufacturers to ascertain accomplishments, atti- tudes, and present capabilities in United States shoe-industry research, and several case studies were prepared. A number of interviews were held with leading suppliers to the shoe industry and with outside parties performing shoe research to investigate trends in the industry's research environment. And a visit to Europe was undertaken to make a detailed analysis of the British Shoe and Allied Trades Research Association (SATRA) and to study the research activities of leading European shoe manufacturers. The infor- mation thus collected was then analyzed to develop a realistic picture of present and emerging needs and opportunities in research facing United States shoe manufacturers, and to develop practical recommendations to individual manufacturers and to the industry in research and development. The research methodology of the inventory- reduction element involved analysis of industry and Government statistics, company annual reports, and other publicly available ii literature, as well as over 30 visits to shoe companies. From the data thus gathered, a comprehensive picture was developed of distribution channels, storage points, and in- ventory levels throughout the shoe industry and trade, as a basis for both inventory- reduction research tasks. The task addressed to the overall inventory picture, with em- phasis on electronic data processing, also included study of trends in, present capabilities and problems in, and present shoe industry use of, two major new inventory-management tools: electronic data processing and scientific inventory control. This information was used to estimate the potential value of these new inventory-management techniques to the shoe industry and to develop several recommendations for individual manufacturers, for manufacturers in cooperation with retailers, and for the industry, for improved cus- tomer service at reduced inventory cost. The last-grading research procedure included, in addition to the shoe-industry visits and inventory statistical analyses mentioned above, visits to several last manufac- turers and to the principal United States centers of shoe-fit research; and extensive con- tinued contact with both United Shoe Machinery Corporation (USM) and Genesco, Incor- porated, the originators of the two new men's last-grading systems, and with Mr. Robert Rhoades of Woodard & Wright Division of Vulcan Corporation. Analysis of various exist- ing and proposed last-grading systems was performed on (1) fit; (Z) inventory reduction; (3) automation effects; (4) costs of changing to the new system; and (5) merchandising effects (including style). Results of Battelle analyses were reviewed in detail with USM, Genesco, and Mr. Rhoades, and improved through these reviews. Finally, a particular new grading system was developed and recommended and a program of action to test and convert to the new system was outlined. iii and iv A LAST-GRADING SYSTEM FOR THE MEN'S SHOE INDUSTRY by W. R. Purcell, Jr. TABLE OF CONTENTS Page PART I - EXECUTIVE SUMMARY MAJOR RESEARCH CONCLUSIONS 1 SUMMARY OF MAJOR RECOMMENDATIONS 3 SUMMARY OF ANALYSES 3 1. Fit 4 2. Inventory Reduction 5 3. Geometric-Machinery Automation 10 4. Changeover Costs 11 5. Merchandising 14 TOTAL EVALUATION 15 RECOMMENDATIONS 16 Developmental Testing Program 16 Preparation for Retail Introduction 22 Feasibility Studies on Women's and Children's Last-Grading Systems ... 22 PART II - ANALYTICAL REPORT INTRODUCTION „ 27 FIT 28 A Technique for Evaluating Fit 31 Evaluation of Fit of Last-Grading Systems 49 INVENTORY REDUCTION . . . . ' 65 Percentage Reductions in Tariffs 66 Percentage Reductions in Inventories 68 Company Dollar Inventory Reductions 72 Industry- Wide Dollar Reductions in Inventories 7 5 Raw Materials and Work-in-Process Inventory Levels 76 Finished-Goods Inventory Levels 80 Total Dollar Reductions 89 GEOMETRIC AUTOMATION ' ' . 92 Importance of Automation 92 Potential Savings From Use of Geometric Machinery 93 Evaluation of Last-Grading Systems for Use With Geometric Machinery 96 TABLE OF CONTENTS (Continued) _. Page CHANGEOVER COSTS 99 Replacement of Lasts 101 Effects on Last Manufacturers 104 Replacement of Store Foot-Measuring Devices 105 Other Costs 106 MERCHANDISING 107 Style 107 Understanding of the System by Retail Salesmen 109 Consumer Acceptance 110 Retailer Acceptance Ill FINAL EVALUATION OF THE GRADING SYSTEMS 113 RECOMMENDATIONS 113 Developmental Testing Program 113 Preparation for Retail Introduction 114 Feasibility Studies on Women's and Children's Last- Grading Systems . . 114 APPENDIX A GLOSSARY A-l APPENDIX B USM ESTIMATE OF NET ECONOMIC BENEFIT TO "TYPICAL" MEN'S SHOE MANUFACTURER FROM PRESENTLY AVAILABLE GEOMETRIC HEEL MACHINERY B- 1 APPENDIX C METHODOLOGY AND SOURCES 1 Methodology C- 1 Sources C-4 LIST OF TABLES Table S- 1 . Key Specifications of Men's Last-Grading Systems 6 Table S-2. Summary Evaluation of After-Tax Economic Effects of the Five Last-Grading Systems 17 Table S-3. Guidesheet for Estimation of Company Savings and Costs From Conversion to Dynametric II 18 LIST OF TABLES (Continued) p age Table 1. Fit Rating of Last-Grading Systems 65 Table 2. Percent Reductions in Size-Width Tariffs 68 Table 3. Percentage Reductions in Finished-Goods Inventories With DFC, Dynametric I, and Dynametric II 74 Table 4. Turnover Comparisons Between Arithmetic and DFC at Three Jarman Stores 74 Table 5. Raw Materials Plus Work-in- Process Inventories as Percent of Sales at Several Large Shoe Companies 77 Table 6. Raw-Materials and Work-in-Process Inventories in Segments of the Shoe Industry 80 Table 7. Concentration in Pairage Output — Men's Shoes and All Shoes (1954) 80 Table 8. Product Lines and Retail-Price Ranges of Shoes Manufactured by Four Largest Companies 81 Table 9. Classification and Description of the Men's Shoe Industry 82 Table 10. Manufacturer-Owned Retail Chains Selling Exclusively or Primarily Men's Shoes 83 Table 11. Concentration in Shoe Retailing of Manufacturers (1962) 84 Table 12. Shoe Sales by Big-Six Companies (1962) 84 Table 13. Average Turnover Rates for Men's Shoes Retailing Above $9.00 . . 85 Table 14. Factory Value of Annual Men's Shoe Output by Retail- Price Range . . 85 Table 15. Estimated Factory- Price Value of Industry- Wide Inventories of Men's Shoes Retailing Above $9.00 86 Table 16. Average Turnover Rates for Men's Shoes Retailing Below $9.00 . . 86 Table 17. Estimated Factory-Price Values of Industry- Wide Inventories of Men's Shoes Retailing Below $9. 00 .86 Table 18. Estimated Industry- Wide Inventory Reductions at Factory Prices for Men's Shoes Retailing Above $9.00, With DFC, Dynametric I, or Dynametric II 89 Table 19. Estimated Industry- Wide Inventory Reductions at Factory Prices for Men's Shoes Retailing Below $9.00, With DFC, Dynametric I, or Dynametric II 90 LIST OF TABLES (Continued) Page Table 20. Rating of Last-Grading Systems on Industry Inventory- Reduction Benefits 91 Table 21. Industry- Wide Maximum Potential Annual Savings From Full Program of Geometric Machinery as Percent of Relevant Labor Costs 94 Table 22. Percent of Factory Cost of Men's Shoes Represented by Labor Costs Potentially Reducible With Geometric Machinery 95 Table 23. Geometric Diagonal Heel Chart 98 Table 24. DFC Diagonal Heel Chart 99 Table 25. Dynametric I Diagonal Heel Chart 100 Table 26. Dynametric II Diagonal Heel Chart 100 Table 27. Summary Rating of Last-Grading Systems on Value Through Geometric Automation 100 Table 28. Estimation of Cost of Immediate Replacement of All Men's Lasts . . 101 Table 29. Key Specifications of Men's Last-Grading Systems 103 Table 30. Annual Cost to Industry of Lasts With Geometric Specifications . . . 104 Table 31. Estimate of Nationwide Cost of Purchase of DFC Foot-Measurement Devices 106 Table 32. Estimated Cost of Changeover to New Last-Grading System .... 108 Table 33. Summary Rating of Grading Systems on Merchandising 112 Table 34. Total Evaluation of Men's Last-Grading Systems From Economic Viewpoint of the Shoe Industry 115 Table B-l. Comparison of Estimated Costs for Present (Attach- Trim-Scour) and Geometric (Attach-Trim) Methods B-3 Table B-2. Salvage Value of Average-Age Purchased Machines Based on Present Worth B-4 LIST OF FIGURES Figure S-l. Steps Toward the Introduction of Dynametric II 23 Figure 1. Some Factors Affecting Fit 2 ° Figure 2 Part of the Present Arithmetic Last-Grading System Represented on a Length-Girth Graph ■*'■ LIST OF FIGURES (Continued) Page Figure 3. Area of Coverage of Arithmetic System 33 Figure 4. Two Possible Fit Areas of Coverage of a Particular Size-Width in a Last-Grading System 35 Figure 5. Dependence of Last-Grading System on Shape of the Fit Area of Coverage , 36 Figure 6. Dependence of the Last-Grading System on Size of the Fit Area of Coverage 37 Figure 7. Size-Width Diagonals 38 Figure 8. Separation of Size- Widths Along the Diagonal by Skipping Alternate Widths 39 Figure 9. Fit-Tolerance Ellipse 41 Figure 10. Fit-Tolerance Ellipses Showing Areas of Overlap Along Size- Width Diagonals 42 Figure 11. Elimination of Diagonal Overlap by Elimination of Alternate Widths . 43 Figure 1Z. Comparison of Arithmetic and DFC Systems 44 Figure 13. Ellipse Size Indicating Fit Standard of Present Arithmetic System . . 46 Figure 14. United States Army Size- Width System 48 Figure 15. Ellipse Fit Test of Present Arithmetic Last-Grading System ... 50 Figure 16. Ellipse Fit Test of Geometric System 51 Figure 17. Ellipse Fit Test of DFC System 52 Figure 18. Ellipse Fit Test of Dynametric I 54 Figure 19. Differences Between a New Size-Width in the Dynametric I System and the Corresponding Arithmetic Size-Width 55 Figure 20. Individual Ellipse Fit Tests for the Two Steps involved in Spreading Widths in the Dynametric I System 56 Figure 21. Ellipse Fit Test of Dynametric II 57 Figure 22. Effective Area of Fit Coverage of the Arithmetic System 59 Figure 23. Effective Area of Fit Coverage of the Geometric System 60 Figure 24. Effective Area of Fit Coverage of the DFC System 61 LIST OF FIGURES (Continued) Page Figure 25. Effective Area of Fit Coverage of the Dynametric I System .... 62 Figure 26. Effective Area of Fit Coverage of the Dynametric II System .... 63 Figure 27. Effective Area of Fit Coverage of a Size-Width in Each Grading System 67 Figure 28. Inventory Record for an Item Under "Economic Order Quantity" Policy 70 Figure 29. Relationship Between Number of Items (N) and Average Inventory (I) 73 Figure 30. Inventory as Percent of Sales for Shoe-Manufacturing Companies of Various Sizes 78 Figure 31. Inventory by Type as Percent of Sales for Shoe- Manufacturing Companies of Various Sizes 79 Figure 32. Shoe-Flow Diagram for Men's Shoes Retailing Above $9.00 .... 87 Figure 33. Shoe-Flow Diagram for Men's Shoes Retailing Below $9. 00 ... . 88 Figure B-l. Comparative Costs of Using Geometric Lasts at Various Productions B-5 Figure C-l. Phases of Research C-2 Figure C-2. Framework for Analysis C- 3 A LAST- GRADING SYSTEM FOR THE MEN'S SHOE INDUSTRY by W. R. Purcell, Jr. PART I EXECUTIVE SUMMARY MAJOR RESEARCH CONCLUSIONS (1) Although the subject of fit of shoes is extremely complex, it is possible to separate the question of fit of a last- grading system from the many other factors affecting shoe fit. The results of research performed by various organizations and individ- ual researchers, heavily supported by practical observations of shoe executives, provide a reasonable basis for analytical evaluation of fit of a men's last-grading system. There is sufficient information on fit for a practical decision on last grad- ing for men's shoes now. (2) It is possible to reduce the number of men's size-widths by about 33 percent with a fit standard just as good as the standard of the present system. (3) Such a reduction in number of size-widths is possible because there is unnecessary fit overlap along the size-width diagonal (for example, the fit of a 9D is unneces- sarily close to that of an 8-1/2E). (4) Such a reduction in number of size-widths is possible with no loss of style freedom. (5) This 33 percent reduction in the number of size-widths would permit the men's shoe industry as a whole to reduce finished- goods inventories and some work-in- process inventories 20 percent; it would permit all men's shoe manufacturers to- gether to reduce inventories by about $25 to $30 million, thereby also reducing annual inventory costs by $2. 5 to $3. million, after tax, and would provide all re- tailers with inventory reductions of about $50 to $55 million, leading to annual after-tax cost reductions for retailers totaling about $5. to $5. 5 million. It would permit single-width manufacturers and retailers to increase sales by adding a sec- ond width without increasing inventories. (6) Genesco's DFC last-grading system for men's shoes achieves this reduction in number of size- widths and in inventories while maintaining the fit standard of the present system. (7) Conversion to DFC would provide men's shoe manufacturers as a group with an annual net cash- flow benefit of about $3 million, plus about $10 million over the first few years. The benefits to the retail trade from DFC would be even greater. (8) Conversion to the Geometric System might provide manufacturers as a group with future annual net savings estimated at $7 million, but would not provide nearly as great retail savings as DFC. (9) From the viewpoint of overall combined shoe- manufacturer and retailer economics, DFC is the best basic men's last-grading system now in use. (10) It is not necessary to change the grade rate to the reduced DFC grade to gain these inventory- reduction benefits while maintaining good fit, and DFC is not the only system that could lead to these inventory savings while maintaining good fit. (11) A system that offered the benefits of DFC while maintaining a proportional grade rate could provide the industry with even greater economic gain than DFC. The principal additional gains would be in reduction of changeover costs (because a proportional- grade system could be designed so that many of today's lasts would be usable in the new system), and full compatability with all geometric automation principles. Other gains would be (a) slightly better population coverage in ringle width and (b) greater ease of understanding for the retail salesman. (12) Two proportional men's last-grading systems appear from analysis to offer the great inventory- reduction benefits of DFC together with a fit standard as good as the present system, plus the further economic benefits possible with proportional grade. One of these systems, Dynametric I, uses the present sizes and revised widths, and the other, Dynametric II, three-quarter sizes and the present widths. (13) Either of these systems would offer net economic gains to the men's shoe- manufacturing industry of about $11 million annually, plus almost $20 million more over the first few years - about double the net benefits of DFC. (14) Of these two proportional systems, the three-quarter- size (Dynametric II) system has advantages: (a) it will provide both the industry and the trade with higher net savings than any of the other systems; (b) it would permit reduced model-making time per set of lasts during the critical period of conversion to the new system, because all sizes in all widths can be graded from one model; and (c) it is basically consistent with the Europoint size system. (15) A new grading system with these advantages will give individual manufacturers and the whole men's shoe industry a major new feature for advertising and merchan- dising gains. (16) Conversion to Dynametric II will do a great deal to improve last manufacturers' business. It will cause a major boom in last manufacturing during conversion, possibly doubling sales of men's lasts for the next several years; and the new sys- tem probably will not reduce last manufacturers' business in subsequent years. (17) For most individual manufacturers and individual retailers, the Dynametric II System is the best grading system, and will provide the following benefits: • A fit standard as good as today's fit standard • Large inventory savings in multiple widths at factory, warehouse, and store » Increased sales for single-width firms through addition of second width without increasing inventory • Low changeover costs and use of many of today's lasts • Complete consistency with all principles of geometric automation • No loss of styling freedom • Reduced model-making time per set of lasts during conversion period • Consistency with Europoint • Ease of understanding and use by retail salesmen • A powerful new feature for a merchandising program SUMMARY OF MAJOR RECOMMENDATIONS (1) The industry and trade associations and those manufacturers of men's shoes who are interested in gaining the benefits of the Dynametric II System should support a care- ful, objective developmental test of Dynametric II now; if test results are favorable, they should convert fully to the new system as rapidly as possible. (2) Manufacturers adopting the new system, and the industry and trade associations, should cooperate in a joint program for retail introduction of the system, including education of retailers and consumers. (3) The industry and individual manufacturers of women's and children's shoes should support feasibility studies to determine whether similar major benefits can be achieved through revision of women's and children's grading systems. SUMMARY OF ANALYSES Last- grading systems were evaluated from the viewpoint of the economic health of shoe- manufacturing companies. The areas investigated included: (1) Fit (2) Inventory reduction (3) Geometric automation 4 (4) Changeover costs (5) Merchandising (a) Style (b) Understanding by retail salesman (c) Acceptance by consumers (d) Acceptance by retailer Five last-grading systems — the traditional "Arithmetic", USM's Geometric, Genesco's Dynamic Fitting Concept (DFC), and two new systems emerging from the analyses, Dynametric I and Dynametric II — were evaluated with respect to each of the above considerations. These evaluations were then combined to provide a total rating for each system, and the best system was selected. Finally, broad guidelines for appropriate action of individual companies and of the industry as a whole were developed. See the full report for more detailed explanations of the research summarized below. 1. Fit While shoe fit is an extremely complex subject involving many factors difficult to measure or evaluate, sufficient knowledge of the subject now exists to permit analysis of the effects of last grading on fit in a manner that avoids involvement in other com- plexities of fit. Information available today is sufficient for practical improvement of a system designed during the Civil War. The technique used by Battelle for evaluating the fitting quality of each proposed last-grading system is based on the "fit- tolerance ellipse", * a graphical result of re- search performed at SATRA and further pursued at United Shoe Machinery Corporation. This technique provides a method for determining the range of feet that can be fit to a given fit standard with any particular size and width; thus, it can be used to determine whether any last- grading system can fit all normal feet to a certain standard of fit. The minimum standard of fit used to evaluate each proposed new last-grading sys- tem was the fit standard of the present Arithmetic System. To be judged acceptable, any new system had to exhibit a standard of fit at least as good as that of the Arithmetic System, as measured by the fit- tolerance-ellipse technique. The fit- tolerance-ellipse concept used by Battelle in development of a fit test emerged from scientific fitting experiments at SATRA and USM. The concept supports and helps to explain (1) research results developed elsewhere (notably at Genesco); (2) fitting methods of experienced retail shoe salesmen; and (3) practical observations and policies of shoe executives. The fit- tolerance-ellipse concept is shown to be rea- sonable by its consistency with observations and actions of practical, experienced shoe men throughout the industry. 'Definitions are given in the Glossary, Appendix A. The fit- tolerance ellipse shows that the present Arithmetic System has excessive and unnecessary "fit overlap" along the "size-width diagonal". That is, it shows that about half the feet that could be fit well with an 8-1/2D could also be fit well with a 9C; each size-width is unnecessarily similar to that one-half size larger and one width nar- rower. The ellipse indicates that it is possible to reduce the number of size-widths by about 33 percent without any detrimental effect on standard of fit, by rearranging sizes and widths in a manner that reduces this unnecessary fit overlap. The ellipse test shows that Genesco's new DFC system does just this. DFC re- duces the number of size-widths 33 percent by reducing fit overlap, while retaining a standard of fit as good as that of the Arithmetic System. The ellipse test also shows that it is possible to achieve the same 33 percent re- duction in number of size-widths with the same good fit without changing to DFC grade rate. Two proportional- grade systems have been shown to provide these benefits while retaining the present fit standard'": In Dynametric I, there are 5 geometric points between sizes in length and in girth (very close to the Arithmetic (1) Dynametric I half sizes), and 12 or 13 geometric points between widths (about 1-1/2 times the distance between Arithmetic widths). In Dynametric II, there are 7 or 8 geometric points be- /0 - „ . tt tween sizes in length and in girth (very nearly three- (2) Dynametric II s s v ' ' quarter- sizes) and 7 or 8 points between widths (very nearly the present Arithmetic width system). Either of these systems offers a standard of fit as good as that of the Arithmetic System, while at the same time reducing the number of size-widths about 33 percent. Battelle has found no valid reason for believing that there are any fit advantages in adopting a reduced grade rate such as that of DFC. As shown below, there are strong economic advantages to the present grade rate. Table S- 1 describes the key technical specifications of all five grading systems: the present Arithmetic System, USM's Geometric System, DFC, and the new Dynametric I and Dynametric II Systems. 2. Inventory Reduction Battelle 1 s inventory analysis of men's last-grading systems was designed to: (1) Estimate industry-wide savings to manufacturers and retailers from each proposed grading system to provide a basis for an industry-wide decision among the various sytems; and 'These new systems are named "Dynametric" because they combine the benefits of Genesco's Dynamic Fitting Concept and USM's Geometric. Q < O I H w < u W Oh w in (0 C X OJ ■*-> s X 0) rH S* u d t— i tu CQ 0) V N 01 t/> c m tu > a •iH V s u u u tU a i— ) tn c x o U 00 c c tu V J tU H-» tU PQ td tu td « D X td h 6 OJ CO >. 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In order to obtain these results, several questions had to be answered. Each question is listed below together with a brief description of Battelle's analysis and a statement of the result: (1) What percentage reduction in number of size-widths (shoes of different dimensions) will each system permit without reducing sales (the number of feet that can be fit) in multiple- width tariffs and in single-width tariffs~ An answer to this question for each grading system was developed using Du Pont/ NFMA data on shoe sales by size and width, together with the fit- tolerance ellipse, indi- cating which feet can be fit by each size-width in each system. The results of the analy- ses are indicated in the following tabulation: Grading System Arithmetic Percent Reduction in Number of Size- Widths With No Loss in Sales Single- Width Tariff Multiple- Width Tariff ' Geometric DFC Some reduction, but less than 30 percent; probably about 15 percent( a ) 33 Dynametric I 33 Dynametric II Reduction greater than DFC but less than 30 percent; probably about Z0 percent' 3 ' 33 (a) Single-width manufacturers and retailers will be able to offer a second width with- out increasing the number of stock units, with DFC or with Dynametric II. Be- cause single -width firms are not faced with such serious inventory problems, many will add a second width to increase sales. These figures show Dynametric II re- quiring about 5 percent fewer shoes than DFC to fit a given number of feet in a single width because of the advantage of proportional grade. (2) What percentage reduction in average shoe inventory will result from each 1 percent reduction in number of size-widths carried? This question was answered through standard mathematical inventory- analysis techniques. The analysis indicated that for each 1 percent reduction in number of size- widths offered, average' inventories will be reduced by a little over 1/2 percent. A 33 percent reduction in number of size-widths should lead to a finished- goods inventory reduction of 20 percent. 