Team name

Report title

Jot toy – case study

University

Rusangu University

Team members

Dina Nchenesi

Busiku Siagwelele

Relson 

TABLE OF CONTENT

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

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

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

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

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

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.

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

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.

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

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

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

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

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.   

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 

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

2

117,600

292,500

3

184,380

327,726

4

265,454

429,786

5

363,396

535,788

TOTAL

999,340

1,657,800

Machine hours

*machine costs are 1.40 per unit in china throughout the five years

Voldania’s are 40% more than in China

YEAR

CHINA

VOLDANIA

1

84,000

117,600

2

140,000

196,000

3

196,000

274,400

4

252,000

352,800

5

308,000

431,200

TOTAL

980,000

1,137,200

Distribution costs

*distribution costs in china are 3 per unit in year1 at inflation of 6%

Voldania’s are 60% of the Chinese cost

YEAR

CHINA

VOLDANIA

1

180,000

72,000

2

318,000

127,200

3

471,940

188,776

4

643,140

257,256

5

833,140

333,256

TOTAL

2,446,220

978,486

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