Spin Master Toy

1. INTRODUCTION

1. Spin Master Toy

Spin Master Company was established in 1994 in Toronto, Canada by three founders Ronnen Harary, Anton Rabie and Ben Varadi. The company’s name was derived from the success of its product called Spin Master Devil Sticks. Spin Master Toys have two offices in Canada and Hong Kong. After the first success in toy industry, the company continuously produced a wide range of relatively low-technology and high margin toys in the next three years. In 1996, the company tended to produce higher technological products such as Air hogs and Echarger. In 1999, the company’s revenue grown significantly up to nearly $46 million and the company was the 10th spot on the Profit 100 Canada’s Fastest-Growing Companies list.

1. E-Charger

E-chargers were Spin Master Toy’s next foray into the powered airplane market. Unlike the traditional toy airplane powered by the stretched rubber band or compressed air, E-chargers were driven by electricity. This toy is capable of flying up to90 meters. In the company’s view, the product line allowed it to extend the magic of real flight to children as young as five. To encourage users, the company planned to produce six different styles and promised high performance at a low price.

1. Report Purpose

This report is going to discuss about supplier selection for Spin Master Company’s latest product between two suppliers in China and we will suggest the solution after company situation analysis.

II. PROBLEM IDENTIFICATION

After the success of Air Hogs in toy airplane market, Spin Master Company wants to develop Air Hogs into a new innovative toy which called E-chargers. Although they asked Kin Seng manufacturer which is their previous manufacturer, it was already full capacity. Therefore Spin Master Toys need to find new suppliers and they considered two manufacturers which were Wah Shing & Wai Lung.

Spin Master predicted that sales for toy airplanes will peak from March to mid-May, so they must ensure to have a secured sizable amount of products. Specifically, Spin Master have to have 20,000 units ready to ship by December 1999 as retailers need time to move products through their distribution system. Besides, there is a large toy company working on the same E-Charger concept so Spin Master have to ensure its first mover advantage.

In addition, the company must also consider the tight tolerances required to manufacture the product. According to preliminary tests, E-Charger should weigh 17 grams. An increase of only one gram will decrease the performance. Therefore, Spin Master Toy have to find a supplier who can deliver on engineering expertise.

There were some factors in making decision and product specification they considered to choose a supplier: the quality of suppliers’ source of raw material and prefabricated components reputation, deadline for production (December 1999), capacity, quality levels, capability in engineer expertise, the capacity of the factories’ Chinese suppliers, speed to market, cost, tooling time needed and attention to the company

1. SUPPLIERS

Now, the company is considering whether to choose Wai Lung or Wah Shing to be their supplier for the new product (E-chargers).

We conduct this table in order to compare the considering factors needed that Spin Master Toy has given out to choose the new supplier.

Wai Lung has cooperate with Spin Master Toys before and the collaboration was really good because in a short time, Wai Lung can finish the requirement with a high quality and increased production more steeply than Harary ( Spin Master Toys) had thought possible. Moreover, Wai Lung is highly committed and has put us at the top of priority list. Due to positive experience before, the company considers Wai Lung as their new manufacturer. At the moment, the capacity of Wai Lung is 40% and they had just lost a significant portion so we predict that there will be more than 60% of the capacity Wai Lung will use for Spin Master Toys. An advantage that this company has is the distance to Hong Kong; it only takes one-hour journey by train and car.

Wah Shing was a subsidiary of a Hong Kong public toy manufacturer. The number of workers in Wah Shing is higher than Wai Lung around 1,500 workers and they also have more than Wai Lung 3 engineers. A considered factor here is Wah Shing was at 70-80% of capacity; that means they only have 20-30% left for us. And the location of Wah Shing is 5 hours far away from Hong Kong. Spin Master Toys also has experience with Wah Shing before and it is quite good because they provide products on time and within quality specifications; besides that, they have a good reputation in electronic toys and their costs are also comparable in the market so that are big advantages that Wah Shing has.

1.  ALTERNATIVES

ALTERNATIVE 1: Chosing Wai Lung as the main manufacturer for E-Chargers

ADVANTAGES:

• We have a good relationship with Wai Lung due to early experience with Finger Bikes. This could create long-term coordination with suppliers.
• Wai Lung has excess capacity to utilize because it just lost a significant portion with another company. Wai Lung would not begin many projects in the near future.
• CEO of Wai Lung – Leo, is still hungry to grow his business and want to accommodate with this project by hiring three engineering expertise.
• We will also have high quality products with the most acceptable price.
• In addition, the distance between our Hong Kong base and Wai Lung is close which took a one-hour journey by train or car

DISADVANTAGES:

• Take time for tooling installment due to lack of engineering capability
• Quality might not be ensured at the first stage due to the lack of experience in manufacturing electronics toys.
• Strict payment method

ALTERNATIVE 2: Choosing Wah Shing as the main manufacturer for E-Chargers

ADVANTAGES:

• Wah Shing ensure to provide high quality product because it can be counted as their core competency
• Wah Shing also adapt easily to new product development and short time for installment
• Payment method can be negotiable

DISADVANTAGES:

• Poor communication between upper and lower management
• Low capacity
• Distance between factories and Hong Kong base takes time (5 hours)

ALTERNATIVE 3:  Choosing two suppliers simultaneously.

ADVATAGES

• Ensure the required quantity to enter the market and also reduce the time to enter the market which could ensure the first-mover advantage.
• Weaknesses of this supplier can be compensated by the other supplier
• Currently, the cost per unit of Wah Shing is double that of Wai Lung. Outsourcing from both suppliers can reduce the cost as Wah Shing’s quote for 1000 products

DISADVATAGES:

• It is hard to manage the relationship with 2 suppliers simultaneously in terms of human resource and finance

1. DECISION MAKING AND IMPLEMENTATION PLAN

Base on the analysis of two manufacturers, we recommend the manager of Spin Master Toys to choose Wah Shing as their supplier for producing E-Charger. The reasons are:

Firstly, the total cost that Spin Master Toys has to pay for Wah Shing could be lower than Wai Lung. Although, the cost that Wai Lung provided in the Quotation is much lower but the content inside the form is unclear comparing to the one from Wai Lung. The element that makes a big gap between the cost of two Quotations is the Electronic parts 15.7998 HK$ per Toy, which includes motor and capacitor, offered from Wah Shing. While, this part has been replaced by “Other parts” from Wai Lung and only been counted for 4.67 HK$ per Toy. Spin Master Toys may need to ask Wai Lung to figure out what components that include in “Other parts” and the reason why the cost is much under estimate compare to other companies. However, it may cost a long time for the company to figure that out.