8 (3) What is the industry-wide dollar value of manufacturers' and retailers' inventories of men's shoes, in multiple-width tariffs and in single- width tariffs? This question cannot be answered precisely, but rough estimates were developed to indicate industry-wide gains from inventory reduction with a new grading system. Analysis included study of data from the National Footwear Manufacturers' Association, the New England Shoe and Leather Association, Boot & Shoe Recorder, Footwear News, annual reports of publicly owned shoe . companies, Department of Commerce reports, and several books. Discussions with shoe executives was another important source. It was found that industry-wide inventories of men's shoes could not be precisely measured but could be estimated with sufficient accuracy to support a practical decision on last grading. The breakdown of total- inventory figures into single-width and multiple -width shoes was estimated through a breakdown by retail-price grouping; most men's shoes retailing above $9. 00 are offered in multiple widths and most below $9. 00 in a single width. The following industry-wide total men's shoe- inventory figures were developed: Retail- Dollar Inventories of Men's Shoes Price (at Cost or Factory Prices), millions of dollars Range, Factories Owners dollars (Work- in- Process) In-Stock In-Store Total Manufacturers^) 0-9.00 14 5 9 28 (Including owned 9. 00 up 54 65_ 50 169 Total 68 70 59 197 retail outlets) Retailers 0-9.00 -- 8 33 41 (Not owned by 9. 00 up 21 250 271 Total -- 29 283 312 42 69 300 440 manufacturers) Total 0-9.00 14 13 (Manufacturers 9. 00 up 54 86 and retailers) m , „ „„ _._ _„„ Total 68 99 342 509 (a) Includes all inventories of integrated shoe companies. (4) What do the above answers show that each last-grading system could achieve in industry-wide dollar reductions in inventories? The research results presented above indicate the following rough estimate of industry-wide dollar reductions in men's shoe inventories: Grading System Arithmetic Geometric Owners of Inventories Manufacturers Retailers Total Manufacturers Retailers Total Total Dollar Reductions in Inventories of Men's Shoes (at Cost or Factory Prices), millions of dollars DFC Manufacturers Retailers Total 26 57 83 Dynametric I Manufacturers Retailers Total 25 54 79 Dynametric II Manufacturers Retailers Total 27 59 86 (5) What annual savings in inventory carrying costs would result from these inventory reductions? This question was answered by applying to the inventory reductions shown above a factor indicating the annual cost of holding these inventories (including interest on money tied up, warehouse costs, costs of keeping track of inventories, and markdown costs). Development of the cost factor is described in more detail in the Battelle report on shoe- inventory management. The analysis indicated annual cost savings equal to 20 percent of the inventory re- duction before taxes, or 10 percent after tax. It should be noted that these savings are in addition to the cash- flow benefits from the reduction of inventories. Thus, total economic benefits to the industry and the trade from inventory reduc- tion would be roughly as shown on the following page: 10 Grading System Arithmetic Owners of Inventories Manufacturers Retailers Total Economic Benefits, millions of dollars Total Annual-Cost Total Dollar Reductions in Reductions from Inventories of Men's Shoes Reduced Inventories (At Cost or Factory Prices) (After Tax Adjustments) Geometric Manufacturers Retailers Total DFC Manufacturers Retailers Total 26 57 83 2. 6 5. 7 Dynametric I Manufacturers Retailers Total 25 54 79 2. 5 5, 4 7. 9 Dynametric II Manufacturers Retailers Total 27 59 86 2. 7 5. 9 8. 6 3. Geometric-Machinery Automation Evaluation of the relative economic value of the various last- grading systems through automation based on geometric principles requires: (1) evaluation of the prob- able net economic benefits to shoe manufacturers from geometric automation if the grading system were fully consistent with geometric principles, and (2) evaluation of the extent to which each proposed grading system is consistent with geometric princi- ples. It became apparent in the research that there are many unpredictable factors in- volved in future geometric-machinery development, use, and value, and only a very rough estimate of economic benefits was possible. The match of the various grading systems with principles of geometric automation design were shown to be as follows: 11 Consistency with Geometric Grading Automation Principles System Heel Forepart Arithmetic No No Geometric Yes Yes DFC Yes \ No I Dynametric I Yes Yes Dynametric II Yes Yes Economic evaluation of potential benefits from geometric-principle-based automa- tion, derived from analysis of the benefits from the limited geometric machinery now in use and from study of all labor costs that geometric automation might affect, and con- sideration of the factors likely to affect development and use of various geometric machines, indicated that the net annual economic benefits (after taxes) to all manufac- turers of men's shoes from geometric automation might be something like $1. 6 million for heel-end operations and $6. 4 million for forepart operations. Thus, total economic benefits from geometric automation offered by each grading system might be: Rough Estimate of Total Net Annual After- Tax Economic Benefits to Men's Shoe Manufacturers From Geometric Automation Once Accepted by System Industry, millions of dollars Arithmetic Geometric 8. DFC 1.6 Dynametric I 8.0 Dynametric II 8. These savings estimates are only rough estimates; the eventual benefits to the industry from geometric automation could be considerably higher or considerably lower. 4. Changeover Costs The principal cost question in selecting a new last-grading system with new sizes and widths is replacement of lasts. Other costs will be insignificant in comparison to savings from inventory reductions, if one of the reduced-inventory systems is adopted. A major consideration in estimation of abnormal last- replacement costs is speed of conversion to the new grading system; if the new system is introduced only in new styles (phasing in of the new system), then last costs will not be significantly affected by 12 adoption of a new system, but conversion to the new system will be very slow and bene- fits (inventory savings, etc. ) will not be fully realized for many years. On the other hand, a faster conversion, which would provide the economic benefits of the new system more quickly, would cost the industry up to about $15 million after taxes, depending on how many of today's lasts could be used in the new system. Analysis of the inventory savings of retailers with DFC, Dynametric I, or Dyna- metric II, together with discussions with shoe executives, suggests that once one of these systems successfully passes sales tests for several key retailers, then most re- tailers will demand more and more shoes in the new system because of the great inven- tory savings (about $50 to $55 million) to the trade. Thus, retailers will force manu- facturers to convert present styles to the new system as fast as possible once the system is accepted. It is therefore extremely important to manufacturers that the new system be such that some of today's lasts be usable in the new system; if they cannot then the cost to all manufacturers of new lasts will be about $15 million, offsetting over half the inventory- reduction gains to manufacturers. The Arithmetic system obviously involves no abnormal last- conversion costs. The Geometric System offers no inventory savings to retailers and thus can be intro- duced by phasing in at relatively little abnormal cost. DFC, Dynametric I, and Dynametric II cannot be introduced by phasing in because their inventory- reduction benefits to retailers will lead retailers to demand a faster changeover once the new system is proven. But half of the lasts required for either Dynametric I or Dynametric II can be supplied from manufacturers' present last sup- plies, if arithmetic-fraction intermediate specifications (see Table S-l) are used. Thus, costs can be halved for a fast changeover to either Dynametric I or Dynametric II by: (1) Converting present styles to fractionally graded intermediate specifica- tions in the chosen Dynametric system, and (2) Introducing final specification (geometric-point) lasts only as new styles are introduced. In this way, the Dynametric I or Dynametric II sizes and widths and tariff- reduction benefits could be brought into effect quickly, at much reduced conversion cost. The development of capability to use geometric machinery would be more gradual, but the incremental cost of acquiring lasts usable with geometric machinery would be extremely low. Since all DFC size-widths are new, all DFC lasts must be new. Thus the last- replacement cost to the whole industry for conversion to each sys- tem are as follows: 13 After- Tax Costs of Converting to New Grading LastsV a ), millions System of dollars Arithmetic Geometric i DFC 15.0 Dynametric I 7. 5 Dynametric II 7. 5 (a) The figures listed here indicate estimated additional last costs above the normal. Costs of new retail foot- measurement devices to the entire industry are estimated at about $3 million if a new device is introduced. The present "Brannock Device" could be adjusted to Dynametric I or Dynametric II with a stick-on overlay at much lower cost, but it may well be worth the $3 million investment to introduce a new girth- measuring device for Dynametric I or Dynametric II, both to improve foot measurement and to sell consumers on the new system's fitting quality. This ought to be decided by industry merchandising experts. In view of the great inventory- reduction benefits to retailers from DFC, Dyna- metric I, or Dynametric II, it is reasonable to expect that retailers will bear the costs of the new retail foot- measurement device; thus, manufacturers would pay this cost only for stores they own (about $1. 3 million). Conversion Costs of New Retail Foot- Measurement Devices Grading (After Tax), millions of dollars System Manufacturers Retailers Arithmetic Geometric DFC 0. 6 2 Dynametric I 0. 6 2 Dynametric II 0. 6 2 Other costs of conversion to the new system will include industry education and consumer advertising. Genesco's experience with DFC shows that these tasks can be accomplished within the existing programs of management, selling, and advertising at little or no additional cost. In fact, it seems reasonable to expect that a new system can help manufacturers make their existing selling and advertising programs more effective. 14 Conversion to a new grading system with a reduced tariff will provide major bene- fits to last manufacturers. It may well double the business of manufacturers of men's lasts over the next several years while conversion is taking place. After conversion is completed, their business will probably be about what it would be with the present sys- tem: use of more lasts in each size and width, and, possibly, increased numbers of styles, will offset the reduced number of sizes and widths. And, of course, the im- proved economic health of shoe manufacturers caused by the new system will be in the interest of last manufacturers. 5. Merchandising Study of merchandising effects of a new sizing system for men's shoes showed that there are four key factors to be considered: (1) Effects on styling freedom (2) Retail salesmen's ability to use the new system (3) Consumer's acceptance of the new system (4) Retail managers' motivation to adopt the new system. The whole concept of a new grading system for good fit with a reduced tariff has absolutely no effect on styling freedom. Style is concerned with last shapes, and a grad- ing tariff is concerned with last sizes. The geometric "engineered features" designed to permit automation (which can be modified or ignored in any system of sizes and widths) do have some effect on styling freedom, but there is very strong evidence that they do not cause any serious styling problems either. Overall, the selection of a grad- ing system will not limit styling. Retail salesmen's understanding of and ability to use a new sizing system appears critical to the system's initial acceptance. If the system seems unfamiliar, many retail salesmen will resist it at the outset. More important, lack of understanding by retail salesmen will cause some poor fitting at first, leading to strong negative reactions from both consumers and retail salesmen. Retail salesmen's initial understanding of and ability to use a new sizing system will be determined primarily by the ease with which the new system can be related to the old system. Of the five systems under consideration, DFC is clearly the most dif- ficult to relate to the present system in terms of sizes and widths. The Arithmetic System and the Geometric System represent no change from the present system. Dy- nametric I and Dynametric II can each be explained in terms of the present system in just a few words: Dynametric I : "Present sizes, widths farther apart" Dynametric II: "Present widths, three-quarter sizes". Overlay sheets for conversion from present size-widths to Dynametric I or Dyna- metric II size-widths are correspondingly simple. 15 DFC cannot be explained to retail salesmen in terms of the present system this easily, and conversion from the present system to DFC is considerably more difficult (particularly if the first shoe tried on doesn't fit), because of the change in DFC grade rate. Genesco's experience to date with DFC has not shown a great problem in retail- salesman understanding, but this experience does not eliminate the possibility of prob- lems in industry-wide retail conversion to a new system, and such a problem would be more likely with DFC than with any of the other systems. Thus, the five grading systems can be ranked' as follows with respect to possible problems of retail salesmen's initial use of the system: Possibility of Major Problem Grading Resulting from Initial Inability System of Retail Salesmen to Use System Arithmetic None Geometric None DFC Greatest possibility Dynametric I Small possibility (Because of its similarity to present system) Dynametric II Small possibility (Because of its similarity to present system) Genesco's experience with DFC thus far shows that if the system is introduced to the consumer in the right manner, consumer acceptance of the new grading system will be no problem for any system that provides good fit and is understood and accepted by retailers. In fact, it appears from Genesco's experience with DFC and from observa- tion of the shoe industry's merchandising skill that a new grading system can be made a powerful merchandising advantage for the companies that introduce it first and best, and possibly for the entire men's shoe industry. Retail managers' acceptance of a new grading system will be affected positively by gains resulting from retail inventory reduction and by consumer merchandising op- portunities. The chief potential blocks to retail managers' acceptance of a new system would be the inability of retail salesmen to use the new system or poor consumer ac- ceptance stemming from poor introduction of the new system. Again, both Dynametric systems offer a key advantage here because they are easier to explain to retail sales- men than DFC. It also bears special mention again that the great potential inventory- reduction savings for retailers possible through DFC, Dynametric I, and Dynametric II can be made a very powerful motivation to acceptance by retail managers. TOTAL EVALUATION The total net value of each grading system to the industry in terms of estimated dollar costs and gains where estimates are possible, and in terms of other major 16 factors where dollar estimates cannot be developed, is given in Table S-2. A guide- sheet for calculating net value to an individual company is shown in Table S-3. Table S-2 shows that DFC is the best system now in use from the viewpoint of the shoe industry as a whole. But both Dynametric I and Dynametric II appear to be even better than DFC, and Dynametric II appears best of all. Analysis of the value to indi- vidual companies using the guidesheet in Table S-3 will, for most companies, show the same result; DFC is the best system now in use, and Dynametric II is best of all, con- siderably better even than DFC. Of course, Dynametric II has not yet been proven in retail sales the way DFC has. That is the next step. RECOMMENDATIONS In view of the very high net gains to the industry from Dynametric II indicated in the preceding analyses, the next steps taken by men's shoe manufacturer s should be ad- dressed to planning for introduction of the Dynametric II grading system. However, certain things ought to be done to ensure that introduction of the new system is success- ful. A developmental testing program should be carried out first to make sure that the specific details of the new lasts are right for fit and for shoe production; and a program of consumer and retailer education should then be undertaken so that the new system will meet with favorable reaction at retail. To determine whether similar large gains can be achieved through revision of women's and children's last- grading systems, feasibility studies should be initiated. Developmental Testing Program An outline of necessary major steps in the two programs in preparation for intro- duction of Dynametric II, namely, the Development Testing Program and Preparation for Retail Introduction Program, is presented in Figure S-l. In Program I, Devel- opmental Testing, the objective is to ensure that Dynametric II is designed in the best way for retail acceptance and for efficient shoe manufacture. Steps (1) and (2) should be performed by an expert maker of quality men's lasts, Step (3) should be performed at a factory known for manufacture of men's shoes that fit well, and Steps (4) through (7) should be performed under the direction of a man who is familiar with last grading and with statistical and experimental techniques, and who can maintain an impartial, objective position. The overall developmental testing program should be performed on an industry- wide basis. If individual manufacturers attempt this work independently, much money will be wasted because all of them will be trying to do the same thing. Furthermore, if one manufacturer acts too hastily, he might introduce Dynametric II in a poor manner, creating a bad retail reaction and spoiling the opportunities for other companies as well as for himself. 17 CO H U w b h W (J i—i 3 £ o u H X < CO H 2 i W « H w CO H >H h CO < O h 2; O t— 4 Q £ < O <& i— i H i < H D CO -1 < < J > W W > >H i—i C4 < W !d to CO O CO H ►J ffl < 00 H fl co O ^ ft ° S u u h 43 X +-> nj co ^h co to 01 u O iri ■S -S 3 rt O -i-i 4-1 h 9J O ft ^ 00 R x a n) co 0> ^ a o •H U h 01 to < Q K co •<-< "^ "Tl o -° « co -h 2 « -- rH 0) G CI d (U 00 d X G OS 4-> CO Sh 0> x G d CO ld" ID X o o o u •rH u +-> Oi s G Q G co 0) 0) co cn ft ^ nJ rt oi • H « h-> u U i-j CTJ co d d oo d xi d n) +■> CO u Oi X d d rg oo" X o o TABLE S-3. GUIDESHEET FOR ESTIMATION OF COMPANY SAVINGS AND COSTS FROM CONVERSION TO DYNAMETRIC II For explanation of figures and methods of estimation, see Part II of this report I. INVENTORY SAVINGS A. Finished-Goods Inventory Reduction (1) Average dollar value of finished- goods inventory (in- stock plus in- store) of men's shoes carried in more than one width ... $ (2) Multiplied by 20 percent x. 20 (3) Equals multiple- width finished- goods inventory reduction $ (4) Average dollar finished- goods inventory (in- stock plus in- store) of men's shoes carried in only one width $ (5) Multiplied by 11 percent x. 1 1 (6) Equals single- width finished- goods inventory reduction $ (7) Total of items (3) and (6) above equals total finished- goods inventory reduction B. Raw Materials and Work-in- Process Inventory Reductions (1) Average dollar raw materials and work-in- process inventory for production of multiple- width men's shoes $ (2) Multiplied by 4 percent x. 04 (3) Equals multiple- width raw materials and work-in-process inventory reduction $_ (4) Average dollar raw materials and work-in- process inventory for production of single- width men's shoes $ (5) Multiplied by 2 percent x. 02 (6) Equals single-width raw materials and work- in- process inventory reduction $ 19 TABLE S-3. (Continued) (7) Total of items (3) and (6) above equals total raw materials and work-in-process inventory reduction C. Total Inventory Reductions / (1) Total of items (A. 7) and (B. 7) above equals total inventory reduction D. Annual Inventory Savings (1) Total inventory reduction (item C. 1 above) . .$ (2) Multiplied by 10 percent x. 10 (3) Equals total annual net after-tax cost savings from reduced inventories II. GEOMETRIC AUTOMATION SAVINGS (Rough Estimate) (1) Total factory- price value of annual production of men's shoes $ (2) Multiplied by 7 percent x. 07 (3) Equals total costs that geometric automation might affect $ (4) Multiplied by 37 percent x. 37 (5) Equals possible future pretax annual savings if geometric automation is used . . . $ (6) Multiplied by 50 percent x. 50 (7) Equals rough estimate of probable future annual pretax savings from geometric automation (labor savings less annual machine costs) $ (8) Multiplied by 50 percent x. 50 (9) Equals rough estimate of probable future annual after-tax net savings from geometric automation 20 TABLE S-3. (Continued) in. CHANGEOVER COSTS A. Changeover of Lasts (1) Number of pairs of men's lasts now on hand in styles that will be produced this year $ (2) Multiplied by 50 percent x. 50 (3) Equals number of new Dynametric II lasts that must be purchased on changeover (4) Multiplied by $3. 00 per pair (after-tax cost) . x $3. 00 (5) Equals cost of changeover of lasts to Dynametric II $ B. Last Positioning Plates (1) Number of pairs of men's lasts purchased annually (2) Multiplied by $0. 60 (after-tax cost) . . . . x $0. 60 (3) Equals annual cost of last positioning plates for geometric automation (this cost will be much lower until most lasts are converted to point grading, by phasing- in new styles) $ C. Retail Foot Measuring Devices (1) Number of retail outlets owned, selling men's shoes (2) Multiplied by three measuring devices per average store x 3 (3) Equals number of retail foot- measuring devices required (4) Multiplied by cost per Dynametric II foot- measuring device (only a few dollars if converted Brannock Devices are used, up to $50. 