This report analyzes and prioritizes issues facing toy company Jot. The top priority issue is a supplier, Gull, will only deliver 75% of Jot's Christmas order on time. It is recommended that Jot distribute this partial order to its largest customers to maintain high sales. The second priority is a fault in Jot's new flying toy where the insulation does not prevent overheating; improving the insulation is recommended. The third priority is a proposal for Jot to outsource production to Voldania for lower costs. It is recommended that Jot begins outsourcing to Voldania to reduce production expenses.
Business Model Canvas (BMC)- A new venture concept
Jot case study - Report 2
1. Team name
Report title
Jot toy – case study
University
Rusangu University
Team members
Dina Nchenesi
Busiku Siagwelele
Relson
TABLE OF CONTENT
2. 1.0 Executive Summary
This report aims to prioritize, analyse and evaluate the current issues of Jot
management. The report starts with te 4main issues Jot is currently facing, the
issues have been categorised in two, (i) issues that threaten the business (ii) plans
relating to expansion and market.
For the first issue, which is late delivery of Christmas product, the team
recommend that Jot should distribute to the product preferring the major customers
over smaller retailers. The second issue, fault in new flying spaceship, insulation
should be improved.
Near soring to voldania, Jot should implement the proposal as manufacturing in
China is expensive. Jot should also accept the proposal to launch a new product
range.
Finally, ethical issues are addressed and recommendations are made. Financial and
strategic analysis have been added in the appendices.
INTRODUCTION
Jot was established in 1988, it is a company that is specialized in relatively small
range of 34 products aimed at only 2 age groups (the children between 3-5 and the
3. children between 5-8).
3.0 Industry background
Toy market is a highly seasoned market with most sales occurring in pre –
Christmas periods (October – December) 86% of the world’s toys are
Prioritisation of issues facing jot
The 4 main issues may be categorized as:
Top priority – late delivery of Christmas product
The top priority is the need to make a decision on how to distribute the 75% of the
initial product order coming from Gull, that won’t be able to deliver the full order.
These products are being delivered on the 4th November, 2011, which 3days from
today, and this is the 4th quarter, the period in which there are higher sales, making
it top priority. Therefore, this issue is urgent. Michael Werner has options on how
to distribute the products.
Second priority – fault in new flying spaceship toy
The second priority is considered to be the fault in the new flying spaceship. A
fault been reported by customers and consumers, recharging the toy takes two
hours, but some consumers have taken to leaving the toy plugged in meaning it
charges for more than two hours, as a result there has been reports of the toy
becoming too hot to touch, and two reports of smoke coming from the toy. They
have been only 12 reported incidents so far.
Jot has sold 1200 units out of the initial 6000units ordered, leaving 3200units in
inventory which are ready to be shipped out to the customers. Therefore
improvements need to be made as quickly as possible on these products before they
can be shipped out.
Third priority – near shoring proposal to voldania
This is considered to be the third priority as clearly it is becoming expensive to
outsource from China with the rising raw material and oil prices. Jot is a growing
company that is dependent on its sales for profit, and to achieve tis it needs to
4. source a cheaper place to reduce on the cost of production.
Fourth priority – launch of new range of toys for 9-11 age group
Jot has grown rapidly and has managed to gain a good market share in Europe and
USA, and would like to expand its sales to other areas in the world. It provides
products for specifically two age groups. Decision on developing a new range of
toys for a new age group means opportunity for Jot to maintain its already existing
customers, and attract even new and more customers, hence increasing its market
share and sales.
Discussion of issues facing jot
Late delivery of Christmas product
An email arrived from Gull, one of Jot’s suppliers in China. It indicates that Gull
would not be able to meet its obligation to deliver the 2400 units that had been
ordered for delivery on 4th November, 2012. Gull has been expanding rapidly and
is rumoured to have been prioritising production to higher margin orders, as it is
unable to meet all orders this year.
Gull said they can provide 75% of the order on time with other 25% to be delivered
on 15th December, there is need for a decision to be made immediately.
Michael has two options:
Option 1 - Send all 75% to Jot’s main customers
Option 2 - To share out the product more equally so that the independent toy shops
at least get something of what was ordered on time.
