Footwear manufacturing has evolved into a rather uncomplicated process, and the technology is well understood. At present, no company has proprietary know-how that translates into manufacturing advantage. The production process consists of cutting fabrics and materials to conform to size and design patterns, stitching the various pieces of the shoe top together and adding the eyelets, molding and gluing the shoe soles, binding the shoe top to the sole, and inserting the innersoles and laces. Tasks are divided among production workers in such a manner that it is easy to measure individual worker output and thus create incentive compensation tied to piecework. Labor productivity is determined more by worker dexterity and effort than by machine speed; this is why piecework incentives can induce greater output per worker. On the other hand, there is ample room for worker error; unless workers pay careful attention to detail, the quality of workmanship suffers. Training production workers in the use of best practice procedures at each step of the manufacturing process has recently become important to minimizing the reject rates on pairs produced.
Footwear producers carry no inventories of standard and superior materials because suppliers have the capability to make daily deliveries. Plant managers customarily provide suppliers with production schedules one week in advance to enable them to deliver the materials needed for each day's work shift.
Footwear industry observers expect companies to take a hard look at the economics of producing a bigger fraction of athletic shoes in Asian-Pacific and Latin American countries where trainable supplies of low-wage labor are readily availabletake a hard look at the economics of producing a bigger fraction of athletic shoes in Asian-Pacific and Latin American countries where trainable supplies of low-wage labor are readily available. Compensation levels for Asian-Pacific and Latin American workers currently run about 20% of annual compensation levels in Europe/Africa and North America. However, worker productivity levels at different plants can vary substantially because of the overall experience of the work force, the use of different incentive compensation plans, the degree of emphasis placed on best practices training, and the use of upgraded footwear-making equipment. All workers worldwide are paid 1.5 times their regular base wage for working overtime (more than 40 hours per week).
But locating most of the company's production in Asia-Pacific and/or Latin America has two potentially significant disadvantages. Tariffs have to be paid on footwear exported from Asia-Pacific plants to markets in Latin America ($6 per pair) and Europe/Africa ($4 per pair); likewise, tariffs have to be paid on footwear exports from Latin American plants to markets in Europe/Africa ($4 per pair) and the Asia-Pacific ($8 per pair). It is uncertain whether tariffs in future years will rise or fall and by how much. Also, all companies are subject to unfavorable year-to-year exchange rate fluctuations in shipping footwear from one region to another (as discussed below). One way to guard against adverse changes in tariffs and exchange rates is to maintain a production base in each of the four geographic regions and rely upon those plants to satisfy demand for the company's branded footwear in their respective region. It remains to be seen how companies will weigh the pros and cons of locating plant capacity in one region versus another.
Footwear manufacturing has evolved into a rather uncomplicated process, and the technology is well understood. At present, no company has proprietary know-how that translates into manufacturing advantage. The production process consists of cutting fabrics and materials to conform to size and design patterns, stitching the various pieces of the shoe top together and adding the eyelets, molding and gluing the shoe soles, binding the shoe top to the sole, and inserting the innersoles and laces. Tasks are divided among production workers in such a manner that it is easy to measure individual worker output and thus create incentive compensation tied to piecework. Labor productivity is determined more by worker dexterity and effort than by machine speed; this is why piecework incentives can induce greater output per worker. On the other hand, there is ample room for worker error; unless workers pay careful attention to detail, the quality of workmanship suffers. Training production workers in the use of best practice procedures at each step of the manufacturing process has recently become important to minimizing the reject rates on pairs produced.
Footwear producers carry no inventories of standard and superior materials because suppliers have the capability to make daily deliveries. Plant managers customarily provide suppliers with production schedules one week in advance to enable them to deliver the materials needed for each day's work shift.
Footwear industry observers expect companies to take a hard look at the economics of producing a bigger fraction of athletic shoes in Asian-Pacific and Latin American countries where trainable supplies of low-wage labor are readily availabletake a hard look at the economics of producing a bigger fraction of athletic shoes in Asian-Pacific and Latin American countries where trainable supplies of low-wage labor are readily available. Compensation levels for Asian-Pacific and Latin American workers currently run about 20% of annual compensation levels in Europe/Africa and North America. However, worker productivity levels at different plants can vary substantially because of the overall experience of the work force, the use of different incentive compensation plans, the degree of emphasis placed on best practices training, and the use of upgraded footwear-making equipment. All workers worldwide are paid 1.5 times their regular base wage for working overtime (more than 40 hours per week).
But locating most of the company's production in Asia-Pacific and/or Latin America has two potentially significant disadvantages. Tariffs have to be paid on footwear exported from Asia-Pacific plants to markets in Latin America ($6 per pair) and Europe/Africa ($4 per pair); likewise, tariffs have to be paid on footwear exports from Latin American plants to markets in Europe/Africa ($4 per pair) and the Asia-Pacific ($8 per pair). It is uncertain whether tariffs in future years will rise or fall and by how much. Also, all companies are subject to unfavorable year-to-year exchange rate fluctuations in shipping footwear from one region to another (as discussed below). One way to guard against adverse changes in tariffs and exchange rates is to maintain a production base in each of the four geographic regions and rely upon those plants to satisfy demand for the company's branded footwear in their respective region. It remains to be seen how companies will weigh the pros and cons of locating plant capacity in one region versus another.
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