00 if new devices are used) x (5) Equals cost of foot- measuring devices $ 21 TABLE S-3. (Continued) IV. TOTAL NET GAIN OR COST A. Gain or Cost in First Few Years (1) Total inventory reduction (Item I. C. 1 above), + $ (Z) Minus cost of changeover of lasts (Item in. A. 5) - $_ (3) Minus cost of retail foot- measuring devices (Item in. C. 5) - $_ (4) Equals total net gain ( + ) or cost (-) in first 3 years or so B. Annual Gain or Cost in Subsequent Years (1) Annual net savings from reduced inventories (I. D. 3. ) + $_ (2) Plus estimated annual net savings from geometric automation (U. 9) + $ (3) Minus annual net cost of last- positioning plates (in. B. 3) - $ (4) Equals net annual gain (+) or cost (-) in subsequent years 22 It would probably be best for the industry if the entire Dynametric II Developmental Testing Program were directed by an objective outsider familiar with the subject. The director should rely heavily upon top shoe men where appropriate, such as in develop- ment of technical details of lasts, in manufacture of shoes, in carrying out the retail test, and in development of a new retail foot-measuring device. The Developmental Testing Program should be completed in approximately 1 year. Preparation for Retail Introduction The Retail Introduction Preparation Program (see Figure S-l) should be based on results of the Developmental Testing Program, but planning of the Retail Introduction Preparation Program should start now. Some of the steps in this program will be carried out individually by each company. For example, design of company advertising featuring Dynametric II and selection of new styles for introduction in Dynametric II. Other steps, such as planning of industry- wide advertising for Dynametric II and preparation of a retailer-education booklet, should be carried out jointly by the industry. The industry should form a committee of leading merchandisers of men's shoes chaired by a shoe man who can take the industry-wide viewpoint, to: (1) Carry out the steps best performed jointly by the industry (2) Coordinate the overall Retail Introduction Preparation Program, includ- ing steps performed by individual companies, to achieve a strong, industry-wide introduction program. The Retail Introduction Preparation Program should be completed within 1 year so that introduction can be begun upon completion of the Developmental Testing Program. Feasibility Studies on Women's and Children's Last- Grading Systems These very high benefits to the men's shoe industry and trade from a new men's shoe grading system suggest that there may be similar potential gains from revision of women's and/or children's grading systems. Manufacturers and retailers of these shoes will be very interested in exploring this possibility. However, there are some important differences between grading of men's shoes on the one hand and grading of women's and children's shoes on the other, such as the facts that: (1) There has been no large-scale foot-measurement program in the United States on women's or children's feet similar to the Fort Knox Program. (2) There has not been nearly so much research on women's or children's grading systems, either from the tariff- reduction viewpoint or from the geometric automation viewpoint, as has been performed by USM and Genesco on men's grading systems. 23 and 24 25 and 26 (3) Grading and fit analysis is more complex for women and for children than for men. It is more difficult for women because much greater variations in style, heel height, and key points of fit will require separate analysis of various women's shoe types; and it is more dif- ficult for children because the very great percentage differences be- tween smallest and largest feet have created a need for several grad- ing systems. For these reasons, it is not now possible to judge whether major grading- system improvements can be achieved for women's or children's shoes. A feasibility study is required to determine whether such gains are possible. In view of the demonstrated very high gains from revision of the men's grading system, it is recommended that feasibility studies be initiated now to determine whether similar gains can be achieved by the women's and children's shoe manufacturers. If such gains are shown to be possible, then last-grading research programs like the. pres- ent one should be initiated for women's and children's grading systems. 27 PART II ANALYTICAL REPORT INTRODUCTION The major causes of the very high inventory levels in the shoe industry can be largely summarized in one word: multiplicity. Multiplicity in number of shoe factories, shoe warehouses, and retail shoe outlets causes high industry-wide inventories because each operation requires a certain minimum inventory to serve its customers and be- cause this multiplicity of small operating units prevents coordinated industry-wide in- ventory management. And multiplicity of products — large numbers of shoe styles and stock numbers and large numbers of different size-widths in each style and stock num- ber, makes the required inventory level at each factory, warehouse, and retail outlet much higher than it would otherwise be. Recently, several prominent voices in the shoe industry have suggested that the number of shoe size-widths can be reduced, thereby reducing inventories, without detrimental effect on shoe fit. Genesco, one of the largest and most progressive shoe manufacturers, has actively pursued and promoted this promising idea through its "Dynamic Fitting Concept", or DFC as it is commonly known. DFC is a new last- grading (that is, shoe size-width) system for men's shoes, designed to reduce the num- ber of size-widths without detrimental effect on fit. Genesco' s new DFC System has not been accepted by other shoe manufacturers for two reasons. First, it apparently conflicts with another last-grading system for men's shoes called the Geometric System. This system was designed earlier by United Shoe Machinery Corporation, the leading manufacturer of shoe machinery, to permit development of automated shoe-manufacturing equipment rather than to reduce inventories. Since it has not been clear which men's last-grading system offers greater economic benefits, shoe manufacturers generally have not yet adopted either new system. Second, doubts among shoe manufacturers regarding the effects of the new size- width system on shoe fit and on retail acceptance have caused them to hesitate in adopting DFC. Thus, shoe manufacturers are faced with a dilemma respecting men's last- grading systems. One of the major tasks of the present Battelle research program for the shoe industry that was specifically requested by the National Footwear Manufacturers' Association and by several prominent shoe manufacturers, has been to analyze this dilemma from the viewpoint of shoe-manufacturer economics and to recommend a specific last-grading system for men's shoes. The Battelle research program reported in the following pages could not have been accomplished without complete cooperation from the shoe industry. Assistance was received from all industry personnel contacted; they are listed by organization in Appendix C. Particularly valuable assistance was rendered by Genesco, United Shoe Machinery, Robert Rhoades, and the staff and industry officers of the industry associations. 28 Research on last grading and discussions with shoe-industry executives show that five major factors should be considered in selection of a men's last-grading system: (1) Fit (2) Shoe inventories (3) Automation effects (4) Cost of changing to the system (5) Merchandising. Evaluations of the last-grading systems with respect to these factors are described in the following sections. FIT* The subject of shoe fit is an extremely complex subject; in fact, there is no generally accepted precise definition of the term fit as applied to shoes. From the Viewpoint of the shoe industry, the ultimate measure of the fit of a shoe is its acceptance by the consumer, but this does not make fit any easier to evaluate. Many complicated factors affect the consumer's decision on fit, as shown in Figure 1. It is clearly shown in Figure 1 that the fitting quality of a last-grading system cannot be determined simply by testing some shoes in retail stores; while shoe sales will certainly be the ultimate test of a grading system, any limited retail test could be affected by so many factors other than the grading system that it could not be depended upon. This diagram is not intended to suggest that the last-grading system is unimportant to fit — it is important — but only to indicate that many other complex factors also influence fit. Figure 1 shows that fit (defined as consumer acceptance of fit) includes both physical and psychological factors and that a new grading system would directly or in- directly influence both. On the physical side, the grading system will affect fit in two ways. It will have a direct influence on physical fit through the quality of fit it could provide if all sizes and widths were carried in all styles by all stores. And it will have an indirect effect on physical fit because a system with fewer sizes and widths will per- mit manufacturers to produce and stores to carry more complete tariffs of sizes and widths. On the psychological side, the last-grading system will have two indirect effects: (1) consumer attitudes toward the grading system will be important; and (2) the number of sizes and widths in the system will affect manufacturers' and stores' ability to offer variety in styles and colors (fewer sizes and widths will permit more styles and colors). In this section of the report, discussion is limited to physical fit. Effects on psychological fit are covered in the section on merchandising. •See Glossary (Appendix A) for definitions of terms used in this section. 29 and 30 Grading system Manufacture tariff Manufacturer's stoc kouts Consu opmic ™f on ( t Shoe style and color Style demands Last- maker's judgment Shoe price Store appeal Shape of Shape of fool Manufacturer's inventory Retailer's stoc kouts Size of foot Size of old shoes Foot r it asure Jijui ii Fitter's capability Customer's opinion Size of * shoe Psychological •Fit factors that would be affected directly or indirectly by a new grading system. FIGURE 1. SOME FACTORS AFFECTING FIT 31 To determine the direct effect of a grading system on fit - that is, to measure the standard of fit that a complete tariff of a grading system can provide - what is required is an analytical technique that is concerned with the grading- system dimensions alone, avoiding confusion from all the other complex fit factors. Such a technique must answer the question: "If only the grading system is changed, and all other factors affecting fit are not changed, how good will the fit standard of a complete tariff be? " Scientific research on fit of shoes has been sparse, considering the complexity of the problem. But, in the area of last-grading effects on fit, there has been more research. This research, combined with the observations and policies of practical, experienced shoe men, provides a basis for an analytical technique to evaluate fit of last-grading systems. There is now sufficient information on fit of last-grading systems to support practical business decisions for improving a system that was designed during the Civil War. A Technique for Evaluating Fit As a result of the U. S. Army's Fort Knox study of men's feet, shoe-fit experts have concluded that, given a shoe of acceptable shape, length and girth are the two most important determinants of fit. The research underlying this conclusion is explained in a report* written by Mr. C. W. Mann (now Technical Consultant to Genesco) and Mr. W. B. Zacharias, both formerly associated with U.S. Army footwear research, and their conclusion is now generally accepted by other experts. Sizes and -widths of shoes (lasts) are also defined primarily by length and girth; thus, the question of fit of last-grading sizes and widths can best be analyzed through use of length-girth graphs. The present "Arithmetic" last-grading system is illustrated on a length-girth graph in Figure 2. Each dot represents one size-width; for example, 10 A is shown. In the present Arithmetic System, each size-width combination actually must fit not only the foot that it fits perfectly (that is, the foot that wants a shoe with exactly that shoe's length and girth), but also all feet whose "ideal" shoe length and girth are closer to those of that shoe than of any other in the system. For example, a foot whose ideal shoe size and width were at the point marked "X" in Figure 2 would have to accept a slightly different shoe. Each shoe size-width in the system, which is only a point on the graph, must fit feet desiring shoes of various sizes and widths, an area on the graph. Figure 3 shows the area on the length-girth graph that each size-width must cover in the present system. Because each shoe size-width must fit feet of many nearby size-widths, the present system really does not provide perfect fit, although fit certainly seems good enough. The question to be answered is, "Are there any other systems that would offer an equal or better fit standard with fewer size- widths? " The logical way to approach the fit part of this question is the "area-of- coverage" method. One must first- determine what area on the length-girth graph a shoe of a particular size and width actually can fit well enough (the shoe's actual "area of good fit *Mann, C. W. , and Zacharias, W. B. , Application of Foot Measurements in the Development of Last Systems (U.S. Army, Office of the Quartermaster General), Department of Commerce, Office of Technical Services (1952). 32 IOA Length A-54431 FIGURE 2. PART OF THE PRESENT ARITHMETIC LAST-GRADING SYSTEM REPRESENTED ON A LENGTH-GIRTH GRAPH 33 Length A-54432 FIGURE 3.' AREA OF COVERAGE OF ARITHMETIC SYSTEM Each arithmetic size-width actually covers a range of foot size-widths represented by the shaded area. 34 coverage"). It was shown in Figure 3 that the present system assumes that each shoe's area of coverage is a six-sided shape that is almost a square with sides of about 1/5- inch. If each shoe actually fits a different group of feet from that included in the six- sided area, another last-grading system may provide just as good fit with fewer size-widths. For example, it may be that a shoe of a particular size- width actually has a horizontal- rectangle "area of coverage" (indicating that girth fit must be more precise than length fit), as shown in Figure 4(a), or a vertical- ellipse area of coverage (indicat- ing that length fit must be more precise than girth fit), as shown in Figure 4(b). If either of these were true, the last-grading system should be designed so that the areas of coverage around all size-widths cover all feet with the smallest number of size-widths. Figure 5 shows that the ellipse would call for a different last-grading system than the rectangle. The size of the area of coverage is just as important as its shape. Figure 6 shows that a large rectangular area of coverage (indicating that each shoe can fit feet with large differences in size) would allow a last-grading system of fewer size-widths than a smaller rectangle. The following very strong evidence, both from research and from observations by shoe executives, indicates that the actual area of coverage is longest along the size- width diagonal line (8E to 8- 1 /2D to 9C, for example), as indicated in Figure 7: (1) Nearly every shoe executive interviewed by Battelle on last grading and fit mentioned that most men can wear two or three different shoe sizes falling on a size-width diagonal, and that retailers very frequently sell men a 9D or a 10B instead of a 9-1/2C. Almost every executive who thought the system could be improved recommended that overlap of shoes along the diagonal be reduced. (2) Retailers who offer limited sizes and widths skip alternate widths. It is very common to offer all sizes in B and D widths, or A, C, and E widths. When a retailer eliminates alternate widths, he is really spreading his shoes farther apart along the size-width diagonal, as shown in Figure 8. The fact that most retailers eliminate widths shows that they know there is more area-of-coverage overlap along the diagonal. (3) Conclusions emerging from extensive last-grading research for the U. S. Army and for Genesco by Mr. C. W. Mann can be shown to indicate the fit area of coverage of a shoe is greatest along the size-width diagonal. Mr. Mann has shown that good girth fit is the most important factor in good shoe fit, and that it must be more accurate than the length fit. When this conclusion is considered in light of the fact that for any given foot girth should be wider for shorter shoes (because the foot reaches farther into the forepart of the shorter shoe), it can be seen that greatest fit coverage is along the size-width diagonal. Shoes along any given diagonal provide any given foot about the same girth fit. (4) Research performed by the British Boot, Shoe, and Allied Trades Research Association, designed to determine the shape of the fit area of coverage of women's shoes, resulted in an elliptical shape that was 35 o Length (a) Horizontal-Rectangle Area of Coverage: Girth fit more precise than length fit. x: (5 Length A- 54433 (b) Vertical- Ellipse Area of Coverage: Length fit more precise than girth fit. FIGURE 4. TWO POSSIBLE FIT AREAS OF COVERAGE OF A PARTICULAR SIZE-WIDTH IN A LAST-GRADING SYSTEM 36 o • • • • • • • • • • • • Lengt h (a) Horizontal-Rectangle Area of Coverage Length A-54434 (b) Vertical-Ellipse Area of Coverage FIGURE 5. DEPENDENCE OF LAST-GRADING SYSTEM ON SHAPE OF THE FIT AREA OF COVERAGE 37 -C <3 • • • . I I • • • • • • • • • Length (a) Ideal Grading System for Large Rectangular Area of Coverage O • • • • • • • ••••• • ••••• 1 1 1 1 1 1 • ••••• I I I I I I • • • • • • • ••••• • ••••• • • • • • • Length A-54435 (b) Ideal Grading System for Small Rectangular Area of Coverage FIGURE 6. DEPENDENCE OF LAST-GRADING SYSTEM ON SIZE OF THE FIT AREA OF COVERAGE 38 O Length A- 544 36 FIGURE 7. SIZE-WIDTH DIAGONALS 39 Length A-54437 FIGURE 8. SEPARATION OF SIZE-WIDTHS ALONG THE DIAGONAL BY SKIPPING ALTERNATE WIDTHS 40 longest in the general direction of the size-width diagonal. * Since this research was based on women's shoes, it cannot be used directly to determine the fit of men's shoes, but it does further support the idea that the fitting range of a shoe is greatest in the direction of the size- width diagonal. Even more important, it indicates a shape for the fit area of coverage of a shoe that has been shown to apply also to men's shoes. (5) Following the approach used by SATRA for women's shoes, United Shoe Machinery Corporation researchers tested several men's shoe size- widths on several men's feet, thus developing the men's "fit-tolerance ellipse" (area of coverage) shape longest along the size-width diagonal, as shown in Figure 9. ** This was a small experiment, and of course the other fit problems of shape, deviations, and psychological factors made the results less than purely scientific, but the results agree fully with the industry experience discussed above and with the SATRA results for women. In Figure 10, an ellipse of the USM shape and angle has been drawn around each size-width in the present last-grading system to show the actual area of coverage of each shoe. This graph shows clearly that overlap in fit coverage occurs mainly between size-widths along the diagonal (see crosshatched areas). Figure 11 uses the ellipses to show that when a retailer eliminates alternate widths, he is really eliminating fit overlap. Thus the fit- tolerance ellipse is shown to agree with practical evidence. While the concept of the ellipse comes from a limited experiment, practical shoe-industry experience and policy confirm the reasonableness of the concept. (6) Genesco's fitting success with fewer size-widths in DFC supports the ellipse. Figure 12 shows the ellipses used for analysis of both the present system (a) and DFC (b). It is clear from this diagram that the DFC system fits the ellipses together in a better way, with less over- lap; this explains why DFC has been able to offer good fit with fewer size-widths. From the above scientific, logical, and practical evidence, the conclusion can be drawn that a shoe's area of fit coverage is longest along the diagonal and can be described by some shape close to the ellipse. For practical purposes, the ellipse can be used. The practical value of the fit- tolerance ellipse is that it permits one to separate the last-grading system from all the other complex issues affecting fit (model shape, popularity of style, changes in foot size, etc. ), and to evaluate the fit quality of the grading system alone. It is of great value to be able to do this with the ellipse because it is impossible to evaluate only the grading system by test marketing. 'Manning, J. R. , "Tolerances in Fitting Shoes", in Davies et al. (editors), Proceedings of the First International Conference on Operational Research (Oxford, 1957), Operations Research Society of America, Baltimore (1957), 335. •"Unified Last and Shoe Grading System", internal research report of United Shoe Machinery Corporation, Research Division, Beverly, Massachusetts ( 1965). 41 -o <_ ^_ t_ c QJ -■ *^- ' Cl> 0) u w 1 CJ o ^ o X o o o u o U- CL c MM!9 <> V w en 4-J t— 4 3 +-> fa en c i— i 0) 0) .-1 rt a p-1 +-> W a, 1 7 ; s Q s 0) u to u m o H 0) s fa m ^ a> O ^ W a c o rt a c £ y •r-t m 3 -M Q, t-H X rQ M fa W u to D J3 2 a (1) o 8 n 04 CD S cfl Aa Length A -54442 FIGURE 13. ELLIPSE SIZE INDICATING FIT STANDARD OF PRESENT ARITHMETIC SYSTEM 47 The experience of shoe men and Roper's research results show beyond reasonable doubt that the present men's last-grading system provides at least adequate fit for all normal feet. Thus the fit standard of the present system is certainly good enough for any proposed system. Applying the ellipse, this means that any other last-grading system provides adequate fit for all normal men's feet if the new system can completely cover the length-girth area with just as small an ellipse as the present system. There is some practical shoe-industry evidence suggesting that the present fit standard is too high. Many manufacturers and many retailers offer only a limited num- ber of sizes and widths, generally by skipping some widths, and find that they can still satisfy a high percentage of consumers. The policies of these companies may suggest that the present system's ellipse is too high a fit standard. On the other hand, fit problems recently encountered by the U. S. Army with its policy of eliminating alternate widths and half sizes, as shown in Figure 14, suggests that the upper limit of ellipse size for good fit is not very much greater than the present system's ellipse. Since the Army uses one carefully tested last shape, cares little for style, and has "captive consumers", it can probably use a significantly larger ellipse (resulting in a less precise fit) and a considerably smaller number of size-widths than the civilian industry. Yet the Army is encountering problems in using a system with an ellipse twice the size of the present system's ellipse. But the standard of fit for the last-grading system for the industry should not be based on the policy of the Army or the policy of any particular company. The industry's last-grading system does not represent a set of size-widths that each company will use in the same way, b\it an underlying industry-wide system from which various companies may select different size-width policies. Some companies rely heavily on better fit for their sales, offering a full range of size-widths; other companies offer fewer size- widths and compete more on style or price. The industry should not — and those companies that rely on fit for their sales would not go along even if the rest of the industry did — adopt a basic last-grading system that reduced the fitting strength of the latter companies. The opportunity to shortcut the present last-grading system already exists, through elimination of alternate widths. The fact that some companies have not taken this opportunity and that many consumers have continued to buy from these companies, shows that a segment of the industry and a segment of the men's shoe-buying public wants fit as good as that offered by the present system. In the final analysis, therefore, the fit standard should, while allowing companies and consumers to shortcut the system, continue to permit companies to offer, and con- sumers to get, fit as good as today's. The objective of this research program is to find how this can be done most economically. The fit standard to be used is that of the present last-grading system; the fit test is the fit-tolerance ellipse of such size that any system where the ellipse does not leave open spaces will meet the adequate-fit standard of the present system. Thus, any system that passes the test offers a standard of fit as good as that of the present Arithmetic System. One final point must be recognized with respect to this test of fit. The test assumes that all sizes and all widths in each grading system are available "at the store" However, stores will be better able to stock all the sizes and widths in more styles in systems that have fewer sizes and widths. Thus, if a grading system with fewer sizes 48 ■o c <4 -o >* 0) X) o "O c 3 E 0) E r, f ?