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Challenges Faced by the Toy Industry's Supply Chain Management

Question:

Discuss how category management may contribute to the planning and control of different toy retailing supply chains.

Toy Industry is considered as the world’s oldest creative industries.  But the toy business is an extremely volatile business. It is seasonal in nature. The performance of the toy industry is different from other industries. The volatility in the toy industry is caused by the demands that are unpredictable in nature. The selling windows of the toys are very short and the life cycle of the products are very short. Thus it is known by the investors and the practitioners that the toy industry is far from tranquil. The toy industry incurs high costs on inventory which is obsolete, lost sales and mark down in comparison to other industries (Wong, Arlbjorn & Johansen, 2005). The volatile condition of the toy industry has resulted in high level of scepticism and ambiguity in forecasting the future sales. Thus the supply chain management of the toy industry is different from other forms of industry. Since the toy industry is a volatile industry, its performance is different from the less volatile industries (Wong, Arlbjorn & Johansen, 2005). Toys can be divided into various forms like the traditional form of toys like dolls, vehicles and there are new forms of toys like the video games. In the recent times it has been seen that the sales of the traditional toys has declined but the sales of the video games has increase tremendously. The supply chain in the toy industry consists of various components. They are the raw materials, suppliers, manufacturers of toys, distributers of toys and the sellers of toys. The consumers of toys purchase it from traditional channels such as departmental stores, supermarkets and the independent stores selling toys. The electronic channel of selling toys has not become significant. Category management is a new concept in the field of supply chain management. It is a concept of retailing and purchasing. In process the range of products that are purchased by the business organization are subdivided into discrete groups of related products. This is a systematic and disciplined approach in which a product can be managed as a strategic business unit. In the toy industry, category management will help in managing the entire process of the work efficiently (Jda.com, 2015). The business can be divided into several units and each business can be run as separate categories which can be run in an efficient manner. It makes the supply change process much simpler (Brien, 2012). It has altered the relationship between the retailer and the supplier. The traditional adverse relationship between the supplier and the retailer has improved as a result of category management (Graham, 2005) ; (PublishersWeekly.com, 2015).

The traditional system of supply chain was based on the push based strategy where the goods are produced by the manufacturer and they are passed on to the supply chain without receiving any feedback and information regarding the specifications. This resulted in adverse relationship between the supplier and the retailer. There were gaps noticed between the supplier and the retailer and led to the wastage of the products. The traditional system of supply chain management in the toy industry created an imbalance between the demand and supply of the raw materials and the finished goods. This resulted in rise of cost of the manufacturer. The volatile toy industry suffered from reduced profit margin.

Category Management and Its Advantages

The new supply chain is based on the pull strategy of supply chain. It is based on the accurate demands of the customers and proper feedback method. The supply chain management also receives feedback from the customers and the product can meet the demand of the customers. In the new system, supply chain is managed by the information technology. This makes the process simpler. This has helped to built strong network in the supply chain. The toy industry has been able to reduce the wastage of materials and improve their profit margin (Ray, 2015).

The traditional system of supply chain in the toy industry has not being able to implement the modern aspects of supply chain management like the implementation of the CPFR, RFID. The toy industry has failed to implement strategy that will automate the supply chain process. The process of supply chain has to be interactive and dynamic in nature. This will reduce the volatility of the supply chain in the toy industry (Graham, 2005). The toy industry faces relentless changes and the unpredictable buying public. This creates challenges in anticipating the sellers and the volume of sales. The toy industry suffers from ailments in the supply chain. Other concerns of the toy industry are the short life of the product, rapid turnover of the product and demand for the toys are seasonal in nature (Hbr.org, 2015). The major risks of the supply chain disruptions of the toy industry are limitations of the capacity. The constraint in the capacity has been a major problem in the supply chain management (Musa, 2012).