Option 1
Option1 means Jot distributes only to its major seven companies, which comprise
of retailers, large international super markets retailers, department stores and one
on line retailer. These seven companies are found in Europe and USA, meaning if
Jot distributes to these companies, it will cover 68% of its sales, leaving only about
32%of its sales from the remaining small and medium retailers, of which products
will be delivered to them in December when the rest of the order is ready.
Option 2
5. Option2 means jot distributes to all its customers. But this will mean the products
will not be distributed according the orders placed, Jot will distribute in ratios so as
to accommodate all the customers, meaning the large companies that mostly
place large orders will not get all the orders at once, but will receive their orders in
parts until Gull finishes delivering the products to Jot.
In summary, Last year 2011, jot recorded sales of 9,866, 000 of which 68% of the
figure was from Europe and USA, and the remaining 38% of the figure was from
south America, Asia, and the rest of the world. Option 1 simply means prioritising
the seven large companies which are found in Europe and USA, from which
highest sales are drown, this option would safely make us say Europe and USA are
covered. Option 2 requires jot to distribute the product to all customers, so unlike
option 1, here jot will need to come up with ratios of which they will use to
distribute the product to everyone.
Borris proposed that Jot no longer uses Gull’s services and request for
compensation for the error. Contractors are not employees and do not have an
employment contract. This means they have to fulfil all the obligations in the
business-to-business supplier contract they have with the client. In the event they
fail to do what their contract says they should, then the client is entitled to
terminate the contract immediately as a result of a breach of the contract’s terms by
the contractor. In this case Gull has failed to deliver the products in the required
time, which justifies breach of contract. Granting compensation would be an act
Recommendations
It is recommended that jot selects option 2 and distributes the products only to its
seven large customers, prioritising them in order to maintain high sales gotten from
them.
It is also recommended that Jot’s contract with outsourced manufacturer Gull
should be terminated immediately.
It is also recommended that a document with the key criteria and performance
measures for outsourced manufacturers needs to be written by Michael Werner and
agreed by Jot’s senior management team within the next month. This should then
6. form the basis for appointing and monitoring outsourced manufacturers in future.
These documents on key criteria and performance measures should ensure that Jot
takes account of other factors outside the current cost and quality criteria. There
should be greater emphasis on quality and on time delivery of goods.
It is also recommended that Michael Werner should send out an invitation to tender
documents for the product to a range of outsourced manufacturers in readiness for
next year’s manufacturing.
Justification
Option 2 will make jot distribute to all its customers, but since there isn’t enough
for everyone, companies will not receive their full orders, meaning all the
companies will be disappointed, and might even lose faith in Jot, which might lead
to lose of business.
Option 1 prioritises the largest companies, in this case which are the most
important companies, if we distribute the product to these companies it means Jot
has its largest companies satisfied and left with the smaller ones to deal with after
the last part of the order is delivered.
It should be put in mind that this is business, and everybody in business is there to
make profits, and profits can only be made if when the business is properly running,
production is place, and sales are being made. We want to believe terminating
Gull’s contract is a right way to go because we will avoid the chain of losses that is
being passed on from Gull to Jot, on to the Retailers and their customers too. Gull
offering compensation for Jot for the error will help Jot cover up its losses caused
by the discount it will give to its customers; this will also favour Gull because it
will show that it’s taking responsibility for its actions
It is necessary for Jot to prepare a document setting out the key criteria for the
selection of outsourced manufacturers in order to put this important process on a
more professional basis. This will enable Jot to make its choice of manufacturer
based on a range of criteria, rather than solely on cost. This will also address the
concerns of Jot’s management team over the efficiency and effectiveness for some
7. of its current outsourced manufacturers
Action to be taken
Jot must receive the 75% part of its order and distribute the product to largest
customers which are the seven companies, then wait for the other remaining 25%
of the product to come and distribute it to the remaining smaller companies.
Borris Hepp must communicate to the smaller companies that will not receive their
order in time in advance making them aware that the goods will be delivered to
them late.
Tani Grun should put up a compensation plan in form of discounts for the
inconvenienced companies, this will help Jot keep its customers besides them being
disappointed.