< TJ t ^ CO *3 i 0> (f) a) M ' N >N m => in -Q H H T) CO d) >H a W a !U M H to Q H _l CO to P tg W .i-i to H I— i i— 1 D E w a l-H to Girth 49 and widths passes the ellipse test as well as the present Arithmetic System, it will re- sult in better fit actually provided at retail stores. Evaluation of Fit of Last- Grading Systems Figures 15 through 17 illustrate fit tests of the three last-grading systems (Arithmetic, Geometric, and DFC, respectively) using the present system's ellipse standard. Examination of Figure 14 shows that the present Arithmetic System just passes the ellipse test of fit; this is natural, since the test was designed so that the Arithmetic System would just pass. But Figure 15 also shows that the Arithmetic System has much overlap along the diagonal and that many feet can be fit by two Arithmetic size-widths. It appears likely that this overlap could be reduced by changing the grading system with no reduction in fit standard. Figure 16 shows that the Geometric System also passes the test and also has a great deal of overlap; this is to be expected, since the Geometric System was designed to duplicate Arithmetic sizes and widths rather than to reduce inventories. Figure 17 shows that DFC passes the same test, even with its fewer sizes. This shows that DFC's reduction in number of sizes reduces overlap but does not reduce fitting quality. The standard of fit of DFC is as good as that of the Arithmetic System. It is important to understand just how DFC can offer as good a standard of fit with fewer sizes. It is by so defining the various sizes and widths relative to each other that each size-width provides maximum fitting value in the system, fitting feet that other shoes in the system do not fit. By contrast, the present Arithmetic System wastes a large fraction of the fitting capacity of each size-width by making shoe size-widths unnecessarily similar in fit along the size-width diagonals without improving the fitting standard. It is equally important to note that DFC is not the only system that can meet the ellipse test with fewer sizes, nor is it necessary to use the DFC grade rate to meet the test. It is not a grade-rate change per se that makes DFC so good, but the fact that all the system's characteristics together (grade rate, length increments, and girth incre- ments between widths) result in a network of size-widths that adequately fit all normal feet with fewer sizes. Other systems with other grade rates can also be designed to provide the same benefits, as will be shown below. In fact, the reduced grade rate of DFC provides a slight disadvantage in fitting more feet with fewer sizes. The theory that a reduced grade rate provides better fit coverage in a single width is based on a mathematical analysis technique known as "linear regression" using a single control variable. This technique is not the correct mathematical method for determination of the best single-width grade rate for the foot population that was discovered in the U. S. Army Fort Knox Program. The correct mathematical analysis shows that the present three-quarter or proportional grade rate permits about 5 percent better fit coverage in a single width than the reduced DFC grade rate will allow.* For multiple-width tariffs, the grade rate really doesn't matter as long as the total system is good. •"Determination of the Optimum Grade Rate", internal research report of United Shoe Machinery Corporation, Research Division, Beverly, Massachusetts. 50 Length A- 54444 FIGURE 15. ELLIPSE FIT TEST OF PRESENT ARITHMETIC LAST -GRADING SYSTEM 51 Overlap Areas Length A-54445 FIGURE 16. ELLIPSE FIT TEST OF GEOMETRIC SYSTEM 52 O 24 25 E3 Overlap Areas Length A- 54446 FIGURE 17. ELLIPSE FIT TEST OF DFC SYSTEM 53 Battelle has found no valid reason to believe that a reduced grade rate provides any fitting advantages over a three-quarter or proportional grade rate. On the other hand, there are several important business reasons to stay with the proportional grade rate. It permits much lower costs for conversion of lasts to a new system; it permits full use of all principles of geometric automation; it makes the new system easier for the retail salesman to understand and use; and, as stated above, it permits slightly better fit coverage in a single-width tariff. There are two new systems that, according to Battelle research would offer the benefits of DFC (reduced inventories with good fit), at the same time using a propor- tional grade. This would offer major benefits even beyond those of DFC. Battelle has named these two systems "Dynametric I" and "Dynametric II" because they appear to offer all the benefits of both the Dynam ic Fitting Concept (DFC) and the Geometric System, plus some further benefits. Dynametric I sizes and widths are like those of the present system, except that the widths are a little farther apart. Surprisingly, this slight spreading of widths does not reduce fitting quality at all. The disadvantage of fewer size-widths is offset by improvement in spacing. Thus, diagonal overlap is reduced, but fitting quality remains just as good. Figure 18 shows that Dynametric I passes the ellipse fit test as well as either the present system or DFC. It may seem impossible to offer just-as-good fit with widths one-and-one-half times as far apart, but it is not. When you start with an A width and set the next width (formerly B) halfway from B to C , that second width has actually been moved straight up on a length-girth graph (Arrow 3, Figure 19). But, as the figure shows, this move can be shown in two parts: Step 1, a move along the size- width diagonal (Arrow 1, Figure 19),. and Step 2, a move along the grade line (Arrow 2). Now, Step 1 alone (Arrow 1) is the step that reduces the number of size- widths; this step alone would make fit worse. Figure 20a shows an ellipse fit test after Step 1 only; there are spaces between ellipses. But Step 2 (Arrow 2) improves fit as much as Step 1 degraded it by making the ellipses mesh better. In Figure 20 (compare graphs (a) and (b)), the ends of the ellipses of one width cover the gaps between ellipses in the next width instead of over- lapping the ends of the ellipses in the next width, thereby covering all spaces through reductions in overlap. Step 2, which improves the ellipse arrangement, makes up for the spreading of widths, thereby keeping the fit standard of Dynametric I as high as that of the present system. Dynametric II has sizes and widths like those of the present system, but it has three-quarter sizes instead of half sizes. Dynametric II can offer fit just as good as today's, and still reduce the number of size- widths, because it has the same improve- ment as DFC or Dynametric I. Since it represents a better network of size-widths than the present system, the reduction in number of size-widths reduces "diagonal fit overlap" but does not hurt fitting quality. Figure 21 shows that Dynametric II passes the ellipse fit test as well as the present system or DFC. Systems like Dynametric II have been suggested directly or indirectly by several prominent parties in the shoe industry, such as: 54 .c o YX Overlap Areas Length A-54447 FIGURE 18. ELLIPSE FIT TEST OF DYNAMETRIC I 55 X (D) W (B/C) V (A) Length A-54448 FIGURE 19. DIFFERENCE BETWEEN A NEW SIZE- WIDTH IN THE DYNAMETRIC SYSTEM AND THE CORRESPONDING ARITHMETIC SIZE-WIDTH Sizes 9W (Dynametric) and 9B (Arithmetic) are used as examples. 56 Length (a) After Step 1 Ends of ellipses meet along diagonal; uncovered areas occur (shaded areas). Length (b) After Step 2 (and change to Geometric points] Ends of ellipses mesh; all areas covered, with minimum overlap. A -54449 FIGURE 20. INDIVIDUAL ELLIPSE FIT TESTS FOR THE TWO STEPS INVOLVED IN SPREADING WIDTHS IN THE DYNAMETRIC I SYSTEM 57 .c b Length A-54450 FIGURE 21. ELLIPSE FIT TEST OF DYNAMETRIC II 58 (1) Genesco, whose DFC System is very similar to Dynametric II, which is, in fact, a "proportional-grade DFC". (2) Researchers at United Shoe Machinery Corporation, who have suggested a similar system with which, in fact, they have performed a small fit test. (3) Mr. Robert Rhoades, former president-owner of Woodard & Wright Last Company and long a recognized authority on last grading, who has for years recommended investigation of a three-quarter- size men's last- grading system, and who recommends this kind of system now. (4) Mr. Douglas Swain of the U. S. Army Laboratories Footwear Section in Natick, Massachusetts, who has recently stated that he would now recommend study of a three-quarter- size system. (5) Mr. J. R. Manning of SATRA, who has concluded from extensive research that a proportional-grade three-quarter- size system is best for men's shoes, and has so designed his "Europoint" recommendations that such sizes can be introduced easily. The way in which the systems with fewer size-widths — DFC, Dynametric I, and Dynametric II — can provide just as good a standard of fit as the present system can be made more clear by showing the "effective area of fit coverage" of a size-width in each system. The effective area of fit coverage of a size-width represents the feet sizes that the size-width fits well enough (as measured by the ellipse test), and also fits better than any other size-width in the same system. The closer the effective area of fit coverage is to the total area of fit coverage (the ellipse), the less wasteful diagonal overlap. Thus, if the effective area of fit is nearly the whole ellipse, the grading system is more efficient. Figures 22 through 26 show the effective areas of fit coverage for the five grading systems. It can be seen clearly in Figures 22 and 23 that the present Arithmetic System and the Geometric System provide effective areas of fit considerably smaller than the ellipse. The effective areas of fit are much shorter than the ellipse. Thus, both of these systems waste that fitting capability of each size-width represented by the ends of the ellipses. Figures 24 through 26 show the effective areas of fit of DFC, Dynametric I, and Dynametric II. These systemsiobviously make better use of the full fitting capability of each size-width. Each has an effective area of fit coverage that is much closer to the total ellipse, and little of the fitting capability of each size- width is wasted. The practical shoe man will agree that the preceding graphs and explanations seem to make sense and to show that DFC, Dynametric I, or Dynametric II can provide good fit with fewer size-widths; but he will point out that the final test should be a retail sales test, not a set of graphs. This is right, of course; the final answer on the value of the grading system will come only after the system has been in wide use for several years. Nevertheless, the ellipse test of fit used above is probably of more practical value than any limited retail fitting test. The principal reason for this is that with the ellipse 59 Length A-54451 FIGURE 22. EFFECTIVE AREA OF FIT COVERAGE OF THE ARITHMETIC SYSTEM Effective area of fit coverage shown by- shaded area. 60 ■+- (5 Length A- 54452 FIGURE 23. EFFECTIVE AREA OF FIT COVERAGE OF THE GEOMETRIC SYSTEM Effective area of fit coverage shown by shaded area. 61 xz Length A -54453 FIGURE 24. EFFECTIVE AREA OF FIT COVERAGE OF THE DFC SYSTEM Effective area of fit coverage shown by- shaded area. 62 .c Length A- 54454 FIGURE 25. EFFECTIVE AREA OF FIT COVERAGE OF THE DYNAMETRIC I SYSTEM Effective area of fit coverage shown by- shaded area. 63 <5 Length A -54455 FIGURE 26. EFFECTIVE AREA OF FIT COVERAGE OF THE DYNAMETRIC II SYSTEM Effective area of fit coverage shown by shaded area. 64 one can talk about the fitting quality of the last- grading system alone without becoming mixed up by all the other complex factors that affect fit. In a retail fitting test one cannot test the grading system alone because the customer's evaluation of fit will be affected by model shape, fitter's capability, variations in shoe production, variations in foot size during the day, appeal of shoe style and color, etc. , as well as by the grading system. Figure 1 showed this problem. A second advantage of the ellipse test is that it is not simply theory, but a prac- tical combination of research and shoe men's experience. This is not to suggest that no retail fitting tests be run. On the contrary, a fitting test is a major recommendation of this report. But it should be recognized that the ellipse test has some advantages that a limited fitting test does not. The primary ob- jective of a fitting test should be to make sure that all the details of the best system are worked out correctly before introduction, rather than to prove or disprove the results of the ellipse test. The ellipse test itself emerged from, and is supported by, extensive practical evidence. One might accept the concept of an area-of-fit-coverage test like this ellipse test but question the particular ellipse used in the preceding pages because there are insuf- ficient scientific data to prove that this ellipse is the right area-of- coverage shape. But there are now three overwhelming reasons for accepting the present ellipse and the system that it has shown to be best: (1) As explained in detail in the preceding pages, this ellipse is not based solely on scientific data but is also supported heavily by practical evidence, such as shoe men's experience, observations, and actions. (2) Experimentation performed by Battelle has shown that shapes slightly different from this particular ellipse give essentially the same fit-test results for the five grading systems. A five-degree change in the slope of the major axis, either up or down, makes no significant change in fit-test results, nor does a small change, in either direction, of the eccentricity (roundness) of the ellipse. Thus, the fit tests performed above do not require that the exact shape of the ellipse be known. (3) Analysis of costs of replacement of lasts in converting to a new grading system (described farther on in this report) shows that there are two new grading systems that provide inventory reductions at a far lower last- conversion cost than other new systems. From the economic viewpoint of the shoe industry, these systems would be better than others even if they weren't quite the best from the viewpoint of fit and inventory alone. So, even if further fit research showed the true ellipse to be different enough from the present one to suggest some slightly different system from the fit- and- inventory viewpoint (and this is unlikely in view of the practical evidence supporting the present ellipse and the insensitivity of the fit test to small changes in the ellipse), the grading system recom- mended in this report, based on the present ellipse, would still be the best system from the economic viewpoint of shoe manufacturers. Table 1 presents a summary rating of five last-grading systems with respect to fit. 65 TABLE 1. FIT RATING OF LAST- GRADING SYSTEMS Fit Fitting System Standard Efficiency Arithmetic Good 33% waste Geometric Good 33% waste DFC Good Efficient Dynametric I Good Efficient Dynametric II Good Efficient INVENTORY REDUCTION One of the major basic difficulties faced by the shoe industry is multiplicity of products, and multiplicity of products is certainly a major cause of the industry's very high inventories. Manufacturers and retailers deal in so many shoe styles, so many stock numbers, and so many individual size-widths that very high inventories are re- quired to meet orders of individual customers. It is through partial solution of this problem of multiplicity of products that a new last-grading system might permit reduction in inventories. If a new system can provide adequate fit with a reduced number of size-widths, then each manufacturer and each retailer can maintain his present sales level with fewer size-width "products" in each style, and hence reduce inventories. To estimate industry-wide inventory reductions and resulting savings from vari- ous new last-grading systems, the following steps must be taken: (1) Determine the percent reduction in number of size- widths that can be achieved through each new system, without reduced sales, by groups of companies with various present size-width tariffs. (2) Determine the relationship between number of size- widths and inventory requirements — that is, the percent reduction in inventories that will result from various percent reductions in number of size- widths carried ("tariff") if total sales remain constant. (3) Determine the present situation in men's shoe inventories: dollar level at retail and in- stock (finished goods) and at factory (raw mate- rials and work-in-process), separated by company groups with similar present size-width tariffs. (4) Calculate, from the results of the preceding steps, the estimated per- cent and dollar inventory reduction permitted by each last-grading system. 66 (5) Estimate an annual percentage "carrying cost" for inventories, and thus calculate estimated annual savings from inventory reductions for the whole industry. These steps will not only lead to an estimate of industry-wide inventory savings possible with each system, but will also provide a basis for the individual company's calculation of its own potential inventory savings. Percentage Reductions in Tariffs Since a new last-grading system with a reduced number of size-widths will, in general, offer a greater percent reduction in multiple-width tariffs than in single-width tariffs, multiple- width and single-width tariffs should be examined separately. For any of the new grading systems designed to reduce inventories, the average percent reduction in number of size- widths that is possible with no loss of fitting capa- bility, in multiple-width tariffs, can be found through the effective-area-of- fit- coverage information described in the preceding section (Figures 22 to 26). The larger the effec- tive area of coverage of a size-width in a grading system, the fewer size-widths will be required for good fit of the same population of feet. Figure 27 shows the effective area of fit coverage for the Arithmetic System and for each of the proposed inventory- reducing systems.''' The figure shows that each of the new systems offers an effective area of fit of approximately 60 square points, or about 3 /2 of the area of the Arithmetic System. Since each size-width in each of these systems can effectively fit about 3/2 as many feet as Arithmetic in a multiwidth tariff (because less of each size-width's fitting capability is wasted through diagonal overlaps in the new system), it will require only 2/3 as many size- widths to fit the same foot population in a tariff of any of the new systems. Thus any of the three new systems designed to reduce inventories — DFC, Dynametric I, and Dynametric II — can, in a multiwidth tariff, generally fit a given percentage of the foot population with one-third (33 percent) fewer size-widths. For single-width tariffs, the effective-area-of-coverage concept is not valid and the three new systems do not offer the same benefits. DFC and Dynametric II both offer single-width producers and retailers some in- ventory savings. Since customers buying shoes offered in only one width are generally less demanding regarding fit than other customers, it is probable that most of these customers would be just as happy with some size from the 33 percent reduced single- width tariff of DFC or Dynametric II. On the other hand, DFC and Dynametric II do not offer quite as good fit as Arith- metic in a single-width tariff, which they do in a multiwidth tariff. And single-width manufacturers and retailers, who have very high turnover rates, are in general less interested in reducing inventories than in increasing sales. 'Actually, this diagram and the subsequent paragraphs are based on a comparison of the Geometric (rather than the Arithmetic) System with the other systems. This is done because Geometric has essentially the same size-widths as Arithmetic, but is defined in points and is therefore easier to compare with the other systems in effective area of fit coverage and in number of size- widths required. 67 Arithmetic (Geometric) Effective area of fit = 40 square points DFC Effective area of fit = 63 square points Dynametric I Effective area of fit = 65 square points A- 54456 Dynametric II Effective area of fit = 64 square points FIGURE 27. EFFECTIVE AREA OF FIT COVERAGE OF A SIZE- WIDTH IN EACH GRADING SYSTEM Notes: (1) Systems with larger effective areas of coverage require smaller tariffs for the same standard of fit. (2) The term "square point" refers to unit of area on the length- girth graph of approxi- mately 0. 001 square inch. The effective area of coverage of a system is equal to the length increment between consecutive sizes times the girth increment between consecutive widths. 68 It is therefore probable that, with either DFC or Dynametric II, many single- width manufacturers and retailers will elect to offer a few sizes in a second width, using the benefits of the new system to increase sales rather than to reduce inventories. It is therefore likely that industry-wide single-width inventory savings will be smaller, per- centagewise, than the savings in multiple widths. Genesco estimates DFC single-width savings at about 15 percent. Dynametric II will probably offer a slightly greater net gain, estimated at 20 per- cent, because its proportional grade rate permits slightly better fit coverage 'with a single width. Table 2 summarizes the percentage tariff reductions possible in multiple-width and single-width tariffs for each of the five grading systems. TABLE 2. PERCENT REDUCTIONS IN SIZE-WIDTH TARIFFS Grading System Percent Reduction in Tariff With No Loss in Fitting Capability Single- Width Tariff Multiple -Width Tariff Arithmetic Geometric DFC Dynametric I Dynametric II About 1 5 About 20 33 33 33 Percentage Reductions in Inventories Estimation of inventory- reduction effects of the various grading systems also re- quires analysis of the relationship between (1) number of size-widths and (2) inventory requirements — that is, the percent reduction in inventory needs that would result from various percentage changes in the number of size-widths, with total sales unchanged. For example, would a 33 percent reduction in the number of size-widths offered by a company (with no sales loss) lead to a 33 percent reduction in inventories, only a 10 percent inventory reduction, or no inventory reduction? Battelle answered this question through mathematical inventory- analysis tech- niques, as shown below. This approach assumed that every manufacturer and retailer now holds inventories at the best possible level and will do the same with the new sys- tem. In more general terms, the approach is valid as long as the industry manages its inventories under the new system as it does under the old. The standard equation for determining the best size of each order (the "economic order quantity") of a given item is (1) 69 where q = quantity of the item that should be ordered at one time a = annual sales of the item in units s = cost of making an order c = annual "carrying cost" of the item as percent of the item's value v = value of one unit of the item. Figure 28 shows that this ordering policy produces a "sawtooth" inventory record for the item, and it can also be seen in Figure 28 that the average inventory level for the item is half as great as q. — q ./ /2as i =5 = %/ > (2) 2 a/ cv where i = average inventory of the item. If total inventory is made up of a number of items similar in annual sales rate and value per unit, then total average inventory will be 2as cv (3) where I = total average inventory N = number of items. But, since only the number of items N and the annual sales per item a will be changed if the number of size-widths is reduced without affecting total sales, s, c, and v are all constants in this analysis. Thus, the equation for total average inventory can be sim- plified to I=klN^ , (4) . . ./ /2s where k, = a constant number, representing /z / — . V cv And, since total sales are unchanged by the reduction in N, k 2 Na = k 2 or a = — , (5, 6) where k 2 = another constant representing total sales. 