 8 step process of Category management in retail

Category management is the system of breaking down of a range of products into discrete groups of similar products known as product categories for the purpose of purchase or sell. Fackler (2012) opined that the system is adopted to make the retail purchasing process systematic and disciplined. The retail organizations are able to manage the product category as Strategic business units.

Developed by Partnering group, the 8 stage process of category management ensures the effectively management of the SBUs in the retail companies.

Stage 1: Defining of the category (stating the inclusion or exclusion of products)

Stage 2: Defining the role of the category within the retailer

Stage 3: Assessment of the current performance

Stage 4: Setting of selling objectives and targets for the category

Stage 5: Devising of an overall strategy

Stage 6: Devising of appropriate tactics

Stage 7: Implementation

Stage 8: Review of the whole process (Chi et al. 2013)

                                                                                    Figure 1: Stages of category management

                                                                                              (Source: Chi et al. 2013, pp 45)

New Supply Chain Strategies to Overcome Industry Challenges

Modern concepts of category management

The traditional category management is an old process and for the retailers to be successful in the new competitive retail segment the adoption of the new facets of category management should be implemented. The new stages of category management are namely category role and strategy, macro space allocation, financial budgeting, assortment planning, planogramming, price optimization, private brand development, promotion and joint business planning. Fowler & Goh (2012) opined that the concept of holistic category management focuses on building of customer centric strategies for the separate categories of products. The retail organizations are also focusing on establishment of robust and easily repeatable category strategy development process so that the same can be implemented on any future product category.O'Brien (2012) further added that the use of the demographic data to frame strategies have been effective in making customer centric strategies.

Chiplunkar (2011) stated that usage of effective category strategies will ensure benefits for the retail sector in overall terms as well as supply chain sector. The retail market is a highly expanding market and hence to increase the demand for the products the use of the category management strategies are helpful for the companies. O'Brien(2012) opined that category management helps in following ways namely

  • Reduction of purchase price
  • Reducing supply chain risk
  • Increased innovation in the supply chain process and commodity
  • Management of customer demands by preparing specific category strategies for the products
  • Integrated the suppliers in order of the type of products available from the suppliers which makes the management of the suppliers easier. For instance groping of suppliers supplying stationery, fuel and courier services under same group
  • Helps in managing and exploiting of changing business conditions
  • helps in savings of supply chain costs and improve the quality of service (Chiplunkar,2011)

This is a part of the category management and is a continuous process of evaluation of the purchasing activities of a company. The process determines the company’s current spending and makes assessment of the supply market.O'Brien (2012) added that the identification of the new suppliers for the products, negotiation with the suppliers and tracking of results are a part of this process.

                                                                               Figure 2: Strategic sourcing process

                                                                                     (Source: O'Brien, 2012, pp-94)

Customer and business requirements: The process analysis the market by conducting effective market research and integrates the customer requirements and business demands.

Spend analysis: The process makes historical usage analysis, supplier analysis, critical nature of products, transaction cost analysis and supplier positioning analysis.

Market analysis: The assessment of the market capability, cost analysis of supply chain, potential size of supply chain, relative positioning of the organization and analysis of individual market places helps the organizations to make effective decisions.

In order to understand the effectiveness of category management, the secondary researcher has been used. The category management has helped in changing the behavior of consumer which positively affects the demand and increases brand loyalty. According to the data of Toy directory Monthly, the Wal-Mart has earned major benefit from the category management which helped in increasing the sale of toys.

Toy Retail Company

Sales (2010)

Sales (2012)

Wal-Mart

27%

31%

ToysRus

16%

20%

Target

13%

18%

Kmart

8%

13%

Amazon

11%

16%

Others

22%

27%

Therefore, it can be viewed from the above table that due to concentrating on the category management, the sales of the company has increased. The companies were able to improve their sales as they were able to improve the logistics indicators such as decreased outstanding orders, decreasing stock inventories and decreasing stocks breaks. Therefore, it helped the toy retailing industry to gain better sales.

On the other hand, as per the report of Top500Guide.com, the online sales of children product that is toys have increased significantly.

