LATE DELIVERY OF CHIRSTMAS PRODUCT CHALLENGE Gull which is one of JOT’s suppliers in China stated that it is unable to deliver goods to JOT in the next three days as ordered.. This seve
Trang 2D TABLE OF CONTENTS
A INTRODUCTION 3
B LATE DELIVERY OF CHIRSTMAS PRODUCT 4
CHALLENGE 4
RECOMMENDATIONS: 5
C FAULT IN NEW SPACESHIP TOY 6
CHALLENGE 6
RECOMMENDATIONS 7
D NEAR – SHORING PROPOSAL IN VOLDANIA 8
CHALLENGE 8
RECOMMENDATIONS 8
D LAUNCH OF NEW RANGE TOYS FOR 9- 11 AGE GROUP: 10
BACKGROUND 10
PROPOSAL ANALYSIS 10
SUITABILITY ASSESSMENT 10
FEASIBILITY ASSESSMENT 11
RECOMMENDATIONS 11
E CONCLUSION 12
F APPENDICES 14
APPENDIX B 14
APPENDIX C 15
Trang 3A INTRODUCTION
JOT, established in 1998, is a company that produces electronic toys for Europe and the USA market By continuing to develop new product ranges, JOT positions itself as a quality electronic toys producer in the industry Currently, JOT has launched 5 new products each year JOT is a young company and it has planned to expand widely in the future In 2004, JOT started outsourcing all of its manufacturing to a wide range of manufacturers in China Consequently, JOT’s sales revenue exceeded €8 million by the end of 2010, and the company had achieved substantial sales revenue growth each year JOT has seen its sales revenue grow by 16% in the year ended 31 December
2010 and by almost 18% in the year to 31 December 2011
JOT has made a five-year plan that will aim at the following milestones by the end of 2016:
- Number of unit sales: 1,405,000 units
- Number of countries products to be sold in: 36
- Number of new products to be launched each year: 10
- Revenue: €19,260,000
- Gross profit: 33.6%
The following SWOT analysis highlights key attributes and opportunities JOT should leverage, threats to be mitigated and weaknesses to overcome
Focused on electronic & licensed toy
Powerful brand name
Well appealed toy features
"Cutting edge" of the technology
Large retailers and suppliers network
Fast growth revenue
Innovative in-house design team
Simple electronic toy
Strongly depend on sales to large retailers
Mainly depend on loan finance
Sophisticated logistics (JOT - manufacturer in China - warehouse in
EU & US - retailers over the world)
Trang 4 Fast growing market in electronic and
licensed toy
Potential market in Asian and Russia
More opportunities to reach a huge
world market
Sales of toys are highly seasonal
Sophistication of children is increasing all the time
Unessential shipment expenses from Asian manufacturer to JOT western warehouses and ship back to Asian retailers
The most critical challenge is the late delivery for Christmas as it disrupts the delivery of the product sold and damages relationships with regular main retailers and distributors Furthermore, JOT is urgent need of the goods to deliver to customers It has more severe financial consequences than fault in new spaceship toys, which is the second most critical challenge as it can easily damage the reputation and image which JOT has built for many years A new outsourced manufacturer in Voldania will affect costs and expenses in the long term Finally, launching of new range toys for 9- 11 age group is important, but not as pressing as the previous challenges
E LATE DELIVERY OF CHIRSTMAS PRODUCT
CHALLENGE
Gull which is one of JOT’s suppliers in China stated that it is unable to deliver goods to JOT in the next three days as ordered However, Gull said that it can supply JOT with 75% of the order (=1800 units) on time and the other 25% (=600 units) to be delivered
on 15 December (late 41 days) which is almost Christmas This severe late delivery has considerable financial consequences in the short term and in the long term damage
of JOT’s reputation
This late delivery will cost approximately €8400 in revenues which is equal to 0.17 % of sales value in quarter 4 This mistake can be worse since it is likely to happen again if JOT continues trading with this outsourced manufacturer The underlying reason can be indicated from the rumor that Gull has been expanding rapidly and it is difficult for them
to complete the order Moreover, this is the second time Gull has made this mistake; therefore, we can suppose that Gull can easily dispatch goods lately again and JOT does not pay much attention to the content of the contract with this outsourced
Trang 5manufacturer Suppose that this mistake repeats in the future, the table below illustrates that the late delivery will cause predicted revenue loss in the next coming years:
Table: Predicted revenue loss of JOT from 2011 to 2016 (Currency unit: Euro)
8400 10029.46 11378.51 12823.8 14600.28 16698.42
The delivery crisis will have long term consequences, negatively affect JOT’s reputation Toys which arrive more than one month late could result in the weak consumption of goods and disappointing customers’ expectation Furthermore, it also breaks the long lasting relationship between JOT and many retailers and distributors, which will affect JOT’s revenue a lot Therefore, going forward management should develop a course of action to ensure the reliability and effectiveness of the delivery systems
RECOMMENDATIONS:
To minimize the immediate loss both in sales revenue, JOT has three choices:
1 JOT will accept Gull’s offer which is deliver 75% on time and the other 25% in 15 December (41 days later) The goods received on time will be divided to main buyers in Europe (Eurozone countries), Europe (non-Eurozone countries) and the US For one thing, we will not disappoint our customers much The other 25% will be sold later to get the money back as toys can be gradually consumed without any defection
2 JOT will receive 75% of the goods on time and refuse to receive the rest as it is hard for retailers to sell the products when it is almost Christmas The goods received from Gull will be dispatched to main buyers in Europe and the US Besides, JOT could sue Gull for terminating the contract However, the success
of legal action depends much on the contents of the contract and whether the term for compensation is stated clearly or not Failed legal action would be costly and severely damage JOT’s relationship with Gull In the meantime, JOT may enter a short term delivery contract with an alternative distributor for some days
Trang 6period The source of distributor can be withdrawn easily from 20 off-shore manufacturing companies in China as JOT has built a good business relationship with these companies for a long time In addition, a contract of 600 units (25% contract) is not too big to be made up; therefore, JOT stands a golden chance of fulfilling the order not too late
3 JOT deserves the right to refuse the order and may sue Gull for terminating the contract However, this can easily damage the reputation and image of JOT since it can not deliver the goods to its customers on time The quantity and short term contract prevent JOT from completing their duty to customers Moreover, a short term contract may attract premium Another thing is that the time and cost for suing will take JOT another sum of money which makes the situation worse Success in sue depends much on the contents of the contract and failed legal action would be costly, cause negative media attention and damage JOT reputation for a long time
In the long term, JOT should look for another distributor replacing for Gull since late delivery can repeat in the future due to the expansion of Gull and its incapability to fulfill the order These can be the other 19 outsourced manufacture companies in China which JOT has trading with or the manufacturer in Voldania in Europe However, the bottom line here is that JOT should have clear terms and conditions in the contract in order to run the business smoothly and avoid unexpected mistakes
F FAULT IN NEW SPACESHIP TOY
CHALLENGE
Recently, Jot’s flying spaceship toy, a newly launched product for 2012 Christmas
season, has been reported fault by a number of customers and consumers The flying spaceship toy was greeted well by retailers at first Unfortunately, the insulation around the electrical circuitry was designed to be sufficiently fire and heat resistant for only 2 hours recharging, and some consumers usually left the toy plugged in for longer than the 2 hours required Jot’s revenue is highly seasonal, and sales in quarter 4 accounts
to namely 50% of annual sales Therefore, the problem will result in dramatically
declining profits and hurting Jot’s business relationship with its retailers in short term In
Trang 7long term, this will damage Jot’s reputation as a 'quality electronic toy' designer and manufacturer.(Appendices B1)
Moreover, the largest toy fair in Hong Kong, which toy retailers all over the world, will be
on January This is a chance to push up sales of new product If the fault is not repaired
in time, Jot’s transparent cost will be beyond measurable figures Thus, further actions
in both designing stage and sales policies should be made to improve the situation RECOMMENDATIONS
As JOT has sold out 7,200 units and the fault can be repaired for good, it should absorb the temporary sales as well as reputation lost and continue to develop the flying
spaceship product line The situation shows that JOT needs to enhance its product development process before penetrating further to the Europe and competitive USA market
To minimize the immediate loss in sales revenue and reputation, JOT has three options:
1 Pay another 10€ for improving the flying space ship toy JOT should also improve some aspects of the toy such as: the color, the longevity of battery, special decorative details…Then bring it to the January fair to be introduced as a second version of the previous one After that, JOT might contact its retailers and make update to second version available for only a small amount of money - we recommend a fee of 6€ here JOT’s retailers would get 3€ for each updated product Customers who have reported will get a full refund for each This solution seems to cost much, yet it could calm down the retailers, customers, and save JOT’s reputation (Appendix B2)
2 Alternatively, JOT could give another 10€ to improve the flying spaceship toy in
inventory, and give no concern to 7,200 sold out products However, this solution will heavily damage JOT’s business relationship with retailers and customers Sales might come down in the future JOT’s reputation could also be heavily damaged