70 H Q S» £ U w ft H r H i— i H < D o w U Q ri o u > u z s oo CM w o 1—1 W * g rd 6 .a "3 ^ w ,— . t« "to O rZ T) CO o ^ o - -t-> o %* XI > u u rd = new total average inventory Nj = present number of items No = new number of items. While this equation assumes that inventory and ordering policy are optimum or perfect both before and after the change in number of items, it is valid as long as inven- tory and ordering policy are as good after the change in number as before. This is a reasonable assumption. The sawtooth inventory pattern assumed in the preceding analysis may not appear appropriate for retail inventories, particularly for those o| smaller stores, where only one or two pairs of each stock number are in- store at one time. Such stores may respond to a reduced-tariff grading system either: (1) By increasing stocks to two or three pairs in the most popular sizes, in which case the inventory effects of the reduced tariff will typically be roughly what the above analysis suggests; or (2) By continuing to carry only one or two pairs in each size in the new tariff, in which case the store's inventory reduction will exceed that suggested above, and percentage inventory reductions will equal percent reduction in number of sizes. Thus, the mathematical analysis presented above, which assumes a sawtooth inventory pattern, provides a reasonable estimate of inventory reductions even for the individual store too small to operate a sawtooth inventory. If the analysis is wrong at all, it is probably wrong on the conservative side and underestimates retail benefits from a re- duced tariff. 72 Figure 29 shows graphically the effects of changes in number of items, N, on total average inventory, I . The graph shows that a company can achieve a percent reduction in finished goods equal to six-tenths of that company's percent reduction in tariff if the percent reduction in number of size-widths is in the 20 to 35 percent range. Thus a 33 percent reduction in number of size-widths would permit a reduction in finished goods inventories of 0. 6 x 33 percent = 20 percent. For companies now offering men's shoes in multiple widths, shoe inventories can be cut by 20 percent as is indicated in Table 3. Similarly, Figure 29 shows that the 15 percent single-width tariff reduction pos- sible with DFC would provide 8 percent inventory reductions in a single width, and the 20 percent tariff reduction in single width of Dynametric II would provide 11 percent inventory reductions to single-width producers and retailers. While these figures represent best estimates of long-term industry-wide inventory reductions, initial results of a new system for a company may well be even better. For example, executives at Genesco's Jarman Division indicated to Battelle that, in "typical" stores with "typical" styles, turnover with DFC has almost doubled. Inventory requirements for a given sales level have been reduced almost 50 percent, as shown in Table 4. Genesco managers suggested that part of this amazing gain may be due to pushing of DFC shoes by enthusiastic Jarman chain retailers. It must be noted, however, that such a great increase in turnover with DFC — a much greater increase than DFC inherently offers — also brings with it a dramatic increase in chances of stockout. Over the longer term, it is probably better to reduce inventories only 20 percent with DFC; then, chances of stockout would also be reduced. Mathematical analysis shows that, when the number of size-widths is reduced 33 per- cent with one of the new systems, chances of stockout will also be reduced by 20 percent if inventories are reduced by 20 percent. For raw materials and work-in-process inventories, the same rule applies, only to inventory items that are different for each size-width. Thus it would apply to a pile of uppers in the factory already cut for a certain size, but would not apply to leather that has not yet been cut. To estimate likely raw materials and work-in-process inventory reductions, one must determine what percentage of these inventories are dif- ferent for each size-width. About 20 percent of dollar investment in raw materials and work-in-process inventories differ by size- width. Thus, the percent reduction in a shoe manufacturer's raw materials and work-in-process inventories likely from a 33 percent reduction in his number of size-widths (with no change in total production) is 0, 6 x 0. 2 x 33 percent = 4 percent. Company Dollar Inventory Reductions The above inventory- reduction percentage figures permit the individual manufac- turer to estimate his own inventory- reduction benefits from each grading system. From any of the three inventory- reducing grading systems he would gain reductions of about 20 percent in all finished goods, and in raw materials and work-in-process dif- ferentiated by size-width, for all multiple-width shoes. In single-width shoes, the corresponding percentage figure would be 1 1 percent with Dynametric II, 8 percent with DFC, and zero with Dynametric I. 73 o c > c C o JZ O c o 0_ + 25 j + 20- H 1 1 1 + 10 +15 +20 +25 +30 ---15 --20 --25 Percent Change in Number of Items (N) A- 54458 FIGURE 29. RELATIONSHIP BETWEEN NUMBER OF ITEMS (N) AND AVERAGE INVENTORY fl) 74 TABLE 3. PERCENTAGE REDUCTIONS IN FINISHED-GOODS INVENTORIES WITH DFC, DYNAMETRIC I, AND DYNAMETRIC II Values in Percent Number of Widths Now Offered Percentage Reduction in Finished- Goods Inventory Achieved With Indicated System DFC Dynametric I Dynametric II Single Multiple 8 20 20 11 20 TABLE 4. TURNOVER COMPARISONS BETWEEN ARITHMETIC AND DFC AT THREE JARMAN STORES System Stock No. Average In-Stock With Weekly Fill-in Pairs In-Widths Pairs Sold in 6 Weeks Annual Turnover Rate J 1128, Cleveland DFC 7170 27 14, 15, 16, 17, 18 6806 39 14, 15, 16, 17, 18 6706 37 14, 15, 16, 17, 18 Arithmetic 5804 57 A, B, C, D, E, EEE 5704 32 B, C, D, E 4778 25 B, C, D 17 5.5 20 4.4 20 4.7 14 2. 1 4 1.0 4 1.4 J 1152, Chicago DFC Arithmetic DFC Arithmetic 7782 53 14, 15, 16, 17, 18 7270 52 14, 15, 16, 17, 18 6806 44 14, 15, 16, 17 4204 57 C, D, E 5704 66 A, B, C, D, E, EEE 5804 64 A, EEE J 1112, St. Louis 6809 6806 6709 5804 4731 5704 69 15, 16, 17, 18 37 14, 15, 16, 17, 18 40 15, 16, 17, 18 69 A, B, C, D, E, EEE 38 B, C, D, E 38 B, C, D, EEE 19 3. 1 38 6.3 23 4.5 13 2.0 16 2. 1 40 5.4 14 3.5 16 3.7 10 2. 2 14 1.8 14 3.2 4 0.9 Average turnover: DFC 4. 25 Arithmetic 2. 40 Inventory reduction with DFC for same sales level: 43 percent Source: Genesco. 75 Table S-3 in the Summary Report, the "Guide sheet for Estimation of Company- Savings and Costs From Conversion to Dynametric II", incorporates these figures for Dynametric II inventory savings. Industry- Wide Dollar Reductions in Inventories The exact dollar figures for shoe inventories on an industry-wide basis are unknown. And, because shoe-inventory management is performed individually by each company rather than on an industry-wide basis, nobody really cares or needs to know the industry-wide figures. Furthermore, the complexity of the situation makes estima- tion of industry- wide figures extremely difficult. Nevertheless, it is useful for this study to estimate these figures in order to estimate the industry-wide inventory reduction that would result from adoption of a new grading system. It would be neither possible nor appropriate to estimate savings for each company, but an estimate of industry-wide savings will provide a rough indication of how much each company might save on the average. The industry-wide men's shoe inventory figures developed in the following pages are only very rough estimates, but they do provide the required approximate indications of savings. The following analyses of inventory levels and inventory- reduction opportunities for shoe manufacturers are based on the following definitions. (1) Shoe manufacturers are all shoe companies performing significant shoe manufacturing, including the major integrated shoe companies, even those whose retailing volume exceeds manufacturing volume; for example, Melville is considered a shoe manufacturer. (2) Inventories of shoe manufacturers includes all shoe materials, shoes- in-process, and finished shoes owned by shoe manufacturers (as defined above), including shoe inventories in retail outlets owned by these companies. These definitions are somewhat arbitrary, but have been judged most practical for the last-grading study for two reasons. First, it would not be worth the effort, and would probably not be possible, to neatly separate the manufacturing and retailing opera- tions of the integrated companies. There would be no reasonable way to decide whether finished goods in warehouses should be considered manufacturing or retailing inventor- ies. And, since the required inventory breakdowns typically do not appear in annual reports, detailed analysis of each major company would be required. To avoid these problems, some arbitrary definitions permitting more direct analysis were required. Second, inclusion of all shoe- related inventories of integrated shoe companies in shoe- manufacturer inventories totals seemed most appropriate in view of the objective of the study: to help the whole shoe industry, of which these companies are an important part. The percentage reductions in inventories will be greater for multiple -width tariffs than for single-width tariffs; thus it is necessary to estimate multiple -width inventories and single-width inventories separately. Since most men's shoes retailing above $9. 00 or $10. 00 are offered in multiple widths, and the majority of men's shoes 76 retailing below $9. 00 or $10. 00 are carried in a single width, separation of men's shoe inventories at the $9. 00 retail price line provides a fair estimate of multiple- width and single-width inventories. Raw Materials and Work-In-Process Inventory Levels Analysis of balance-sheet data in annual reports of publicly held shoe companies indicates that combined end-of-year inventories of raw materials plus work-in-process vary from 5 to over 10 percent of annual sales and averages about 8 to 9 percent of sales, as shown in Table 5. Typically, those companies separating raw materials from work-in-process reported raw materials at about twice the level of work-in-process. Since the publicly held companies are larger than, and do more shoe retailing than, other shoe manufacturers, their dollar sales are slightly larger relative to dollar factory output than is typical for all manufacturers. One would therefore expect raw- materials plus work-in-process inventories typically to be 9 percent or 10 percent of these companies' dollar factory output. There does not appear to be much variation between figures from companies emphasizing men's shoes and other shoe companies. A second source of balance-sheet data on the shoe industry is the Internal Revenue Service. * Figure 30 shows a graph of IRS data on total inventories divided by total sales for the leather and shoe industry (about two-thirds of which is shoes), for groups of companies of different total-assets levels. Here it can be seen that inventories are typically 8 or 9 percent of sales for the smallest companies and are progressively larger for larger companies. For companies with total assets over $5 million, total inventories are typically about 21 percent of annual sales. Generally, the smallest shoe manufacturers are volume manufacturers who produce shoes for one or a few large chains on order only. Typically, these companies have no finished shoes in- stock and own no retail stores. Thus, their inventories are almost entirely raw materials and work-in-process. It is among the larger shoe manufacturers that most manufacturers' brands, in- stock inventories, and manufacturer- owned retail outlets are held. And, as mentioned previously, individual large- company annual reports indicate that large- company raw materials plus work-in-process inventories also average about 8 to 10 percent of sales. Thus, it appears that shoe manufacturers, regardless of their size, typically hold raw materials plus work-in-process inventories valued at about 8 to 10 percent of the value of their annual factory output, or about 8 percent of dollar sales; and that inventories of finished goods (in- stock and in- store) vary with the size of the company, from a very low level for the smallest companies to about 13 percent of the annual dollar sales for the medium to large companies (see Figure 31). Thus, total dollar raw- materials plus work-in-process inventories for the total shoe-manufacturing industry, or for major company groups within the industry, can be estimated at 8 to 10 percent of the dollar value of annual factory output, or about 8 per- cent of manufacturers' dollar sales. Table 6 presents estimated inventory levels for the entire shoe industry, for the entire men's shoe industry, and for segments of the men's shoe industry manufacturing shoes to retail in various price ranges. "Corporation Income Tax Returns, 1961-62, U.S. Internal Revenue Service (1964). TABLE 5. RAW MATERIALS PLUS WORK-IN-PROCESS INVENTORIES AS PERCENT OF SALES AT SEVERAL LARGE SHOE COMPANIES Raw Materials Plus Work-in- Process Inven- tories as Percent of Annual Sales' 3 -/ Company I960 1964 Brown 5 6 Craddock-Terry 7 8 Endicott Johnson 13 9 Genesco 5 — Green 10 - International 11 7 Nunn-Bush 10 13 U. S. Shoe 8 8 Weyenberg — 9 (a) Average (all companies, both years) * 8. 6 percent. Source: Company annual reports. 78 25 O if) C o i 20 15 10 1 ■ i i i ■ 1-50 100-500 1000-2500 5-10,000 25-50,000 100-250,000 50-100 500-1000 2500-5000 10-25,000 50-100,000 Size of Companies According to Total Assets, thousands of dollars A-54459 FIGURE 30. INVENTORY AS PERCENT OF SALES FOR SHOE-MANUFACTURING COMPANIES OF VARIOUS SIZES 79 P (f) C s o c 0) > 100-250000 50-100 500-1000 2500-5000 10-25,000 50-100,000 A-54460 Size of Companies According to Total Assets, thousands of dollars FIGURE 31. INVENTORY BY TYPE AS PERCENT OF SALES FOR SHOE-MANUFACTURING COMPANIES OF VARIOUS SIZES 80 TABLE 6. RAW -MATERIALS AND WORK-IN- PROCESS INVENTORIES IN SEGMENTS OF THE SHOE INDUSTRY Raw-Materials and Annual Factory Work-in-Process Inventories Output, millions As Percent of Millions Segment of Industry of dollars Factory Output of Dollars All shoes 2600 All men's shoes 800 Men's shoes retailing 600 above $9. 00 Men's shoes retailing 200 below $9. 00 235 72 54 18 Source: Factory-output value estimated at 60 percent of retail sales figures from Boot and Shoe Recorder. Finished-Goods Inventory Levels Manufacturer-owned in- stock and in-store inventories of finished shoes require more detailed analysis because they vary with company size, shoe type, and shoe price range. The men's shoe industry is not neatly separated from the rest of the industry; most manufacturers of men's shoes also manufacture other types of footwear. Professor Hansen of Harvard Business School reported that, of 145 manufacturers of men's shoes, almost two- thirds (90) also manufacture other types. About half the volume of men's shoes is manufactured by four very large companies: Brown, Endicott Johnson, Genesco, and International (Table 7). These four companies manufacture and retail all types of shoes over wide price ranges, as shown in Table 8. Thus, one cannot draw a clear line around the men's shoe industry, since such an entity does not exist. TABLE 7. CONCENTRATION IN PAIRAGE OUTPUT — MEN'S SHOES AND ALL SHOES (1954) Percent of Pairage Output All Shoes Men s Dress Shoes Men' s Work Shoes Four largest companies^ 3 ) 23 Eight largest companies 28 Twenty largest companies 36 48 60 75 50 68 84 Source: Hansen, H. L., A Study of Competition and Management in the Shoe Manufacturing Industry , NFMA(1959). (a) Brown, Endicott Johnson, Genesco, International. 81 TABLE 8. PRODUCT LINES AND RETAIL-PRICE RANGES OF SHOES MANUFACTURED BY FOUR LARGEST COMPANIES Retail Own Product L Lnes Price Range, Retail Company Men's Women' s Children' s dollars Stores International X X X 2-30 X Genesco X X X 3-150 X Endicott Johnson X X X 2-23 X Brown X X X 5-21 X Source: Boot and Shoe Recorder, April 15, 1965, p 52. In his book on the shoe industry, Professor Hansen discussed what he called "competitive groupings" in the shoe industry. He found that the best way to define industry groups was by shoe price range. His analysis showed that, in men's shoes, groups of manufacturers in the higher price lines can be classified to some extent, but in medium and lower price ranges it is impossible to classify companies by price, company size, or product line. Table 9 presents a summary of information from Professor Hansen's book regarding price range, company size, product lines, in- stock policy, and distribution channels for companies, other than the four largest, that manufacture men's shoes. From Table 9, the following general statements can be seen to apply to the men's shoe industry (excluding the four large companies): (1) In all groups making men's shoes only for retail above $9.00, each industry group sells primarily to independents, and sells about 80 percent of its shoes from in- stock. (2) In all groups making men's shoes to retail over a "wide price range", distribution appears to be primarily to independents for shoes retailing above $9.00 and primarily to chains, jobbers, and wholesalers for shoes retailing below $9. 00. Analysis of manufacturer-owned chains selling only, or primarily, men's shoes shows that these outlets sell about $120 million in shoes retailing above $9. 00, as shown in Table 10. Since total annual sales of men's shoes priced above $9. 00 are about $1 billion, and other manufacturer-owned "family" chains sell men's shoes too, manufac- turer-owned chains sell at least 12 percent of such shoes. Manufacturers probably retail considerably more than 12 percent of these shoes. Six very large shoe manufacturers, who together own about 90 percent of manufacturer- owned shoe- retail operations (primarily through chains selling all shoe types) and retail about 33 percent as many shoes as they manufacture, produce over half of all men's shoes, as shown in Tables 11 and 12. Thus, these six manufacturers alone probably retail about 20 percent of all men's shoes in various price ranges. Men's shoe chains owned by manufacturers other than the Big Six companies sell another $60 million, or 6 percent of all men's shoes retailing above $9. 00 (Table 11). Thus, all manufacturer- owned retail outlets probably sell about 25 percent of the men's shoes retailing above $9. 00. TABLE 9. CLASSIFICATION AND DESCRIPTION OF THE MEN'S SHOE INDUSTRY The "Big Four" companies are not included Classification Group Description and Composition of Companies in Classification Group (1) Men's shoes retailing above $14 (a) Men's shoes retailing above $20 (b) Men's shoes (some women's shoes also) retailing from $9 to $25 (2) Men's shoes retailing above $7, but primarily below $14 (3) Men's shoes retailing over a wide price range (4) Men's and women's shoes retailing over a wide price range (5) Men's and boys' shoes retailing over a wide price range Most companies specialize in either men's or women's shoes. Manufac- turers of men's shoes are divided into two groups. Half a dozen companies, each manufacturing about 1000 pairs daily. All shoes branded, sold primarily to independent retailers, 80 percent of sales from in -stock. 80 percent of shoes branded. Sales are primarily to independent retailers. Some manufacturer-owned retail outlets, 80 percent of sales from in-stock. Some companies specialize in men's shoes only, others also make women's shoes. One company, with assets over $5 million, makes 95 percent branded shoes, sells primarily to independent retailers, 80 percent from in- stock. Another company with assets of $1-2 million makes 60-80 percent branded shoes, sells 70-80 percent of men's shoes from in-stock. Two companies make unbranded shoes. One, with assets of $2.5-5.0 million, makes shoes retailing up to $9. 00. The other, about the same size, makes shoes retailing up to $14.00. Those retailing below $9.00 are sold primar- ily to chains. Two other companies, each with assets of $2.5-5.0 million, make men's shoes in all prices, which are sold only to independents, and from in -stock only. One company, with assets of $2.5-5.0 million, makes unbranded shoes for sale to chains. Two companies, each with assets of less than $25 million, make shoes for men, boys, children, and misses; one sells primarily branded, the other primarily unbranded, shoes. Two companies make shoes for men, boys, and children. One is very large and sells branded shoes to independents. The other has assets of less than $1 million and sells unbranded to chains. (6) Shoes retailing over a wide price range (all shoe types) Four companies with assets under $1 million and one with assets between $5 and $25 million; four sell branded shoes to independents; one, unbranded shoes to chains. (7) Men's shoes retailing under $7.00 Nine companies, ranging in asset size from less than $1 million to over $250 million (only one above $25 million), make work shoes in this price range. Five sell branded shoes primarily to independents, and four (includ- ing the very large company) sell both branded and unbranded shoes. Source: Hansen, H. L. , A Study of Competition and Management in the Shoe Manufacturing Industry , NFMA (1959). 83 TABLE 10. MANUFACTURER-OWNED RETAIL CHAINS SELLING EXCLUSIVELY OR PRIMARILY MEN'S SHOES Retail Chain( a ) Price Range, Sal es (1964), dollars millions of dollars 8-30 18. 9 9-15 16. 5 5-11 15. 5 13-40 7. 5 Z5-75 5. Z5-95 3. 5 (b) Men' s Only- Regal (Brown) Hanover'"' c ' Flagg (Genesco) Nunn-Bush( b > c ) Murphy (Genesco)!"' Nettleton( b > c ) Subtotal 66. 9 Men's Primarily Florsheim (International)'") Freeman!") c ) John Hardy (Genesco) Bostonian^ ' c ' Jarman (Genesco)!") Subtotal 10-50 9-35 4-8 13-45 10-25 30. 8 21. 14. 10. 4 7. S3. 2 Total 150. 1 Total Retailing Above $9. 00 (Indicated by (b) above) 120.6 Total Retailing Above $9. 00, Excluding Big Six (Indicated by (c) above) 58. 9 Source: Boot and Shoe Recorder. (a) Manufacturer owner indicated in parentheses. (b) Shoes retailing above $9. 00 are sold by retailer. (c) Retail chain is one of the Big Six. 84 TABLE 11. CONCENTRATION IN SHOE RETAILING OF MANUFACTURERS (1962) Retail Sales, Retailers millions of dollars Chains owned by Melville, Genesco, Shoe Corporation, Brown, and International 627. 4 Endicott Johnson 40. 5 Total of six largest manufacturers 668 All other manufacturer- owned chains in top 75 70 All manufacturer- owned chains 738 Sales of Big-Six companies as percent of sales of all companies = x 100 738 90 percent Source: Boot and Shoe Recorder. TABLE 12. SHOE SALES BY BIG-SIX COMPANIES (1962) Millions of Dollars Type of Sales Value of Sales Total retail sales^) 668 Total shoe sales* b ' 1,401 Retail sales as percent of total sales for Big Six =48 percent (a) Source: Table 11. (b) Source: Annual reports of the companies; for Genesco, shoe sales are estimated at 55 percent of total sales. From the preceding analyses, a rough "shoe-flow diagram" can be sketched for men's shoes retailing above $9. 00 as shown in Figure 32. About 60 percent of these shoes flow from factory to manufacturer- owned warehouses and 20 percent to chain warehouses; the other 20 percent move directly from factory to retail outlet. At retail, about one-quarter of these shoes are sold from manufacturer- owned outlets, and over half are sold from independent stores (most manufacturers of these shoes sell primarily to independents). A relatively small percentage are sold by other chains that generally concentrate on lower-priced shoes. Average turnover estimates for these various in- stock and retailing operations are presented in Table 13, and total annual output (at factory prices) for men's shoes of various retail price ranges is given in Table 14. These figures on annual output, turn- over, and shoe flow indicate that industry-wide inventories of men's shoes retailing above $9. 