Michael Werner should prepare a document outlining the key criteria for the
selection of outsourced manufacturers. This then needs to be approved by the Jot
Board.
Michael Werner should prepare a document outlining the key performance
measures to be used to monitor its outsourced manufacturers. He may need help
from specialised agencies to help prepare a useable and well-structured set of
performance measures.
Existing outsourced manufacturers need to be audited and a list of improvements,
both urgent and other less urgent actions, should be agreed with each outsourced
manufacturer.
Notice needs to be given to all outsourced manufacturers to take action on the
points raised in the audit and that failure to take action will result in a termination
of their manufacturing contracts.
On-going audit and dialogue with manufacturers needs to continue so that Jot
establishes long-term close links with its supply chain and that its outsourced
manufacturers conform to the standards expected by Jot.
Tender to be sent out to outsourced manufacturers for product in readiness for early
next year.
8. fault in new flying spaceship toy
A fault was reported by a number of customers regarding Jot’s newly launched
flying spaceship. Tis toy was meant to recharge for 2hours and so some consumers
have taken to leaving the toy plugged in to charge whilst they go out of the house.
This has meant the toy is often left charging for substantially longer than the two
hours required.
A brief investigation revealed that the insulation around the electrical circuitry was
not designed to be sufficiently fire and heat resistant for the length of time the toy
has sometimes been left to recharge by some consumers. This was an error made by
the new designer, Indy Kapila, who designed the toy.
There have been 12 reported incidents so far, and no reported incidents of fire.
Option1- Michael Werner thinks that if Jot spends another 10 Euros unit on
improved insulation, the products will then be safe to ship out to customers.
Option 2 – Borris Hepp though, thinks it would be better to write the product off
completely so as not to further damage an already bruised reputation.
Option 3 – another option can be to continue selling the product at a lower cost
because of the risk it has.
Option 1
This toy uses rechargeable batteries that are recharged while in situ inside the toy.
Attaching the toy using a lead and an adapter to the mains electrical supply
recharges the batteries. The battery is meant to charge for only 2hrs, but people
tend to charge for longer than 2hrs, whilst the insulation around the electrical
circuitry was not designed to be sufficiently fire and heat resistant.
So spending another 10euros per unit on improving the insulation of the product
will make the toy safe to ship out to the customers, and they can leave it to charge
for more than 2hrs without any heating or fire.
Option 2
Writing the product off completely means Jot stops selling the product despite the
9. sales of the product having been strong.
The initial manufacturing order of 6000 units have already been made and
delivered, and of this, 1200 units have been sold by jot’s customers, and it has 3200
unit in inventory ready for shipment, but doing away with the product simply
means the rest of the product in inventory should be discarded.
Option 3
If Jot decide to continue selling the product despite the fault that been discovered, it
means the product will have to been sold to the customers but at a lower price if we
want it to sell.
Recommendation
Jot is recommended to pick on option 1, improve the toy and continue to sell it in
order to gain even more sales.
Justification
This is a toy that had been rushed into production in time for the 2012 Christmas
season, which could be one of the reasons why the error was over looked because it
was realised in a rush, but still it had been greeted well by the retailers. Sales for
the product have been very strong, retailers have been selling this toy at 84euros,
Jot was selling to them at 40euros, whilst production cost them 24euros, this shows
that both parties are making over 100% profit from the sales. Spending an extra
10euro wouldn’t make any disadvantages, but would actually create even more
sales and profits, because Jot will be providing a perfect product to its customers.
Action to be taken
Michael Werner should suspend shipment of the product to its customers for now,
and work on improving its insulation.
Alana Lotz and Indy Kapilia should find a way to improve the insulation of the
spaceship toy
Tani Gruns must work out the extra expense of improving the toy, and determine
how much the toy will have to sold at afterwards.
10. Alana Lotz should give a time frame in which to do this, and inform its customers
when exactly to expect the product back on the market.
Near –Shoring to Voldania
Over the last 10 to 15 years many companies have outsourced their manufacturing
to companies in China. However, with wage rates in China increasing, some
companies have started to consider near shoring. Jot has been considering
outsourcing part of its manufacturing to Voldania, a country in Eastern Europe.