Toys E-retailers

Rank

2010 online sales ($)

2012 online sales ($)

Toys R Us Inc.

30

782000000

1100000000

Zulily Inc.

77

18000000

331000000

The Children’s Place Stores

112

143600000

215000000

The Mini Social

933

2321636

3343156

Albee Baby

497

13000000

18768388

Chelsea & Scott Ltd.

306

43111064

46305000

CookieKids.com

549

4224240

15500000

BabyAge.com

320

38000000

43870000

Steals.com

550

10000000

15400000

Baby Earth

703

5197857

9000000

Children’s Wear Digest

546

13350000

15673523

Tea Collection

548

9500000

156000000

Therefore, it can be analyzed that, online retailer of children products were able to increase their online sales that helped in increasing their profit. The companies are better able to understand the buying patterns of the customers and needs of the children (Cpgcatnet.org, 2015). Therefore, many e-retailer companies are successful in generating high revenue.

Toys E-retailers

Rank

2012 monthly visits

2012 monthly unique visitors

Toys R Us Inc.

30

37000000

12163838

Zulily Inc.

77

9000000

6901085

The Children’s Place Stores

112

6400000

2227767

The Mini Social

933

105000

32000

Albee Baby

497

297911

194777

Chelsea & Scott Ltd.

306

1100000

500000

CookieKids.com

549

417978

286249

BabyAge.com

320

550000

400000

Steals.com

550

2700000

800000

Baby Earth

703

250000

200000

Children’s Wear Digest

546

200000

69326

Tea Collection

548

300000

150000

According to the above findings, the visitors or consumers are more interested to buy goods from online store. It is clear that for each e-retailer company, the unique visitor is high and this was possible due to implementation of category management.

Apart from that, according to the report of John Atwill of EDA, it was seen that the company Energizer gained huge benefit in the year of 2013 due to category management. The company was able to increase its share on its categories of toys, battery and torch. Due to the incorporation of category management and innovative point of sale design, the company was able to increase their market shares from 61% to 78% (Toynews-online.biz, 2015).

On the other hand, as per the survey of ECSIP Consortium, the sales of toys and games in UK have been impressive.

Toys and Games

2011

Games and Puzzles

12%

Infant and Pre-school toys

12%

Construction toys

11%

Dolls and Accessories

8%

Outdoor and Sports Toys

48%

The sales of different toys have been great as many toys retail chain followed category management which helped the customers to segment the desirable toys. On the other hand, the prices of the toys were reasonable and affordable. Therefore, it helped in increasing the customer attention and satisfaction.

Apart from that, as per the report of Toy and Industry, it has been found that many toy retail chains such as Hamleys, Red5, John Adams Toys, etc are not following category management and because of that UK is way down at number 6th position in context to specialized toy retailers.

Country

Number of Specialized toy Retailers

Germany

3742

Italy

3670

France

1691

Poland

1069

Netherlands

881

United kingdom

546

Belgium

508

The category management has increased the performance of retailers and manufactures in supplying the products to large number of consumers (Ecsipconsortium.org, 2015). The toy retail chain has improved and due to that toy retail companies are able to engage better profit margin and sales which is helping in increasing their market share and brand value along with customer base. In UK, the different toy retail companies are able to increase their annual turnover.

Toys E-retailers

Rank

The Entertainer

23%

Toymaster

20%

Smyths

26%

ToyTown

17%

Toy Galaxy

20%

Kiddicare

29%

Therefore, it can be analyzed from the above table that different toys retail companies are able to improve their growth rate due to employing category management and it improved their supply chain and logistics and many consumers were able to receive their expected products on time (Zaroban, 2015). Thus, it can be observed from whole research that category management not only helps in providing quality and superior service but also helps in maintaining healthy relationship among retailers and suppliers. 