00 are approximately as shown in Table 15. TABLE 13. AVERAGE TURNOVER RATES FOR MEN'S SHOES RETAILING ABOVE $9. 00 Location of Inventory Average Turnover Rate In-stock' a ) Manufacturer-owned stores Independent stores Other chains 5 to 6 3 1. 5 3 (a) Source: NFMA, Brown Shoe Company. TABLE 14. FACTORY VALUE OF ANNUAL MEN'S SHOE OUTPUT BY RETAIL-PRICE RANGE Retail-Price Range Value of Annual Factory Output, millions of dollars $0. 00 to $9. 00 Over $9. 00 All price ranges 180 600 780 Source: NFMA 1963 Price Line Study. Similarly, the preceding analyses suggest a shoe-flow diagram like that in Figure 33 for men's shoes retailing below $9. 00. Turnover is generally higher for these lower-priced shoes, as the turnover estimates of Table 16 show. The resulting industry-wide inventorv figures are considerably lower for shoes retailing below $9. 00 (Table 17). 86 TABLE 15. ESTIMATED FACTORY-PRICE VALUE OF INDUSTRY-WIDE INVENTORIES OF MEN'S SHOES RETAILING ABOVE $9. 00 Millions of Dollars Type of Company Factories Factory-Price Value In- Stock In-Store Manufacturers Independents Other chains 54 65 21 250 TABLE 16. AVERAGE TURNOVER RATES FOR MEN'S SHOES RETAILING BELOW $9. 00 Location of Inventory Average Turnover Rate In-stock Manufacturer-owned stores Independent stores Other chains TABLE 17. ESTIMATED FACTORY-PRICE VALUES OF INDUSTRY-WIDE INVENTORIES OF MEN'S SHOES RETAILING BELOW $9. 00 Millions of Dollars Factory-Price Value Type of Company Factories In-Stock In-Store Manufacturers Independents Other chains 14 5. 5 8. Up to 15 18 or more 33 87 TJ (tf a s u ^ (3 < nJ •rH -rH ►-) s P p L J q a; J b ^ h H 1 tj W > K° Ao/ o o -^ o j? CO < ro H T3 pel 0) D S3 O \-\ o h u CJ h "0 (U o u U 3 o 5 l-H < H W PJ co W O co co Pi O pd a $ Q o £ o O cr- J w- h £ W O i-J K w CO w CO ro W tf P hi 89 Total Dollar Reductions It is now possible to estimate dollar- inventory reductions resulting from adoption of the new grading systems. Any of the three systems would permit inventory reductions of 20 percent for shoes now offered in multiple v/idths (generally those retailing above $9.00); therefore, the resulting industry-wide dollar inventory reductions for multiple- width shoes would be approximately as shown in Table 18. TABLE 18. ESTIMATED INDUSTRY-WIDE INVENTORY REDUCTIONS AT FACTORY PRICES FOR MEN'S SHOES RETAILING ABOVE $9. 00, WITH DFC, DYNAMETRIC I, OR DYNAMETRIC II Inventories from Table 15, times 20 percent reduction Millions of Dollars Factory-Price Value Type of Company Factories In-Stock In-Store All Manufacturers 2 13 10 25 Independent and -- 4 50 54 other chains Total 79 For men's shoes offered in a single width, Dynametric I would offer no inventory- reduction benefits; DFC would reduce inventories about 8 percent, and Dynametric II, about 11 percent. Applying these percentages to the dollar-inventory figures for men's shoes retailing below $9. 00 (assuming that most of these shoes are offered in a single width), the industry-wide inventory- reduction benefits for single-width shoes are as shown in Table 19. The total industry-wide dollar- reduction benefits in shoe inventories from each system can be estimated by combining the multiple-width and single-width benefits, as shown in Table 20. Total inventories of all manufacturers would be reduced by roughly $25 million to $30 million with DFC, Dynametric I, or Dynametric II. These inventory reductions will not only provide the industry these millions of dollars from reductions in inventory financing (which the industry will gain only once but will not be taxed for), they will also reduce various inventory carrying costs every year. Costs for storage space, keeping track of inventories, markdowns, etc. , will all be reduced every year through the inventory reductions. These costs are described in more detail in the Battelle report on shoe inventory management, and it is shown there that these costs are typically about 20 percent of the average inventory level. Thus, in addition to capital freeup of $25 to $30 million, the industry will also gain annual cost reductions of about 20 percent of the inventory reductions (10 percent after tax adjustments). This is also shown in Table 20. 90 TABLE 19. ESTIMATED INDUSTRY-WIDE INVENTORY REDUCTIONS AT FACTORY PRICES FOR MEN'S SHOES RETAILING BELOW $9. 00, WITH DFC, DYNAMETRIC I, OR DYNAMETRIC II Millions of Dollars Factory-Price Value Type of Company- Factories In-Stock In-Store Independents and other chains Total Dynametric I (0 percent reduction) No savings Dynametric II (Inventories from Table 18, times 11 percent reduction) Manufacturers 0.3 0.6 1.0 Independents and other chains 0.9 3.6 Total All DFC (Inventories from Table 18, times 8 percent reduction) Manufacturers 0.2 0.5 0.7 0.7 2.7 1.4 3.4 4. 8 1.9 4. 5 6.4 91 w H i—i Eh W Z W O I— I H O & Q W ^ O H W > i— i H CO & Q i—i O CO w H co !* CO O i—i Q x s "J s H £ 10 M CD « ft *H O , u u cd U +-> i — i x S rt "* ^ 3 H JJ c ^ o^ h £> H XI 0) +J c u o CD nJ — O f PS 01 co m in o —i oo oo o —i fM o m ■* in m < u ■r-H u CD a o o U Eh Q o CJ •t-H u !h -l-> -J-J cu cu s a rti nJ C C >> >> P P 92 The retail trade will gain even greater capital-freeing and annual cost- reduction benefits from any of the three systems, as shown in Table 20, and manufacturers, of course, also would benefit from the improvements in retailers' efficiency. GEOMETRIC- AUTOMATION The development and introduction of the Geometric Last- Grading System by United Shoe Machinery has helped to illustrate that last grading can have a major impact on automation. At present, the Geometric System represents the major automation con- sideration regarding last grading; thus, evaluation of automation impacts of various last-grading systems requires: (1) Assessment of the potential economic benefits to the industry from machinery designed according to geometric principles (2) Analysis of the extent to which each last-grading system permits use of machinery designed according to geometric principles. The present situation with respect to geometric machinery does not permit ac- curate measurement of economic benefits from such equipment. For the 15 or so years since the Geometric Last-Grading System was introduced, most shoe manufacturers have taken the apparently reasonable position that purchase of Geometric lasts should await development of Geometric machinery so that the benefits can be seen and mea- sured against the costs. United Shoe Machinery has taken the position - also a reason- able one — that costly development of Geometric machinery should not be undertaken on a large scale until the industry has adopted the Geometric last, insuring ability to use the new machines. United has developed a few Geometric machines, and some manufacturers have partially converted to Geometric lasts; United now feels that the benefits from presently available Geometric machines more than offset all related costs. But the entire Geometric program has not progressed to the point where total potential shoe- industry automation benefits from conversion to a last-grading system usable in a full line of geometric machinery can be predicted with accuracy. It is possible, however, to determine the importance to the industry of the whole subject of automation relative to that of inventories and to make a rough estimate of the potential value to the industry of geometric machinery for men's shoes. Importance of Automation In the broad view, it is apparent that increased automation is a road the shoe industry must take. The large differential in wage rates between the United States and other nations is well known to the industry; this differential will not - and we do not want it to — disappear soon. To compete in an environment steadily approaching an integrated world economy in which each nation produces certain products more ^Since United Shoe Machinery Corporation's new last-grading and automated -shoe-machinery program is a specific program, it is referred to as Geometric, with a capital G. However, the USM program includes some grading principles of value to any machine design; these are referred to as geometric, with a small g. 93 economically than other nations, the United States shoe industry must find ways to in- crease its productivity so that shoe output per labor dollar is highest in the United States. Several other United States industries have met this challenge through new technology and automation. The only way for the United States shoe industry to achieve long-term economic health and growth in a free world market is to compete aggressively with the shoe industries of other nations by increasing its productivity through automation. The total output of the men's shoe industry is valued at a factory price of about $800 million. Since labor cost is generally about 25 percent of the factory price the total labor cost for the men's shoe industry is about $200 million. By comparison, the total annual cost of maintaining manufacturer- owned inventories is $40 million. Shoe inven- tories not owned by manufacturers represent an additional annual cost of about $60 million. Manufacturers would benefit from increased shoe- retailer efficiency if these inventories too were reduced. Thus it is apparent that, on a broad scale, increased productivity through automation is fully as important to the industry as reduction of inventories. Potential Savings From Use of Geometric Machinery In selecting a last-grading system, it is necessary to estimate the net savings likely to result from the use of machinery based on geometric principles for men's shoes, to compare these potential savings with those of inventory reduction. United Shoe Machinery Corporation prepared for Battelle the estimate of net savings to manufacturers from present Geometric heel machinery that is shown in Appendix B. It indicates that the Geometric machinery reduces present labor costs for these operations by 60 percent, and that the net cost of leasing this new equip- ment would be 28 percent of present labor cost for a company now owning standard USM machines, or 8 percent of present labor costs for a company now leasing standard USM machines. Thus, net savings would be about 32 percent of present labor costs for these operations, for a company now owning standard USM machines and about 52 percent for a company now leasing standard USM machines. The 1955 antitrust decision against USM forced the company to offer shoe manu- facturers the opportunity to purchase its machines as well as to lease them. Since the effective date of the decision, the number of USM machines under lease has declined 73 percent*. Thus, the percentage of USM standard machines in use that are now under lease is probably close to 25 percent, with the other 75 percent owned by shoe manufacturers. Combining these figures with those in the preceding paragraph indicates that industry-wide net savings from a complete Geometric machinery program would not exceed 37 percent of the present labor costs of operations Geometric machinery could affect, as shown in Table 21. "Source: United Shoe Machinery Corporation. 94 TABLE 21. INDUSTRY-WIDE MAXIMUM POTENTIAL ANNUAL SAVINGS FROM FULL PROGRAM OF GEOMETRIC MACHINERY AS PERCENT OF RELEVANT LABOR COSTS (1) Present Ownership of Standard USM Machines (2) Potential Net Savings As Percent of Relevant Labor Costs (3) Percent of Machines In Use (2) X (3), percent USM (leased) Shoe manufacturers 52 32 25 75 13 24 37 Potential industry-wide net savings as percent of relevant labor costs: 37 percent Table 22 presents labor costs for these operations for one pair of shoes at a "typical" men's shoe factory; these labor costs represented about 7 percent of factory price. Since total annual output of men's shoes at factory prices is about $800 million, industry-wide total labor costs for operations that geometric machinery might change are about $56 million per year. Thus, if machinery companies developed a full line of geometric machinery offering net savings comparable to those offered by present Geometric /USM heel-end machinery (as shown in Appendix B), and if all manufacturers could and did use these new machines, industry-wide net annual savings would be about 37 percent of $56 million - about $24 million before tax, or $12 million after tax. This estimate of shoe industry net annual savings from geometric automation reflects only the potential gains from the first stage of what should be a two- stage pro- cess. It includes only the savings from transferring skill from the operator to the individual machine. It is probable that, following this step forward, significant, further "second- stage" gains from geometric automation could and would be achieved through automatic equipment for transfer of shoes from one machine to the next and positioning of the shoes in the machine. This second stage of advancement would provide further increased productivity in two ways: it would permit each geometric machine to operate at a considerably higher output rate, and it would reduce the number of operators required for any given number of machines. Battelle analysis of capabilities of present geometric machinery, USM research performed in this area, and potential effects on present shoe manufacturing plants sug- gests that when this second stage of potential geometric- automation advancement is also considered, total annual net savings to all United States shoe manufacturers could be as much as $32 million before tax, or $16 million after tax. However, several factors are likely to prevent such complete use of geometric machinery. It may not be technically or economically feasible to develop geometric machinery for every one of these operations. New shoe constructions may preclude some uses of geometric machinery (although geometric automation is not limited to 95 TABLE 22. PERCENT OF FACTORY COST OF MEN'S SHOES REPRESENTED BY LABOR COSTS POTENTIALLY REDUCIBLE WITH GEOMETRIC MACHINERY 1. Estimates of Labor Costs Reducible With Geometric Machinery (Itemized costs from "typical" men's shoe factory(s-)) Present Piece Price Operation Per 12-Pair Case, $ Assemble 0.2322 Pull over 0. 4740 Side lasting 0. 4198 Heel lasting tacks(t>) 0. 2579 Toe lasting 0. 2174 Inseaming 0.2159 Inseam trim (pull tack) 0. 1842 Beat and butt(b) 0. 1531 Fill bottoms (steel) 0. 2734 Sole lay (loose nail) 0. 2242 Rough round 0. 2280 Goodyear stitch 0. 4269 Wheel and level 0. 1823 Heeling (whole)(b) 0. 2172 Heel trim (whole)(b) 0. 2002 Edge trim 0. 3505 Heel scour(b) 0. 1249 Ink heel seat 0. 1405 Ink edge 0. 1514 Set edge 0. 1256 Heel burnish(b) 0. 1430 Pull lasts 0. 1203 Total Direct Labor (12-pair case) 5. 2056 -12 Total Direct Labor (1 pair) 0.4338 Fringe benefits (estimated at 20 percent) 0. 0870 Total Labor Cost (1 pair) 0. 5208 2. Estimates of Reducible Costs as Percent of Factory Prices $0. 52 (Costs) $5. 95 (Typical men's shoe factory price) = 7. 2 percent (a) Source: Schwab, J. L. , and O'Brien, J. B. , "To Modernize or Move", NFMA Technical Journal , January 1964, p 16. (b) Heel-end operations. 96 Goodyear Welt shoes), and some manufacturers may decide against use of geometric machinery. In view of these factors, a lower estimate of actual future benefits to all manu- facturers from geometric machinery would be more realistic. It seems reasonable to expect actual benefits to be something like half the "maximum-possible-benefits" figure developed above, or $8 million per year for all manufacturers. Since approximately 20 percent of the labor costs that geometric automation may affect are for heel-end operations, it is reasonable to forecast 20 percent of the $8 million forecast annual gains, or $1. 6 million per year, to heel-end geometric machinery, and the remaining $6. 4 million per year to forepart machinery. Evaluation of Last- Grading Systems for Use With Geometric Machinery Historically, the major technical problems holding back automation of shoe production have been nonuniformity of materials and nonuniformity of lasts. Solution of the materials problem is now in sight: uniform synthetic replacements for leather have been successfully introduced into the shoe industry. The principal technical barrier to automated manufacture of shoes is now nonuniformity of lasts. Revision of lasts to facilitate automation involves three major steps; (1) Standardization of last features without affecting shoe fit or flexibility of style. (2) Adoption of a grading system acceptable to automatic- machinery design principles. (3) Addition of a handling and positioning means for transportation and orientation of the lasted shoe during the various shoe processes. The Geometric System has been developed as a means of satisfying the above factors by requiring: (1) The standardization of certain shapes, plane relationships, and measure- ments for simplifying machine design without restricting style or fit; (2) Proportional grade within widths, geometric increments, and diagonal grade in the heel-end area* between the widths; this requirement has been set up for the following reasons: (a) Studies show that the distribution of adult'foot measurements justifies it. (b) The standard features and proportions of the model are maintained throughout the tariff, •In diagonally graded heel ends, certain features of the heel ends are identical in lasts that vary by the decrease of one or more half sizes for each increase of a width (or vice versa); for example, 10B, 9-1/2C, 9D, and 8-1/2E. 97 (c) A single scale can be used for all measurements in any direction on the shoe and lasts, (d) Proportional grade, in addition to being logical and predictable, is uniquely compatible with the principles of machine design; (3) An accurate plate on the cone surface of geometric lasts to satisfy the requirement for both handling and positioning of the last. The Arithmetic last has none of these features, and so cannot be used at all in geometric machinery. Geometric, DFC, Dynametric I, and Dynametric II can all incorporate in the model lasts the features listed in the first requirement, and all four can be made with positioning plates. Thus, the only feature at issue among these three is the grading system, which includes proportionality, geometric increments, and diagonal width grade. The geometric principles of the Geometric System are desirable for facilitating automation because they permit man or machine to predict certain features of any last, regardless of the style and size. In addition, if any random point on a last is known, proportionality makes it possible to predict the location of that point in any other last of the same style and width. Almost invariably, mechanisms used to vary the setting of a machine for size operate on a multiplication principle. For example, levers, gears, pneumatic cylinders, transformers, and electronic tubes are all multiplying devices. Thus, a multiplication principle (geometric increments) lends itself to machine design, especially when the.re is to be no operator with the skill to observe and guide the machine. The machine is less costly to design and build. Geometric machinery can be built to perform various on- last shoemaking opera- tions on proportionately different shoe sizes. It is possible to design automatic ma- chinery for a nonproportional system, but more expensive — probably too expensive to justify such machine development. Diagonal heel ends are not a necessity for geometric machinery. This fea- ture does affect Geometric-heel-machinery economics significantly, however. It reduces considerably the number of heel-end sizes each heeling machine must be able to handle, and machines developed to date have been designed to utilize this advantage. The diagonal feature of the Geometric System is shown in Table 23; here the heel-end size of each size-width is indicated, and one can see that various size-widths along the diagonal have the same heel end. The Geometric System and the two Dynametric Systems are all completely propor- tional. DFC is not proportional; however, Genesco has so engineered DFC heel ends that Geometric heel-end machinery can work with DFC lasts, as explained below. Genesco has designed DFC in such a way that it incorporates a form of diagonal heel ends, with the advantages that go with this feature. This diagonal is not the same as used in geometric lasts — the geometric heel-end grade is less than the grade of the ball girth from one width to another. DFC heel ends grade slightly more than the grade of the girth. The heel size of each DFC size-width is shown in Table 24. 98 cocococococococo LO CO IT- CO CO CO CO CO CO CO ■* LO CO CO CO CO CO "Ct< CO CO CO C0r-00C»O.-IC0C0 COCOCOCOCOCOCOCO COCOCOCOCOCOCOCO COCOCOCOCOCOCOCO O i-H CO CO CO CO CO CO CO CO ■* LO CD C- i-H CO CO 'd* LO CD 00 C5 0) O t-H CO CO "Ct 1 LO CD o CTiOi-HCOCO-Ct 4) PQ 43 4-» ■a a * s c o u ft a < a* h i o a) a, 4) o >H H 43 a. £ < a- ro 4) 2 o a o u (X 4> £ o 1) O n) ■B •i-i x o u ft a < 01 4-J C 4) rt 01 a • rt O >- ■4-> a) 4) N in a g ft e m •r-< 4> uTl X r~ K ■M !h l-l w Hi ft ft 3 ft ft a" < < a u o ft *» I-i o o in q, —* O s ft n 2 U to Q o ft 3 O Li o ft o X> 4) O 3 -^- xj oi 1-4 a O (D .h oi £ JO* jS x> "" £ rt ft in 41 —i 4) XI S3 . CD betwe :er m; EEE 8* ^ g rt c < CO 1 * P ■3* ftZT rt rt § c c XI Q 5 00 * ° rt 5 s CO •H '- | 4) t~ sa in £ XI 43- 2 n" * •* C *». C 4-> •3 -rt C •-I o vO 4J 4) -H a 01 J*> rt +j .5 +* c* g •rt ^ •^ < 01 rt in x O M 4) ft m ft CO N m O 01 (1, 01 XI +j 4) 01 I-i U-i 4-> rt £ 01 (M rt M *^^ 3 41 ro cr X +J i H 4) u n) 41 a, 3 H a CT 1 43 < H rt rt o .2 •t-t 4_, H ■S u 1— 1 41 2 o cd H rt 3 a 1 £ ft g * 2 rt • M & rt O i 41 < >. ft 41 01 "41 rt rt tj I-i 04 43 H rt 41 p rt o ft a. rt 01 X) 0) o 3 X) o ft -rt 41 U " 01 41 g 4) - >. 4) +J rt J » rt fl O ? p _ ?: XI rt j3 oo 41 43 pj u 11) a 0} 4) rt -3 rt 0) 43 ? X) aj 01 3 X) o H c 01 01 01 4) ■>- 01 rt) o CO 4-i 01 rt 2 N 0] 41 C 43 4J £ H 4) 3 4) £ C ■H £ 43 4) 4) 4) 13 CU +J 01 £ Ol 4) 4) in 5 H s H 01 >% 01 a 01 3 01 104 (2) The second step is to convert existing styles to the new system to the extent required by the manufacturer's inventories or by retail demands, by combining some new arithmetically graded lasts and some of the arithmetically graded lasts now in the factory. Thus, the manufacturer can gain the new system's inventory benefits quickly and provide retailers the inventory benefits they will demand, without incurring the much higher conversion costs that DFC would require. Table 29, which presents key grading specifications for the five grading systems, shows that either Dynametric I or Dynametric II could be introduced in this two-step process. A second smaller additional last cost for any system designed for use with geometric machinery is the additional cost of positioning plates. Table 30 shows that this would represent a maximum annual after-tax cost to the industry of about half a million dollars, if all manufacturers purchased lasts with plates. This cost would apply to any of the four new grading systems. TABLE 30. ANNUAL COST TO INDUSTRY OF LASTS WITH GEOMETRIC SPECIFICATIONS (1) Annual Sales of Last-Manufacturing Industry' 3 -): $ 12 million (2) Estimated Annual Sales of Men's Lasts: $ 5 million (3) Percentage Increase in Last Costs for Geometric Specifications: $1. 20(°) (Approximate increase in cost per pair for Geometric positioning plates) — — : — r— ; : ■ ; ; — = 20 percent cost increase $6. 00v a / (Approximate cost per pair of standard men's lasts) (4) Annual Incremental Cost to Industry $5 million x 20 percent = $1 million before tax = $0. 5 million after tax Sources: (a) Last Manufacturers Association. (b) United Shoe Machinery Corporation. Effects on Last Manufacturers The last manufacturers will receive considerably more business over the next several years if the shoe manufacturers adopt a new grading system with fewer sizes and widths. As the new system catches on, shoe manufacturers will find it advantageous to convert some of their existing styles to the new grading system; this will provide the last manufacturers a good deal of business they would not otherwise receive. With annual production of men's lasts at less than 1 million pairs and last conversions over the next few years possibly totaling 2. 