SUPPLY CHAIN CHALLENGES AT LEAPFROG

CASE STUDY
Operations & Supply Chain Management

ANSWERS PROVIDED BY EstaNoer, MikoVargas, PricsilliaMailoa, ShintaKusumasari

1. Draw a map of the supply chain for LeapFrog, including the retailers, Capable Toys, and suppliers of key materials (such as Tyvek). Which supply chain partners are upstream of LeapFrog? Which are downstream? Which partners are first-tier suppliers? Second-tier suppliers?

* Retailers includes but not limited to the names listed

The "upstream" flow refers to the movement of a number of elements, such as material goods, to the supplier, that is, the "source" of the product supply chain. Hence, LeapFrogs suppliers are its upstream partners. "Downstream" refers to movement in the direction of the customer, or even the consumer. Thus, downstream supply chain management refers to retailer and may also be parents (main consumers.) 2. What data ultimately led to LeapFrogs decision to increase production levels of the LittleTouch LeapPads? Where did these data come from? How long after interpreting these data did LeapFrog start talking with Capable Toys about increasing production levels? Days, weeks, months? On August 11 2003, the nationwide sales of LeapFrogs LeapPads totaled to 360 units in its introductory weekend. With this data, Mr. Kevin Carlson Toy Executive- made various extrapolations from the sales through four computer models designed to eliminate any unusual explanations for the sudden increase in sales. There turned out to be no anomalies whatsoever, deeming the spike in demand genuine. According to the forecasting software, the projected holiday demand was 700 000 units, 50 percent more than what was planned to ship. It took only a matter of days ( a week at most) for LeapFrog to arrange the increase

in production with Capable Toys, having had already the additional set of tools ordered in late August. This fast reaction to growing demands is all made possible by technology and global supply chains. Nowadays retailers are less guarded on their market data and allow suppliers to have access to sales databases overnight, making data tracking and demographic analysis much easier and convenient.

3. What part of the production process limited output levels at Capable Toys? How did Capable respond to the challenge ?

There were 3 issues that limited the increase in production levels: i. Molds that make the plastic parts can pump out only 1 unit every 40 seconds ii. The need to find more raw materials & custom made parts iii. The plants need to hire more workers Out of the three, the first issue brought on the most strain in increasing output levels.

Capable Toys specializes in design and supply chain efficiencies that dramatically speed up manufacturing processes. What the factory did was, first, to determine the limitation of the product design, which were LittleTouchs 41 metal molds called tools. One set of tools produces a maximum of 1750 units per day. The factory originally had 2 sets of tools running (producing a total of 3500 per day) but in order to increase the movement of production a third set was added in late August and the fourth set a week later. Mr. Huang, the engineering supervisor of Capable Toys, not only produced the extra sets but also increased output to 6300 units per day when the third set was installed- a 20% improvement. In addition, the improvements made to the mold designs reduced the toys fail rate from the initial 5% to 0.3%.

4. What were some of the material sourcing challenges facing LeapFrog and Capable Toys? How did they resolve these problems? Material sourcing challenges that LeapFrog and Capable Toys were facing:

Finding the specialized materials they needed for toys they produced. Each toy was equipped with a mini-speaker and three microchips that could translate a childs touch into a signal for the toys brain. However, Capable Toys faced a trouble finding supplier that could provide them touch-sensitive membranes.

LeapFrog needed something that would be drool-resistant and still absorb ink. The material called Tyvek, was made by Dupont Co. Usually, homebuilders use Tyvek as a part of the insulation process because it is water-resistant and still breaths.

Nevertheless, LeapFrog and Capable Toys managed to resolve the problems above by: Tapping their network of suppliers to seek a second vendor that would provide them touch-sensitive membranes. Hiring the US company to do the printing, so that they can get Tyvek through a third-party supplier or a book-printing firm. This option added 50 to 60 cents per book in production costs, yet it was worth it because maintaining the companys long-term image was important for them. 5. What type of logistics solutions did Leap Frog use to get the toys to the stores on time? What are the strengths and weaknesses of these solutions? If it had been August rather than December, what other options might LeapFrog have used? AIR FREIGHT Air transport is suited for valuable goods and high-speed shipments Strengths: Fast speeds, frequency and security Little capital tie-up Low risk of theft and damage Cost-efficient transport of light parts High transport costs for bulk goods; at $10- $15 per lightweight, but bulky, toy, air shipping sliced the companys profit on those LittleTouch shipments to almost nothing.

Weaknesses: -

SEA FREIGHT Ocean shipping is suited for the intercontinental shipment of bulk cargo, bulky goods and dangerous materials such as oil and gas over large distances Strengths: No stopovers within 14 days from Hong Kong to Lost Angeles. Environmentally friendly Large transport volume High capital costs Slow Tied to the water network

Weaknesses: -

Due to the critical nature of delivering the products at an immediate time in order to save declining sales that was due to the scarcity of the product- the company was forced to spend on the most expensive yet fastest means of shipping, air freight. This squeezed Leapfrogs profits despite the ever -growing demand in the month of December. To put into perspective, if it were August, where demand was only slowly picking up and an abundant stock of the LittleTouch toy available (350 000 units were made initially); LeapFrog wouldve chosen to ship the products by sea freight from Hong Kong to Los Angeles with added standard stopovers in order to minimize expenditures.