Conclusion

The use of the category management process by the leading toy selling retail outlets of UK namely Wal mart, Amazon and Hamleys have helped the companies to manage the supply chain process effectively by selecting the appropriate suppliers for the product categories. The companies have also been able to show cost reduction in the supply chain process and improve the quality of the system. The allocation of the categories and appointment of separate managers for the allocated categories have also helped companies like Walt Disney to develop the toy business. The categorization has enabled these companies to make strong retail presences in separate categories and allocate the profit accordingly. Hence it can be concluded that the use of category management strategies enables the retailers to deliver the right product at the right place at right price and at right time. The category management in a toy shop ensures that the desired display space is provided by optimizing the visual merchandising of the shop. Moreover the use of the strategies helps to maintain required inventory and prevents the retail outlets from being out of stock. The identification of the product groups based on the consumer needs and purchasing habits ensures selling the right product to the right customers and ensures an effective assortment of the products.

References

Brien, J. (2012). Category Management in Purchasing: A Strategic Approach to Maximize Business Profitability.

Chi, C., Maier, T. & Gursoy, D. (2013). Employees’ perceptions of younger and older managers by generation and job category. International Journal of Hospitality Management, 34, pp.42-50.

Chiplunkar, R. (2011). Product category management. New Delhi: Tata McGraw-Hill.

Cpgcatnet.org,. (2015). Category Management Mastery: The key to growth. Retrieved 21 January 2015, from https://www.cpgcatnet.org/file_depot/0-10000000/10000-20000/17807/folder/114133/2013_Category_Management_Association_White_Paper--Category_Management_Mastery--The_key_to_growth1.pdf

Ecsipconsortium.org,. (2015). Study on the competitiveness of the toy industry. Retrieved 21 January 2015, from https://ecsipconsortium.org/final-report-competitiveness-toys-ecsip-en.pdf

Fackler, P. (2012). Category count models for resource management. Methods in Ecology and Evolution, 3(3), pp.555-563.

Fowler, D. & Goh, B. (2012). Retail category management. Upper Saddle River, N.J.: Pearson Prentice Hall.

Graham, G. (2005). Exploring supply chain management in the creative industries. Bradford, England: Emerald Group Pub.

Hbr.org,. (2015). Learning From Toys: Lessons in Managing Supply Chain Risk From the Toy Industry - Harvard Business Review. Retrieved 21 January 2015, from https://hbr.org/product/learning-from-toys-lessons-in-managing-supply-chain-risk-from-the-toy-industry/CMR202-PDF-ENG#more

Jda.com,. (2015). The New Age of Category Management - A Supply Chain Article from Real Results Magazine. Retrieved 21 January 2015, from https://www.jda.com/realresultsmagazine/view-article.cfm?did=2865

Musa, S. (2012). Supply Chain Risk Management:  Identification, Evaluation and Mitigation Techniques. diva-portal.org. Retrieved 21 January 2015, from https://www.diva-portal.org/smash/get/diva2:535627/FULLTEXT01.pdf

O'Brien, J. (2012). Category management in purchasing. London: Kogan Page.

PublishersWeekly.com,. (2015). Book Reviews, Bestselling Books & Publishing Business News | Publishers Weekly. Retrieved 21 January 2015, from https://www.publishersweekly.com/pw/home/index.html

Ray,. (2015). Supply Chain Management for Retailing.

Toynews-online.biz,. (2015). Toy retail buyers guide 2013. Retrieved 21 January 2015, from https://www.toynews-online.biz/business-analysis/read/toy-retail-buyers-guide-2013/030665

Wong, C., Arlbjorn, J., & Johansen, J. (2005). Supply Chain Management Practices in toy supply chains (20th ed., pp. 367-377).

Zaroban, S. (2015). E-Commerce Leaders - How zulily built a $500 million e-commerce business in four years -  Internet Retailer. Internetretailer.com. Retrieved 21 January 2015, from https://www.internetretailer.com/2013/11/26/how-zulily-built-500-million-e-commerce-business-four-year

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