5 to 5. million pairs, the conversion period would create a major business boom for the makers of men's lasts. 105 After several years, when conversion to the new system is completed, the reduced number of sizes and widths may result in lower business for last manufacturers, but there are strong reasons to suspect that thei'r business may never be made lower by the new system. If shoe manufacturers make shoes in fewer sizes and widths, they will of course make more shoes in each size and width, so that the number of lasts required in each size and width will go up as the number of sizes and widths goes down. Several shoe executives have predicted that/ with a reduced grading tariff, the manufacturers will decide to increase further the number of styles instead of reducing inventories. This too would raise the future business of last manufacturers. Conversion to a grading system usable in geometric automation will make the last an even more important element in shoemaking and the last manufacturers a more important part of the shoe-manufacturing world. Finally, and perhaps most important, a new grading system will help the shoe industry to operate more efficiently, to compete more effectively with foreign shoe manufacturers, and to sell more shoes. As the last manufacturers know, their business health is tied to the business health of the shoe manufacturers. Thus, acceptance of a grading system that helps the shoe manufacturers will have a long-term beneficial effect on the last manufacturers through its beneficial effects on the shoe industry. Replacement of Store Foot-Measuring Devices The major retail cost of changeover to a new set of size-widths would be replace- ment of foot-measurement devices. Since the Arithmetic and Geometric Systems both use the present sizes and widths, neither would require replacement of foot- measurement devices. DFC would require new devices in all stores selling men's shoes. Table 31 presents an estimate of the nationwide cost of purchasing these new devices: about $5. 2 million for all stores selling men's shoes, of which about $1. 3 million would be spent for devices at manufacturer- owned stores. In view of the very large inventory- reduction benefits to retailers, it would be reasonable to expect retailers to pay the costs of such devices for their stores. Dynametric I or Dynametric II could be introduced with the present foot- measuring device, either as it now is or with an adhesive overlay or replacement part for indica- tion of the new sizes or widths (providing the salesman a direct new- system size and width reading). A width overlay or replacement part probably would cost less than $10 per device - 20 percent or less of a new DFC foot-measurement device. Furthermore, Dynametric I would not require any change in devices at stores selling men's shoes only in D width, probably about 25 percent of all stores selling men's shoes. So the foot- measurement-device changeover cost of Dynametric I could be 15 percent or less of the corresponding DFC costs, and Dynametric II could be 20 percent or less. On the other hand, there are probably some important advantages in introducing a new retail foot-measuring device with a new sizing system: new and better foot mea- surement (including measurement of girth), and consumer psychology. Genesco has found that the new DFC device provides these benefits. It may well be that the introduc- tion program for Dynametric I or Dynametric II should include a new retail 106 foot-measurement device that measures girth; this ought to be decided as part of the industry's introduction program. For purposes of the cost analysis, it is assumed that either Dynametric system, as with the DFC System, could best be introduced with a new device. TABLE 31. ESTIMATE OF NATIONWIDE COST OF PURCHASE OF DFC FOOT-MEASUREMENT DEVICES (1) Estimated Number of Stores Selling Shoes' a ) 70 000 (2) Estimated Percentage of Stores Selling Men's Shoes 50% (3) Estimated Number of Stores Selling Men's Shoes 35 000 (4) Estimated Number of Foot-Measurement Devices Required Per Stored) 3 (5) Estimated Number of Foot-Measurement Devices Required 105,000 (6) Cost Per Device' ', $ 50.00 (7) Estimated Total Cost of New Devices, $ 5,250,000 (8) Estimated Percentage of Men's Stores Owned by Manufacturers 25% (9) Estimated Total Costs of Devices for Manufacturer-Owned Stores, $ 1,310,000 (10) Estimated Total Cost to Other Retailers, $ 4,940,000 Sources: (a) Boot and Shoe Recorder. (b) Battelle estimate. (c) Genesco. Other Costs There will also be costs of new patterns and dies, education of shoe people in- plant and in- store, and advertising for consumer education and retail introduction, but it appears that these factors will present little or no net cost to manufacturers for any of the new last-grading systems. Mr. Frederick Blanchard, a patternmaker experienced with Geometric and knowledgeable in DFC, stated that pattern and die costs to the shoe industry would not change significantly regardless of the grading system used. Genesco' s experience with DFC has shown that education of plant and store personnel can be covered in the course of standard operations in a manner that makes special-education costs negligible. In view of the benefits to shoe retailers in inventory reduction from DFC, Dynametric I, or Dynametric II, it is reasonable to expect that they will share with 107 manufacturers costs of advertising to introduce the new system to consumers, and the manufacturers' share of advertising a new grading system can be advantageously woven into regular advertising programs costing nothing additional and very possibly improv- ing advertising effectiveness. Table 32 presents a summary rating of the four last-grading systems with respect to costs of changeover. MERCHANDISING There are four major areas in which adoption of a new last-grading system could have effects on shoe merchandising: (1) Style (2) Retail- salesman understanding (3) Consumer acceptance (4) Retailer acceptance. Since merchandising is a critical factor in the success of each shoe manufacturer or retailer, these effects can be extremely important, but a new grading system can offer very great merchandising opportunities and few merchandising problems if it has been carefully selected and introduced. Style Because style is an important merchandising factor in most types of shoes and is becoming more important in men's shoes, shoe manufacturers would be reluctant to adopt a new men's shoe grading system that hurt styling freedom. However, the basic concept of revising the grading system to reduce tariffs while maintaining good fit has absolutely nothing to do with styling. A last influences shoe style only through shape, while the grading- and-fit question addressed in this report has nothing to do with shape but is concerned only ■with size. When a new shoe style is developed, the shape of the model last is very important. Then, after the shape is selected, lasts of various lengths and girths are "graded" from the model so that the shoes can fit various feet. Some lasts in each style are wide and short, others are long and narrow, and so forth. This is obviously necessary, because some feet are wide and short, and others are long and narrow. Shoe men know how to make different sizes and widths in the same style in a way that permits all kinds of feet to wear essentially the same style. To reduce tariffs while keeping good fit, all that need be done is to adjust the various lengths and girths in which each style is made. There is no need to restrict shape or style. There has been some feeling that the geometric proportional grade limits style. It does not limit style; it only makes some of the largest sizes slightly larger. For 108 o H a. u> > Q 2 "o s a o (J s H t> c O E 1) Q E 5 3^ 0) c 2 « i 2 U o u £ E *— o ^ S2 J 3 O N i o c O O .-I ,-c ,-. * * 3 s 109 example, the Geometric 15E is longer and wider than the Arithmetic 15E, and has been called "clumsy". This is not a problem of style, but only one of size. The 15E seems larger than a 15E should be, and it is, but if it were called a 16EE, it would seem very "unclumsy" and stylish. The "engineered features" of geometric lasts, which were introduced to permit shoe manufacturing automation, are not related to a tariff- reduction plan. The engineered features could have some effect upon styling. However, this possibility has been studied for several years, and evidence is strong that the engineered features do not present a styling problem. They have been used by a number of manufacturers for several years, and the only problem today seems to be the clumsy large sizes. As stated above, this is not a problem of style but only one of size. It can be easily solved by marking the largest Geometric shoes in larger sizes. Thus, a new grading system will not present any serious style problems. On the other hand, a new grading system with 33 percent fewer sizes and widths will provide a major advantage in style merchandising by permitting manufacturers to carry more complete tariffs in more styles (33 percent more, if desired) with no in- crease in inventories. This is the most important effect on styling that DFC or one of the Dynametric systems would have. Thus, a new grading system can increase rather than decrease styling freedom. Understanding of the System by Retail Salesmen Several shoe executives interviewed listed understanding of the new system by retail salesmen as the most important problem in changing to a new last-grading system. If the new system cannot be easily understood by retail salesmen, many of them will not want to take time to learn the system or explain it to their consumers. This is particularly true of salesmen on commission, who would lose selling time. If the system is not easy for salesmen to understand and if they are unwilling to take the time to learn it, many of them will misuse the system and fit consumers poorly. This will lead to dissatisfaction with the new system among consumers and retail salesmen, then among buyers, wholesalers, and finally among manufacturers. The less familiar the new system is to the retail salesman (that is, the greater the difference between it and the present system) the greater are the chances for such problems. If these problems were to occur, the cost to the industry and to particular companies could be very high. Large numbers of shoes could not be sold, and sales would be lost because of consumer dissatisfaction. To minimize the chances of such an occurrence, the industry would have to spend considerable money and take great care in introducing the new system, if the new system is very different from t h e present system, and there would still be a chance of large problems at retail. It is impossible to measure in dollars the differences between last-grading systems due to ease of retailer understanding, but the systems can be ranked according to their similarity to the present system, and it is found that very different systems may present a major problem in retail introduction. If the new system is basically the same as the present one and can be explained in terms of a simple difference from the present system, it will be much easier for retail shoe salesmen to use their fitting experience with the new system right away. 110 Both the present Arithmetic System and the Geometric System have the sizes and widths that retail salesmen have been using and understand. There would be no prob- lem of retail salesmen understanding anything new with either system. Both Dynametric I and Dynametric II have something new in sizes or widths, but both are basically the same as the present system, and can be explained in terms of the present system very simply as follows: • Dynametric I has the same grade rate, all the same sizes, and some of the same widths. It can be easily described as, "Just like the present system, except that widths are a little farther apart. " • Dynametric II has the same grade rate, all the same widths, and some of the same sizes. It can be easily described as, "Just like the present system, with three-quarter sizes instead of half sizes. " Thus, while these systems do have something new and could cause problems for some retail salesmen, the changes are very easy to explain and understand. These two systems represent the simplest changes possible for good fit with reduced inventories. DFC represents a system that is basically new to the retail salesman. The change in grade rate of DFC makes it impossible to describe one of DFC's widths by saying, "This new width is just like D width, " because, if the new width is like D in small sizes, it is not like D in larger sizes. No DFC size-width, other than the model size, is just like any of the present size-widths. Genesco has prepared a clear-plastic-overlay chart that shows how the various DFC size-widths compare with present size-widths. With this chart, Genesco has been able to explain DFC to retail salesmen at many of their stores and Genesco has had very little trouble gaining understanding by retail salesmen. In fact, many retail sales- men have shown a strong preference for DFC. It may well be that the whole United States retail trade could introduce a new system like DFC with no retail- salesman- understanding problem at all. On the other hand, some problems could develop and become very serious. There is some risk with any new system of introducing problems leading to backlash, and the fact that DFC cannot be related to the present system in the simple way that Dynametric I and Dyname- tric II can makes the risk considerably higher with DFC than with any of the other systems. Consumer Acceptance Consumer acceptance of the fit offered by a new system (assuming the fit is actually good) will depend primarily on how the system is introduced to consumers. Market tests performed by several companies* and reported to Battelle have shown that, as long as the new grading system offers fit approximately as good as the present system, consumers complain about the new system only when they are told it is a new system. Presumably, the public will have to be told if the industry reduces the number of sizes and 'widths. *These tests are confidential and cannot be discussed individually. Ill But Genesco's success with DFC in company- owned Johnston & Murphy and Jarman stores, where retail salesmen have taken time to explain the system, shows that a new system can be sold psychologically to consumers if the case for the new system sounds reasonable and is effectively presented. Any system with fewer size-widths than the old system will require a good program of retail introduction (this is discussed in the section on recommendations), but any reasonable system can overcome the hurdle of consumer psychology as long as retail salesmen understand the system and as long as companies promote the new system effectively. In fact, evidence is strong that a good new system, well introduced, can become a powerful merchandising advantage for the companies that introduce the new system fastest and most effectively, and possibly for the entire men's shoe industry. Genesco's amazing success with DFC described earlier (see Table 4 in Inventory Section), amount- ing to a doubling of turnover, indicates that DFC has not only reduced inventories but has also increased sales. Some very effective advertising and merchandising programs can be built around such a major feature as a new grading and sizing system. Retailer Acceptance Opportunities to reduce inventories and increase turnover through a new sizing system will be a powerful attraction to retailers, once the system is proven. DFC, Dynametric I, and Dynametric II all offer retailers very large gains through inventory reduction, $50 to $55 million, plus over $5 million annually, as shown in the preceding section on inventory reduction. This will be a very strong motivation for retailers to accept any of these three systems. Retailers will also look very carefully at the merchandising outlook for a new system. Here too, the three systems with new sizes offer promising opportunities. Once there is evidence of real merchandising promise, this and the inventory- reduction opportunities may lead retailers to demand the new system and to merchandise it very aggressively. But retailers will also be wary of potential merchandising problems. The greatest potential problem is lack of retail- salesman understanding, leading to poor first fittings and backlash. If the retail- salesman-understanding problem can be avoided, merchan- dising and inventory- reduction attractions will lead retailers to accept and support the new system. As stated above, either Dynametric system makes retail- salesman understanding as easy as possible with a reduced-tariff system. A summary rating of the five systems on merchandising factors is shown in Table 33. None of the systems seriously limits style; DFC, Dynametric I, and Dynametric II all offer more styles, major merchandising opportunities, and major retailer inventory- reduction attractions, but DFC involves considerably greater risk in retail- salesman understanding than the easier-to-understand Dynametric systems. 112 o 7, m o c "J co n} Dh D , O CO o °s -^ E^ DO o 2 ' > Q. Jj T3 en O. aj u c -o CO o eO T3 ^i cj CJ « qj u -q XI C £ XI c 8 gel * 2 'S ' 5 S ;£ >* DO U C c o w " c c £ E .s "S -8 s CO C X) ^-< s _ u ■s E o r- <" 5 S xi 113 FINAL EVALUATION OF THE GRADING SYSTEMS Table 34 presents a summary evaluation of the five grading systems with respect to all the major considerations: fit, inventory benefits, geometric automation benefits, changeover costs, and retail-acceptance problems. This table shows clearly that Genesco has been right in saying that a new grading system can offer great inventory benefits while retaining good fit. It shows that DFC offers these benefits while also offering good fit. It shows that DFC is the best of the systems tested at retail and now in use, from the viewpoint of the shoe industry. But Table 34 also shows that DFC involves some high costs that apparently are not necessary costs: replacement of all lasts, loss of geometric forepart machinery poten- tial, greater risk in retail introduction. Two new systems are shown to offer the benefits of DFC, plus considerable further benefits: lower costs of last changeover, full compatibility with all geometric automation principles, lower risk in retail introduction. Dynametric II appears best of all - the net economic benefits to manufacturers from Dynametric II system appear nearly twice as high even as those of DFC. RECOMMENDATIONS In view of the very high net gains to the industry from Dynametric II that are indicated in the preceding analyses, the next steps taken by men's shoe manufacturers should be addressed to planning for introduction of the Dynametric II grading system. However, certain things ought to be done to ensure that introduction of the new system is successful. A developmental testing program should be carried out first to make sure that the specific details of the new lasts are right for fit and for shoe production; a program of consumer and retailer education should then be undertaken so that the new system will meet with favorable reaction at retail. Developmental Testing Program An outline of the necessary major steps in the two programs in preparation for introduction of Dynametric II (Developmental Testing, and Preparation for Retail Introduction) is shown in Figure S- 1 (in Summary at the front of this report). In the first program, Developmental Testing, the objective is to ensure that Dynametric II is designed in the best way for retail acceptance and for efficient shoe manufacture. Steps (1) and (2) (Program I, Figure S- 1 ) should be performed by an expert maker of quality men's lasts, Step (3) should be performed at a factory known for the manu- facture of men's shoes that fit well, and Steps (4) through (7) should be performed under the direction of a man who is familiar with last grading and with statistical and experi- mental techniques, and who can maintain an impartial, objective position. The overall Developmental Testing Program should be performed on an industry- wide basis; if individual manufacturers attempt this work independently, a great deal of 114 money will be wasted because they will all be doing the same thing. Furthermore, if one manufacturer acts too hastily, he might introduce Dynametric II poorly, creating an adverse retail reaction and spoiling the opportunities for other companies as well as for himself. It would probably be best for the industry if the entire Dynametric II Developmental Testing Program were directed by an objective outsider familiar with the subject. The director should rely heavily upon top shoe men where appropriate, such as in develop- ment of the technical details of lasts, in the manufacture of shoes, in carrying out the retail test, and in the development of a new foot-measuring device for use by retailers. The Developmental Testing Program (through Step (7)) should be completed in approximately 1 year. Preparation for Retail Introduction The Preparation for Retail Introduction Program (see again Figure S- 1 ) should be based on results of the Developmental Testing Program, but planning of the Preparation for Retail Introduction Program should start now. Some of the steps in this program will be carried out individually by each company; for example, in the design of company advertising featuring Dynametric II, and in the selection of new styles for introduction in Dynametric II. Other steps, such as planning of industry-wide advertising for Dynametric II and preparation of a retailer- education booklet, should be carried out jointly by the industry. The industry should form a committee of leading merchandisers of men's shoes, chaired by a shoe man 'who can take the industry-wide viewpoint, to: (1) Carry out the steps best performed jointly by the industry (2) Coordinate the overall Preparation for Retail Introduction Program, including steps performed by individual companies, to achieve a strong, industry-wide introduction program. The Preparation for Retail Introduction Program should be completed within 1 year so that introduction can be begun upon completion of the Developmental Testing Program. Feasibility Studies on Women's and Children's Last- Grading Systems The very high benefits to the men's shoe industry and trade from a new men's shoe grading system suggest that there may be similar potential gains from revision of women's and/or children's grading systems; manufacturers and retailers of these shoes will be very interested in exploring this possibility. However, there are some important differences between grading of men's shoes on the one hand and grading of women's and children's shoes on the other. 115 and 116 (1) There has been no large-scale foot-measurement program in the United States on women's or children's feet similar to the Fort Knox Program. (Z) Not nearly so much research has been performed on women's or children's shoe-grading systems, either from the tariff- reduction viewpoint or from the geometric- automation viewpoint, as has been performed by USM and Genesco on men's shoe grading. (3) Grading and fit analysis is more complex for women and for children than for men; it is more difficult for women because much greater variations in style, heel height, and key points of fit will require separate analysis of various women's shoe types, and it is more difficult for children because the very great percentage differences between the smallest and largest feet has created a need for several grading systems. For these reasons, it is not now possible to judge whether major grading- system improvements can be achieved for women's or children's shoes. A feasibility study is required to determine whether such gains are possible. In view of the demonstrated, very high gains from revision of the men's shoe- grading system, it is recommended that feasibility studies be initiated now to determine whether similar gains can be achieved by women's 3.nd children's shoe manufacturers. If such gains are shown to be possible, then last-grading research programs like the present men's last-grading study should be initiated for women's and children's shoe- grading systems. WRP:all 2 3 < I 117 and 1 18 If || 2 " S " 119 and 120 11 I S.