This proposal will be considered from a financial, strategic and operational view
point.
Financial
Due to high rates of labour and machine in Voldania, it makes to it expensive to
produce in Voldania and cheaper to manufacture in China because of the lower
rates of labour and machine hours. Distribution costs are higher in China than in
Voldania, making Voldania the cheapest place to manufacture from.
Strategic
Moving to Voldania means manufacturing at a lower cost because of the country’s
lower costs, When Jot manufactures at a lower cost, it will begin tob make profit
above industry average which will result into sustainable competitive advantage.
Operational
Most of the outsourced manufactures manufacture for not only one distributor, and
it is indicated that the US market represents two third of its revenues and other
distributors. Recently they prioritise they production to higher margin orders,
which makes them unable to meet orders for the other companies like Jot.
Currently the rising cost of labour and raw materials is making manufacturing in
China increasingly expensive.
Recommendation
It is recommended that Jot begins to outsource manufacturing companies in
11. Voldania.
Justification
Jot is a rapidly growing company that depends on its product sales for its profits,
and in order to maintain and gain more profit sales, it needs to produce at a lower
cost. Any firm sets out to become the low cost producer in its industry. The sources
of cost advantage are varied and depend on the structure of the industry. They may
include the pursuit of economies of scale, proprietary technology, preferential
access to raw materials and other factors. A low cost producer must find and
exploit all sources of cost advantage. If a firm can achieve and sustain overall cost
leadership, then it will be an above average performer in its industry, provided it
can command prices at or near the industry average.
Near-shoring versus China. China is no longer the dominant production location it
once was. Studies have shown rising labour costs, increased congestion in getting
product through the ports, much higher transport costs, and growing concern over
‘toxic toys’ where the paint used contains carcinogens or lead. China also has a
poor reputation for respecting the intellectual property rights of outside firms.
Near- shoring to North Africa, Mexico, Estonia, Hungary and other places would
help Jot to develop a more flexible, just-in-time, supply chain. Orders can be
fulfilled and supplied in 4-6 weeks rather than 3 months with consequent benefits
for adjusting supply to demand and reducing inventory and transport costs.
Actions to be taken
Tani Grun must begin processing applications with the Voldanian officials to starts
works in the country
Michael Werner should start analysing manufacturing companies Jot could possibly
work with.
Launch of new product range of toys for age group 9-11
Alana Lotz suggested that Jot should develop a range of toys for the 9-11 age
groups of children. The idea is to start with a smart phone application that has both
gaming and educational aspects. Investigations are at an early stage but Alana
thinks that applications are affordable for Jot with the initial design of the program
12. costing as little as 30000euros.
The pre-seen states that Jot does not produce toys for the under 3’s nor for the over
8’s (page 3).
Alana says that this is a very exciting potential development for jot, but John Grun
is sceptical about this plan because this is a whole new area that they know nothing
about. This will analysed using Johnson, Scholes and Whittington’s model of
suitability, acceptability, and feasibility.
Suitability
It is doubtful that the under 3’s is an attractive market for Jot because its distinctive
competence in electronic educational toys is unlikely to be exploited there. Under
3’s are toddlers and they are still learning motor skills, the over 8’s is much more
promising.
From the time Jot came on the market it’s been manufacturing products for only
two (2) age groups, and it seeks to grow its market in other areas of the world. Jot’s
strength in its current market is mainly related to its customers that buy its products.
Developing a new product will target the existing customers, which will also attract
new customers, widening its market and stopping them from looking elsewhere.
Acceptability
Feasibility
Given Jot’s high returned earnings amounting to 802,000, that haven’t been
claimed in form of dividends yet, it is expected that the launch of the new product
will financed from these earnings, and as it stands, developing the application for
the initial product, smart phone, only needs 30000, therefore not significantly
impacting the earnings.
Recommendation
It is recommended that Jot takes up the challenge and develop new product for the
age group 9-11.
