BÁO CÁO NHÓM ĐẠI HỌC NGOẠI THƯƠNG JOT BUSINESS CHALLENGES AND RECOMMENDATIONS

1 D TABLE OF CONTENTS A INTRODUCTION B LATE DELIVERY OF CHIRSTMAS PRODUCT CHALLENGE RECOMMENDATIONS: C FAULT IN NEW SPACESHIP TOY CHALLENGE RECOMMENDATIONS D NEAR – SHORING PROPOSAL IN VOLDANIA CHALLENGE RECOMMENDATIONS 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 A 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 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 Strengths Weaknesses         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) 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 Opportunities Threats  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 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 manufacturer 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) 2011 2012 2013 2014 2015 2016 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: 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 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 period 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 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 hours recharging, and some consumers usually left the toy plugged in for longer than the hours required Jot’s revenue is highly seasonal, and sales in quarter 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 long 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: 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) 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, JOT 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: 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 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 nearshoring, 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 and €204600 in year 5) There is a huge amount 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 Compare cost saving with profit in year 2011 300000 250000 200000 150000 100000 50000 -50000 Profit year 2011 Cost save Y1 Cost save Y2 Cost save Y3 Cost save Y4 Cost save Y5 Otherwise, this proposal also has some risk and cost that we must consider more carefully, such as: 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?) Environment in Voldania: this is a completely new country with JOT, so they should consider carefully about their regulation and law 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 c 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 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 10 In this period, it is not suitable for JOT to pursue a new market with a brand new product line FEASIBILITY ASSESSMENT One of the biggest risks of this diversification proposal is that it would increase costs of Research & Development, marketing, branding and manufacturing beyond budget On the other hand, JOT's marketing objective now is expanding its sales to new geographical markets especially in Russia and Asia In order to support this goal, JOT certainly needs a considerable increase in the number of products of each model to supply to these extensive markets As a small private company mainly depended on limited loan finance, JOT will be unable to afford both market penetration strategy and diversification one It needs more large cash reserves RECOMMENDATIONS Base on the above assessments, this proposal should be rejected due to a poor business viability for JOT However, if JOT chooses to this business, it is highly recommended to follow "Ansoff matrix" as below from the lowest risk to the highest one to minimize the unexpected events Furthermore, it is vital to convince Alana to examine her plan carefully by these formula steps to ensure the positive result of JOT's revenue The first option mentioned is already the marketing plan in near future of The JOT Toy Company Ansoff matrix Existing product New Product Market penetration strategy Product development strategy Expand through existing products in existing market (electronic and Existing licensed toy for 3-5 and 5-8 age market group) Expand through new product in existing market (new toy for 3-5 and 58 age group) Toy modification via new features Enhance sales in Russia and Support different quantity level Asia - great potential market with New toy line tends to be more the largest children in the world 11 Build up more business sophisticated relationships with manufacturers, retailers and distributors More advertisings to attract more buyers (I) (III) Market development strategy New market Diversification strategy Expand through existing product in Expand through new product in new new market (electronic and market licensed toy) New toy line for children under for under years old group years old for 9-11 age group New and sophisticated toy line for 9-11 age groups (II) (IV) The lowest to the highest risk option: (I), (II), (III), (IV) E CONCLUSION The current challenges faced by Jot pose a unique opportunity to establish a firm foundation for sustained and profitable growth in the future It is critical that JOT prioritizes a solution to the threat posed by the distribution crisis The company should accept Gull’s offer to receive 75% order on time and the other 25% later so as to arrange the dispatch of goods to its customers In the meantime, JOT should look for another outsourced company among its off- shore outsourced manufacturers to ensure that these problems will not happen in the future In order to solve the problem of fault in spaceship toy, JOT in short term should choose the solution focusing on its reputation because Jot is a young company so it needs to strengthen its mutual benefit business relationship with the retailers as well as the customers In long term, Jot should build up a strong team in designing to keep it a highly competitive company in the toy industry, especially in designing new toys The plan to change outsourced company to a near shoring country namely Voldania can be a wise decision as to save a substantial amount of money; however, JOT had better consider this issue carefully relating to 12 opportunity cost and other risks which JOT may face in the future Finally, it is recommended that JOT rejects the proposal of launching new range of toys for 9- 11 age group owing to the poor suitability and low feasibility Nevertheless, in case JOT is content to take up new challenge, it should take the Ansoff matrix into serious consideration 13 F APPENDICES APPENDIX B APPENDIX B1 SalSes and profit lost due to fault in flying spaceship toy Inventory Quantity 3,200 Price to retailers €0 Original cost €24 Profit per unit €0 Sales lost €0 Profit lost €0 Capital lost €76,800 Total €76,800 APPENDIX B2 Cost evaluation for short term solutions Solution No.1: Sold out Repairing cost per unit Update fee Cost increase per unit *Refund to reported customers Total cost increase Inventory Price to retailers Production cost Repairing cost Profit per unit Total profit Cost for solution No.1 €10 € (3) €7 €480 €50,880 €40 €24 €10 €6 €19,200 €31,680 Solution No.2: Sold out Repairing cost per unit Update fee Cost increase Total cost increase Inventory Price to retailers €0 €0 €0 €0 €40 14 €24 €10 €6 €19,200 € (19,200) Production cost Repairing cost Profit per unit Total profit Total cost for solution No.2 Solution No.3: Sold out Repairing cost per unit Update fee Cost increase Total cost increase Inventory Price to retailers Production cost Repairing cost Inferior price Profit per unit Total profit Total cost for solution No.3 €0 €0 €0 €0 €40 €24 €0 €20 € (4) € (12,800) €12,800 APPENDIX C Y1 Y2 Y3 Y4 Y5 1.75 1.96 2.20 2.46 2.75 Voldania 5.00 5.10 5.20 5.31 5.41 China C.1 Labour rate per hour in years 15 Y1 Y2 Y3 Y4 Y5 0.60 0.60 0.60 0.60 0.60 Voldania 0.45 0.45 0.45 0.45 0.45 China C.2 Labour time per unit in years Y1 Y2 Y3 Y4 Y5 1.40 1.40 1.40 1.40 1.40 Voldania 1.96 1.96 1.96 1.96 1.96 China C.3 Machine rate per unit in years Y1 Y2 Y3 Y4 Y5 3.00 3.18 3.37 3.57 3.79 Voldania 1.20 1.27 1.35 1.43 1.51 China C.4 Distribution cost per unit in years 16 Y1 Y2 Voldani Y3 Voldani Y4 Voldani Y5 Voldani China a China a China a China a China Voldania Labour cost 1.05 2.25 1.18 2.30 1.32 2.34 1.48 2.39 1.65 2.44 Machine cost 1.40 1.96 1.40 1.96 1.40 1.96 1.40 1.96 1.40 1.96 Distribution cost 3.00 1.20 3.18 1.27 3.37 1.35 3.57 1.43 3.79 1.51 Total cost per unit 5.45 5.41 5.76 5.53 6.09 5.65 6.45 5.78 6.84 5.91 Cost per unit variances Cost total variances 0.04 (F) 0.23(F) 0.44(F) 0.67(F) 0.93(F) 2400 23000 61600 120600 204600 (F) (F) (F) (F) (F) 22600 23000 61600 120600 204600 (A) (F) (F) (F) (F) Fisrt year personal donation Total variances -25000 C.5 Cost variances compare between Voldania and China in next years 17 ... producer in the industry Currently, JOT has launched 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... 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... 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) Alternatively, JOT could