ANSWERS PROVIDED BY EstaNoer, MikoVargas, PricsilliaMailoa, ShintaKusumasari

SUPPLY CHAIN CHALLENGES AT LEAPFROG CASE STUDY

Operations & Supply Chain Management

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, LeapFrog’s 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 LeapFrog’s 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 LeapFrog’s 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 plant’s 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 LittleTouch’s 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 child’s touch into a signal for the toy’s “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 company’s 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

Weaknesses:

- High transport costs for bulk goods; at $10- $15 per

lightweight, but bulky, toy, air shipping sliced the company’s

profit on those LittleTouch shipments to almost nothing.

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

Weaknesses:

- High capital costs

- Slow Tied to the water network

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 Leapfrog’s 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 would’ve

chosen to ship the products by sea freight from Hong Kong to Los Angeles with

added standard stopovers in order to minimize expenditures.