Justification
Would this new product be attractive to the customers? It is more likely that
customers would like to continue buying toys for their growing children from the
13. same toy company they bought toys for them when they were younger. Jot is
known for products that range innovation and at the ‘cutting edge’ of now
technology, a smart phone with gaming and educational application will be
appealing to the market.
Action to betaken
Alana Lotz should
8.0 Ethical issues and recommendations on ethical issues
8.1 Faults on new spaceship product
Why is this an ethical issue?
There is a dilemma as to whether Jot should take responsibility for the fault in the
new spaceship toy, or whether it should just blame it on the customers for not
following the instructions on how long to charge the toy.
It would appear that Jot is ready to take responsibility for the fault because they
indicate Indy Kaplia, the toy designer, made the error, and Michael Werner
indicates that inprovements can be made to the product.
However, the ethical aspect of this case concerns duty of care for the customer’s
safety, integrity and professional behaviour.
Recommendations
It is recommended that Jot should contact the customers that have been experienced
and been inconvenienced by the fault (in this case, 12 incidents) and sympathize for
the incidents, and explain the reason why they experienced that.
It is also recommended that Jot should also contact the rest of the customers that
have the toy but haven’t experienced the fault, re-emphasize on how long the toy
needs to be charged, and caution on the results if instruction is not followed.
8.2 Personal donation to Grot
Why is this an ethical issue?
Grot is clearly asking for a bribe in order for him to help jot in processing its
application faster. Jot could be charged of corruption and not following proper
application procedures, tis would show lack of professionalism, integrity and
honesty on Jot’s part.
However, jot would want to consider the fact that they need to develop and
14. maintain good relationships with the Voldanian officials.
Recommendations
It is recommended that Jot should not consider the request made by Grot, but
follow proper application procedures.
It is also recommended that Jot should avoid working with Grot, but identify a
different official to work with on the application process.
9.0 Conclusion
Jot has been very successful since it was established in 1998 and has grown the
business considerably. It continues to be innovative and to create new toys and has
expanded its geographical markets substantially.
There is every reason to consider that Jot will continue to be successful and
profitable but it needs to urgently address its forecast cash shortage and start to plan
its longer-term future and how the company can be financed long-term. It is likely
that the company could become listed in the future. However, there is no future for
a company that constantly has cash flow difficulties, so this issue must be
addressed so that Jot’s owners can concentrate on the business of designing and
outsourcing the manufacture of its range of innovative toys.
15. APPENDICES
STRATEGIC ANALYSIS
SWOT ANALYSIS
Appendix 1
Strengths
Successful and fast growing company
Good product designs
Profitable company
High growth in sales revenue (almost 18% last year)
Expanding geographical markets
Experienced and committed management team
Management control very strong as majority of shares are held by management.
Own in house team of designers designing toys that are unique
Weaknesses
Dependent on just 7 customers for 68% of sales revenue
Reliant on outsourced manufacturers
Highly dependent on customers’ changing preferences
Seasonal business with peak sales in quarter 4
Dependent on Jot’s senior management team and a loss of any member would have
serious consequences
Working capital completely dependent on over draft
Using the same outsourced vendors resulting in cartel
16. Opportunities
Unexplored market segments
Near shoring business processes of sourcing work in a nearby country
Establishment of links and promotion of the Jot brand in new geographical markets
as well as further market penetration in Europe and the competitive USA market
Threats
Rising prices of oil and raw materials in China
Potential loss of sales for new flying spaceship, unless it can be improved in time
Safety issue with new flying spaceship toy
Losing key customers due to late delivery
Appendix 2
Cost tables for the near shoring proposal to Voldania
Labour costs
*labour costs are 1.75 in china in year one then rise to 12% per annum.
Voldania’s are 5 in year1 and inflate at 2% per annum
*china’s labour time per unit is 0.6/unit, and voldania’s is 25% less, which is
0.45/unit.
YEAR
CHINA
VOLDANIA
(000)
(000)
1
63000
135,000
20. Table with Combination of Totals
CHINA
VOLDANIA
Labour hours
999,340
1,657,800
Machine hours
980,000
1.137,200
Distribution costs
2,446,220
978,486
Total cost of production
4,420,060
4,008,288