3.The last option is for JOT to totally write off the product The remained products in inventory should be sold in the inferior market to minimize the cost With this solution,
Trang 8JOT give up its reputation, future sales and also opportunities to penetrate further to competitive EU and USA market
In long term, to make full use of competitive advantage in new product line, JOT has two options:
1 Indy Kaplia is to be blamed for the mistake, however, he still have many radical new designs to offer so JOT could keep him in JOT could find another specialized company for the manufacture and testing of the prototype products With Indy new toys and a more reliable testing company, JOT could avoid future problems and cost
2 If the current testing company that JOT hires continues to make mistakes in testing prototype products, JOT could consider creating its own testing department However, establishing a new department require much of financial capacity
Thus, JOT could follow the first solution of both short term and long term recommended solutions These solutions are costly, yet they secure the market share, sales and
competitive advantages of the company
G NEAR – SHORING PROPOSAL IN VOLDANIA
CHALLENGE
With wage rate increases in China, some companies have started considering near-shoring, which means outsourcing the near country to save cost and JOT is one of these companies In the board meeting, JOT board’s members has been considering near-shoring proposal in Voldania – a country in Eastern Europe JOT wants to outsource part of its manufacturing to Voldania, switching from China to Voldania Tani Grun, Finance and IT director of JOT had tried to investigate and find some valuable information to this proposal And we believe that this proposal should be accepted RECOMMENDATIONS
According to the financial information, there was a cost discrepancy between manufacturing in China and Voldania (appendix C.5) This number shows that JOT will increase their cost in the first year (€22600) but will save cost in next four years (€23000
in year 2, €61600 in year 3, €120600 in year 4 and €204600 in year 5) There is a huge
Trang 9amount of saving money, we use a graph to illustrate how JOT saves their money by showing a relationship between cost saving in five years and profit in year 2011
Otherwise, this proposal also has some risk and cost that we must consider more carefully, such as:
2 The cost for changing manufacturer: JOT doesn’t know much about manufacturer in Voldania, so JOT should have more investigation and find more information about new manufacturer, such as:
a Do products of manufacturer in Voldania have good quality?
b Are they a good partner? (It means how they run their business, how about their reputation?)
3 Environment in Voldania: this is a completely new country with JOT, so they should consider carefully about their regulation and law
4 JOT does not have much cash, they should have some solutions to finance in case they need to pay, such as:
a Borrow more over draft: The estimated increasing cost of the proposal is
€22600, approximately 4.52% of overdraft Therefore, JOT still can handle with it
b Push the customer to pay earlier to increase cash flow, on the other hands, increase cash
-50000
0 50000
100000
150000
200000
250000
300000
Profit year 2011
Cost save Y1
Cost save Y2
Cost save Y3
Cost save Y4
Cost save Y5
Compare cost saving with profit in year
2011
Trang 10c In its strategy, JOT is interested in expanding to Russia and Asia Therefore, JOT shows great favor in arranging the goods to be dispatched directly from distributor to customers instead of delivering the goods back
to Europe to save cost China indeed will be the ideal manufacturer for JOT instead of Voldania
D LAUNCH OF NEW RANGE TOYS FOR 9- 11 AGE GROUP:
BACKGROUND
Alana Lotz (Product Development Director) suggested that JOT should develop a new range of toys for the new market segment, 9-11 age groups She proposed that JOT should start with smart phone application Alana strongly believed that it is a potential market for JOT to take chance while Jon Grun (Managing Director) deeply suspected the success of this risky plan
PROPOSAL ANALYSIS
Evaluate information: Alana reached this idea through discussion in the previous toys fair Actually, this is not the largest and the most prestigious global toy fair which will be well organized each January Moreover, this toy fair just gathers toy manufacturing companies, not the buyers Hence, there are no persuasive evidences to conclude about the further future trend of toy sales or customer demand as well
SUITABILITY ASSESSMENT
JOT position: JOT's target consumers are 3-5 years old group and 5-8 years old group
JOT has also built a powerful brand name with high quality electronic toys in these target groups
Market trend: Current toy market trend is towards electronic toys and computer
assisted learning Obviously, JOT now catches the trend with inherent visible strong point known as electronic features
JOT has an own in-house design team which has no experience in creating a smart phone application Moreover, toys sold in the market to those children aged between 9 and 11 tend to be more sophisticated However, JOT's design team is accustomed to developing simple electronic products with basic movement, sound and light