-S s 1 : 3 6 2 s S E 2 ° 3 E^ A-l APPENDIX A GLOSSARY Area of Fit Coverage. An area on a length-girth graph representing the range of feet that can be fit by a shoe of a certain length and girth. Used to measure the fit standard of a grading system. Area of Effective Fit Coverage . An area on a length-girth graph representing the range of feet that (1) can be fit by a shoe of a certain length and girth, and (2) can be fit better by that shoe than by any other in the same grading system. Used to mea- sure the fitting efficiency of a grading system. Arithmetic System. The present grading system. The term "Arithmetic" is derived from this system's use of constant-fraction differences in defining consecutive sizes and widths, in contrast to other systems' use of geometric points. This system features one- sixth-inch length differences and one- eighth-inch girth differ- ences between consecutive sizes in the same width, and (usually) one -fourth- inch differences between consecutive widths. DFC (Dynamic Fitting Concept). A last-grading system, designed by Genesco, intended primarily to provide good fit with a reduced tariff. Features include geometric point grading; seven points in length and five points in girth from one size to the next in the same width; nine points between widths in the same size; and the heel engineered for Geometric machinery. Dynametric. New grading systems designed to combine the best features of DFC and the Geometric System with reduced costs for changeover from the present Arithme- tic System. Features of both Dynametric systems include good fit with reduced tariff, consistency with all principles of geometric automation, and the ability to use many of today's lasts through a two- stage changeover program. Dynametric I will ultimately feature five points in length and girth between consecu- tive sizes in the same width, and twelve or thirteen points between widths. During the changeover period, present lasts of some widths can be used with Dynametric I. Dynametric II will ultimately feature eight points in length and girth between conse- cutive sizes in the same width and eight points between widths; during the change- over period, present lasts of some sizes can be used with Dynametric II. Fit. In the broader sense: Consumer satisfaction with a shoe (see Figure 1 ) ; in the narrower sense used throughout most of the section on Fit: Closeness to ideal shoe length-girth combination for a foot, with any given set of other fit conditions (shape, etc. ). Fit Tolerance Ellipse. The actual area of fit coverage of a shoe of a certain length and girth, according to research and practical evidence. A-2 geometric (small g). A set of design principles for lasts and last grading intended to facilitate automation of shoe manufacturing. Key principles include proportionality within each width (proportional grade); geometric point grading; a positioning plate; certain engineered standard planes and axes; and a diagonal heel. Geometric (capital G). A last-grading system designed by United Shoe Machinery Corporation, intended to incorporate geometric principles in the present system of lengths and girths. Geometric Points . A method for defining measurement differences between lasts or shoes in a way that facilitates automation. Points are defined in such a way that the difference in length or girth between one size (or width) and the next is proportional to the dimension of the smaller size, making larger sizes slightly farther apart than smaller sizes. Girth. The distance around a last or foot, measured at the toe joint (technically, "ball ""girth"). Grade Rate. The proportional relationship between (1) girth difference and (2) length difference, from one size to the next in the same width. Length. Overall end-to-end length of a last, or the inside of a shoe. Positioning Plate. A metal fixture so located on the heel top of a last that, if the last incorporates engineered geometric features, the location of other points on the last relative to that of the positioning plate is defined by the size and width of the last. The last is attached to automatic geometric machinery with the positioning plate. Proportional Grade. (Technically, "proportional grade rate". ) A grade rate defined such that every last in a given width has the same proportional relationship between length and girth measurements. Approximately the same as the present Arithmetic grade rate. Reduced Grade. (Technically, "reduced grade rate". ) A grade rate defined such that within each width larger- sized shoes have a lower girth-to-length proportion than smaller- sized shoes. Size. A particular shoe length designated by a code number, For example, 8-1/2. Size-Width. A shoe of a particular coded size and width. For example, 8- 1 /2D. Size-Width Diagonal. A line on a length-girth graph connecting several size-widths. Each size-width on a given diagonal is one-half size longer and one width narrower than the next one. Tariff. A certain set of size-widths offered by a shoe manufacturer or retailer. A- 3 and A- 4 Width. A code method for representing shoe girth by letter. For example, D width. Each width letter indicates a larger girth in longer- sized shoes than in shorter- sized shoes. B-l USM ESTIMATE OF NET ECONOMIC BENEFIT TO TYPICAL MEN'S SHOE MANUFACTURER FROM PRESENTLY AVAILABLE GEOMETRIC HEEL MACHINERY Comparison of Estimated Costs for Attach-Trim-Scour Combination in Present and Geometric Systems The estimated comparative costs given in Table B-l indicate the following savings for the Geometric Attach-Trim combination over the present Attach-Trim-First Scour Method for a factory producing 2400 pairs daily and working at approximately 80 per- cent of capacity: Savings Per Systems Compared Pair, $ Geometric lease versus present lease 0.016 Geometric lease versus present sale 0.008 These costs were derived on the basis of the assumptions described below. Labor Productions under the present method are averages for a men's volume-grade welt factory. The Geometric production of 1300 pairs for Attach-Trim combination was obtained from time studies taken at a similar-type factory. It is assumed that the trimming operation will be acceptable as a replacement for the present first-scour operation. Labor rates for the present method are average class wages. A reduced class wage has been used for the Geometric combination because of the lower skill requirements . An estimated cost for casing heels has been added to a stockfitting-room opera- tion for properly inserting heels in the box for the Geometric heeler. Machine Charges The present unit charges and rentals used are rates currently in existence for a majority of outstanding lease machines. All machine charges have been eliminated from the present sale conditions. Geometric -machine charges have been furnished by the Terms Department. Last Cost. Based on a staple-style last with an estimated additional $l-per- pair cost for Geometric fittings and an average last usage of 200 turns. Trim Blades. Are the latest estimates received from trials. B-2 Cripples. Information received from shoe manufacturers indicates an extra cost of 1/3^ per pair for the present method. No damages are assumed to incur from the Geometric System. Nailing Device, Cutters and Papers. Data received from manufacturing contacts and United personnel. Comparative Costs Using Geometric Lasts at Various Productions Compared with the present lease and sale HLA-B - UHT - UHS-AA costs, the present and Geometric combinations indicate a breakeven for the Geometric System when the following amount of Geometric lasts can be put into a 2400-pair factory on a daily basis: Combination Present and Geometric lease Present sale and Geometric lease Compared With G eometric Input, pairs( a ) Present lease Present sale 430 570 (a) Geometric input indicates the manufacturer must have a sufficient inventory of lasts in stock to continually maintain the above daily productions for the Geometric equipment. Savings indicated are based on a specific situation and must be adjusted when a new factory production is used. B-3 TABLE B-l. COMPARISON OF ESTIMATED COSTS FOR PRESENT (ATTACH-TRIM-SCOUR) AND GEOMETRIC (ATTACH-TRIM) METHODS(a) Cost Per 100 Pairs, $ Present Geometric Sale Labor Method Estimated 8-Hour Production, pairs Assumed Weekly Wage, Attach heels Trim heels Scour heels (first scour) Attach and trim heels Added cost to case heels HLA-B UHT UHS-AA GHA and UGHT Hand 1200 1800 2000 1300 90.00 90.00 80.00 80.00 Estimated Total Labor Fringe Benefits at 20% 1. 500 1.000 0.900 3.400 0.680 1. 500 1.000 0. 900 3.400 0.680 1.231 1.231 0.150 0.150 1.381 1.381 0.276 0.276 Unit Charge HAL-B at 0.00425 UHT at 0. 0009 GHA at 0.005 UGHT at 0.005 0.425 0.090 0. 500 0. 500 Initial Payment (Estimated monthly production: 38, 400) 2 GHA at $825 = $1650 * 60 months = $27. 50 2 UGHT at $750 = $1500 * 60 months = $25.00 0. 072 0.065 Rental 2 HLA-B at $52.00 = $104.00 2 UHT at $14.25 = $28. 50 2 UHS-AA at $11. 75 = $23. 50 2 GHA at $60.75 = $121. 50 2 UGHT at $50. 00 = $100. 00 0.271 0.074 0.061 0.316 0.260 Sale (All commercial machines assumed written off) 2 GHA at $13, 000 = $26, 000 + 60 months = $433. 33 2 UGHT at $10, 750 = $21, 500 * 60 months = $358. 33 Credit salvage value (Charge to present sale machine HLA-B: 0.088; UHT: 0. 022; UHS-AA: 0.018) Total Machine Charges 0. 128 0.921 0.128 1.713 1. 128 0.933 Miscellaneous Last cost: Geometric estimate additional estimate $1 pr added cost at 200 pr turn Trim blades: Geometric 100 pr at 15«f/pr HLA-B nailing device: Estimated 500,000 pr at $824 Cripples: 6 pr at 18«f/pr * 2 hr at $1 . 50/hr = 4. 08 * 1200 pr Heel and rand cutters: Estimated 20, 000 pr at $13. 20 Heel-scour paper (40-grit): First-Scour Combination - Cloth and flat paper at $4.43/25-yd roll (900-in. /roll) (19-in. /strip; 6-in. wheel). Average of 47 strips at 240 pr/strip (240 x 47) = 11, 280 pr at $4.43/roll Total Miscellaneous TOTAL COSTS Savings for Geometric (Per 100 pairs) Lease Versus Lease Lease Versus Sale Sale Versus Lease Sale Versus Sale -- -- 0. 500 0. 500 -- -- 0.150 0. 150 0. 165 0. 165 -- -- 0.340 0.340 -- -- 0.066 0.066 -- -- 0.039 0.039 0. 610 0.610 0.650 0.650 5.611 4.818 4.020 1.591 0.798 4. 368 1.243 0.450 (a) Averages for a men's volume-grade welt factory, based on a production of 2400 pairs per day. B-4 TABLE B-2. SALVAGE VALUE OF AVERAGE-AGE PURCHASED MACHINES BASED ON PRESENT WORTH< a ) HLA-B Sale (1) Cost of purchased machine at 22 years (Present worth: $2021.28) (2) 2 HLA-B at $2021. 28 = $4042. 56 (3) $4042. 56 at 10% = $404. 26 * 460, 800 = 0. 088 UHT Sale (1) Cost of purchased machine at 24 years (Present worth: $496.80) (2) 2 UHT at $496. 80 = $993. 60 (3) $993. 60 at 10% = $99. 36 * 460, 800 = $0. 022 UHS-AA Sale (1) Cost of purchased machine at 1 1 years (Present worth: $413. 10) (2) 2 UHS-AA at $413. 10 = $826. 20 (3) $826. 20 x 10% = $82. 62 * 460, 800 = $0. 018 (a) Factory production is 460, 800 pairs per year. B-5 and B-6 1 < to X 3 i *- <» t lJ UJ I Zj to => < < i ^> UJ 1 ^_^ _l 00 < T *— * _J 3 k. x p. 8 o tO u tO 8 3 c > *■— ■ ' < c < o> 10 tO 0> I w 0. 1 K I i / J 3 / op / / ^l / 1 -J / / X J ' / , * / / (O / / O / / O / / «_ / c / 0) / in / 0) / i. r Q. .*>/ / w # «> / •*~ f o / Ql 1 Ml .01 / o/ KD f 4) / W '*/l »* c/ c Oil 0) j Z> 1 l 27 t£l / / 8 CO CJ O i— i H U 8 Q C\J O Oh CO o — « o E D o> O •>— p— i >. Ctf to < o > 8 s? H — s <# or a <\> o o £ 0) _ *" CO 4= T3 0) D O k. 3 fn c O • r-4 O 0T 8 c CO H u o CO t3 o O O 3 U a, O 8 - > f^ 1— 1 H +-> u <1 rtJ rt <-H < 0) o o & y m 2 o 3 w en 8 o 8 o 8 S o o s U i H Pi o I— I sjD||op *SJ!0d 001 i9d * s °0 C-l APPENDIX C METHODOLOGY AND SOURCES Methodology The research on last grading was performed in three phases as shown in Fig- ure C-l : (1) An initial series of visits to gather information and suggestions from key industry personnel and experts and to establish sources of further information (2) A period of intensive analysis, gathering of further information as needed, and framing of preliminary conclusions (3) A second series of contacts with industry to test preliminary conclu- sions and develop final conclusions. During Phase (1) and the early stages of Phase (2), the framework for analysis shown in Figure C-2 was developed. In line with this framework, the analytical re- search included the following major steps: (1 (2 (3 (4 (5 (6 (7 (8 (9 The ana Development of a test for fit Testing of the proposed grading systems on fit Examination of systems passing the fit test with respect to business factors Development of new grading systems, based on results of tests of proposed systems Testing of new systems on fit Examination of new systems passing fit test with respect to business factors Ranking of all grading systems Selection of best grading system Development of recommendations to shoe industry. yses performed during these steps are described in the body of the report. C-2 W co < Pn W CO N o co C •rH rt O •rH < 2 o to rt rd en 3 - 3 u a o u rt CO Sh o u o £ to 0) 0) CU Dh < •^ en Jf5 > cu 1 — 1 0) « TO GO -^ D rd 4J r->H •H Q< CD rd +-> Sh s3 m a o > u a O Dh a> u rd rt 03 G MH a CtJ rt •rH MH CD 4-J ^D rd * 4H [5 CU 01 i— i >< o MH u [3 r-H nJ CU •rH > <+H a! > CO > Dh a .2 « cu > cu u CU 0) o > o CJ rd Un cu Dh Q D^ Dh U w u PJ r\i ro •* in sO r~ w co < ft CO G O 2 o £ CO 3 r-H CU o )H H fl a O < cu 4-3 rd o Dh £ s^ CU u O rd • rH CO a S3 i — i Cd > In rH 0) r-H w M 0) +-> rH cu +-> CO cu i — i cu • H a N CJ rt m cu >H Dh CU cu co Dh Sh _] O (0 co d o s Dh «> cu Dh < CD 3 a 4-> 4H £ > rd O co rd rd < cu Q > (H Q <— 1 CM ro ■* m u < w co W Dh O co W co < Oh U w o w co < Oh s cu cj o !h « CU h a S a O r— 1 o u H MH < o CO fl CO s +-> o Ih CU D^ CU o U o a cu CO cu rd (xh +-> > rt CJ r^ r-H JH cci Dh -t-> U cu X cu cu O CO rd MH S3 CO H-> D^ W cu Q rt cd CO cd cu rt crj a u cu Dh < CO cu o rrt co CO cti u 4J CO rd cu +-> •rH ID D H r-1 h C-3 co O H U < CO CO W 55 i— i CO H i—i CO W H CO >H CO en CD 4-> 6 ,£> e- nj ii ■!-> +-> ,r! CO OS) w £ V !>. ■ H X> to OJO H C S a! >^ 05 CO ^ d> U .H 5 2 | o CO «H c o +-> a to § a o o CO I— I CO < o O W < i u w o C-4 Sources Sources of information for the last-grading study included general and detailed technical and economic literature, and personal visits and contacts with shoe execu- tives, last manufacturers, fit experts, inventory managers, and trade-association personnel. These sources are listed below. I. Literature A. General Industry Information: Financial, Inventory, and Cost Data (1) Watson, M. A., Economics of Cattlehide Tanning, The Rumpf Publishing Company (1950). (2 (3 (4 (5 (6 (7 (8 (9 (10 (11 (12 (13 (14 Hansen, H. L. , A Study of Competition and Management in the Shoe Industry, National Footwear Manufacturers Association (1959). Mack, R. P., Consumption and Business Fluctuations: A Case Study of the Shoe, Leather, Hide Sequence, National Bureau of Economic Research, Washington (1956). Cohen, K. J. , Computer Models of the Shoe, Leather, Hide Sequence, Prentice-Hall, Inc. (I960). NFMA Annual Facts and Figures on Footwear, National Footwear Manufac- turers Association. "How Modern Shoes Are Made", United Shoe Machinery Corporation, Boston. Footwear News Annual Fact Books, Fairchild News Service, New York. A Study of Consumer Attitudes Toward Shoes, Elmo Roper & Associates (1965). "Merchandise Analysis of the Roper Consumer Study", Perry Meyers, Inc. , New York (October 1965). "Appraisal of the Footwear Market and Recommendations for Consumer Research", Perry Meyers, Inc., New York. Conklin, G. H. , "The Shoe Industry", Financial Analysts Journal, March- April 1965. Olsen, I. M. , "The 1961 Shoe Market", National Footwear Manufacturers Association, New York. "Indexes of Output per Man-Hour — Footwear Industry", U. S. Department of Labor, Bureau of Labor Statistics (July 1965). "Leather and Shoes", Standard and Poor's Industry Surveys (June 1965). C-5 (15) "To Modernize or Move", John L. Schwab and James B. O'Brien, Technical Journal of the National Footwear Manufacturers Association (January 1964). (16) "Take a Giant Step", Barron's, January 31, 1966. (17) "Shoediction", National Footwear Manufacturers Association, New York. (18) "How a Stitch in Time Saved EJ", Printers' Ink, December 24, 1965. (19) "Front-Runner in the Foot Race", Forbes, January 15, 1963. (20) "One Step Back. .. ", Forbes, November 15, 1963. (21) "Annual Surveys of Family Shoe Store Operations", Footwear News, Fairchild News Service, New York. (22) "What Is A Shoe Chain? ", Boot and Shoe Recorder, ]_63 (11), May 1 , 1963. (23) "Weiss Sees A 'New' Independent", Boot and Shoe Recorder, 163 (11), May 1, 1963. (24) "Top 75 Shoe Chains", Roberts, Irving, Boot and Shoe Recorder, 167 (11), May 1, 1965. (25) "What Is An Independent?", Boot and Shoe Recorder, 165 (1), December 1, 1963. (26) "National Brands Directory Issue", Boot and Shoe Recorder, 168 (3), July 1, 1965. (27) "Men's Service Shoes", Boot and Shoe Recorder, 164 (9), October 1, 1963. (28) "Mature Men's Dress Shoes", Boot and Shoe Recorder, 164 (9), October 1, 1963. (29) "Young Men's Dress Shoes", Boot and Shoe Recorder, 164 (9), October 1, 1963. (30) "Men's Casual and Sport Shoes", Boot and Shoe Recorder, 164 (9), October 1, 1963. (31) "Inside Look at Department Store Shoe Business", Boot and Shoe Recorder, 165 (7), March 1, 1964. (32) "The Men's Shoe Departments", Boot and Shoe Recorder, 165 (7), March 1, 1964. (33) "The Role of the Shoe Merchandise Manager", Boot and Shoe Recorder, 165 (7). (34) "Lease ?... or Self-Operate ? ", Boot and Shoe Recorder, 165(7), March 1, 1964. C-6 (35) "California - Here We Come", Boot and Shoe Recorder, 166 (7), September 1, 1964. (36) "Double Sell Your Inventory", Boot and Shoe Recorder, 166 (3), July 1, 1964. (37) "Leased Shoe Departments — Today and Tomorrow", Boot and Shoe Recorder, 167 (1), December 1, 1964. (38) "Executive Round-Up", Boot and Shoe Recorder, 167 (1), December 1, 1964. (39) "Dynamic Role of National Brands", Boot and Shoe Recorder, 163 (7), March 1, 1963. (40) "Data Processing for Smaller Retailers", Boot and Shoe Recorder, 166 (11), November 1, 1964. (41) "A Fresh Approach to Turnover", Boot and Shoe Recorder, 166 (11) November 1, 1964. (42) Annual Reports (1960-1965) of all publicly owned shoe -manufacturing companies. B. Foot Measurement & Health, Lasts, and Last-Grading (1) Foot Dimensions of Soldiers, U. S. Army, Armored Medical Research Laboratory, Fort Knox, Kentucky (1946). (2) Dowlen, R. P. , A Bibliography on Measurement of the Human Foot with Special Emphasis on Children's Feet, U. S. Department of Agriculture, Clothing and Housing Research Division. (3) "What's A Podiatrist?", Boot and Shoe Recorder, 166 (6), August 15, 1964. (4) Podometrics — A New Dimensional Approach to Lasts, Shoes, and Feet, William A. Rossi, Hide and Leather Publishing Company, Chicago (1947). (5) Rossi, W. A. , "Functional Footwear", University of Rochester Medical Research Laboratory, Rochester, New York. (6) "The Dramatic Story of Guide Step Shoes", William A. Rossi, Leather & Shoes, March 29, April 5, and April 12, 1952. (7) "What Shoe Retailers Think of Foot Doctors", Boot and Shoe Recorder, 1_66 (6), August 15, 1964. (8) "What Foot Doctors Think of Shoe Retailers", Boot and Shoe Recorder, 166 (6), August 15, 1964. (9) "Government-Trained Prescription Shoe Fitters", Boot and Shoe Recorder, 166 (4), July 15, 1964. C-7 (10) "Why Most Shoes Don't Fit Correctly", Boot and Shoe Recorder, 168 (8), September 15, 1965. (11) "He Fits Mis-Mated Feet", Boot and Shoe Recorder, 163(7), March 1, 1963. (12) "Best-Selling Adult Shoe Sizes", Boot and Shoe Recorder, 166 (11) November 1, 1 964. (13) "Specialize - And Succeed", Boot and Shoe Recorder, 165 (8), March 15, 1964. (14) "Profit in Hard-to-Fit Feet", Boot and Shoe Recorder, 165 (8), March 15, 1964. (15) "NFMA Study of Shoe Sizes", National Footwear Manufacturers Association, New York (1964). (16) "The Story of Lasts", National Footwear Manufacturers Association. New York. (17) "The Last: Dominant Influence in Fashion", Boot and Shoe Recorder, 164 (6), August 15, 1963. (18) "The Last: Dominant Influence in Fit", Boot and Shoe Recorder, 164 (6), August 15, 1963. (19) Application of Foot Measurements in the Development of Last Systems, C; W. Mann and W. B. Zacharias (U. S. Army, Office of the Quartermaster General, Department of Commerce, Office of Technical Services (1952). (20) "Development of a Precision Last-Grading System", internal research report of Genesco, Inc., Nashville, Tennessee. (21) "DFC Technical Manual", Genesco, Central Technical Services Department, Nashville, Tennessee (1964). (22) "A New Shoe-Sizing System" (DFC), Boot and Shoe Recorder, October 15, 1964. (23) "One-Part Geometric Last System", United Shoe Machinery Corporation, Boston (1959). (24) "One-Part Geometric Last Making Procedure", United Shoe Machinery Corporation, Research Division, Beverly, Massachusetts (1964). (25) "Grow with Geometric Now", United Shoe Machinery Corporation, Boston. (26) "Geometric Last", Boot and Shoe Recorder, 165 (2), December 15, 1963. (27) "Unified Last and Shoe Grading System", internal research report of United Shoe Machinery Corporation, Research Division, Beverly, Massachusetts. C-8 (28) "Determination of the Optimum Grade Rate", internal research report of United Shoe Machinery Corporation, Research Division, Beverly, Massachusetts (1965). (29) Ripley, D. E. , "The Geometric Last", A set of four articles, to be published. (30) "Better Fit for More Feet Through Research", Iver M. Olson, Technical Journal of the National Footwear Manufacturers Association (January 1966). (31) "Investigation of Shoe and Foot Volumes to Establish a Reduced Shoe Size Tariff", Milton Bailey, Technical Journal of the National Footwear Manu- facturers Association (January 1966). (32) Minutes of Meetings of Last Standardization Committee of New England Shoe & Leather Association, 1964 and 1965. (33) Ripley, D. E. , "What the British Are Doing About Last Fitting and Grading", American Shoemaking (July 7, 1965). (34) Manning, J. R. , "Tolerances in Fitting Shoes", Proceedings of the First In- ternational Conference on Operational Research (Oxford, 1957), Davies, et al. (editors), Operations Research Society of America, Baltimore (1957), p 335. (35) "Size Standardization — Europoint", J. R. Manning, Journal of the British Boot and Shoe Institution (December 1965). (36) "Europoint Could be the Answer to the Footfitters' Prayers", The Shoe and Leather News, February 3, 1966. II. Personal Contacts A. Trade Associations (1) Last Manufacturers Association (2) New England Shoe and Leather Association (3) National Footwear Manufacturers Association B. Shoe Manufacturers (1) Bata International (2) Brown Shoe Company (3) Commonwealth Shoe & Leather Company (4) Endicott Johnson Corporation (5) Genesco, Incorporated (6) Green Shoe Manufacturing Company C-9 and C-10 (7) The Hanover Shoe, Incorporated (8) International Shoe Company (9) McElwain (J. F. ) Company (10) Plymouth Shoe Company (11) Sandler (A. ) Shoe Company (12) Shoe Corporation of America (13) United States Shoe Corporation C. Last Manufacturers (1) Jones & Vining Last Company (2) Mears (Division of United Shoe Machinery Corporation) (3) Mobbs & Lewis (England) (4) Sterling Last Corporation (5) Vulcan Corporation (6) Woodard & Wright Last Company (Division of Vulcan Corporation) P. Others (1) United Shoe Machinery Corporation (2) U. S. Army Footwear Research (3) University of Rochester Myodynamics Laboratory (4) American Podiatry Association Council on Footwear (5) Boot and Shoe Workers Union (6) Boot and Shoe Recorder ( < •U.S. GOVERNMENT PRINTING OFFICE: 1966 — 251-022/50 PENN STATE UNIVERSITY LIBRARIES mi mi mi ADDDD7DTM20TS