JOT CASE ANALYSIS:

The 2013 CIMA Global Business

Challenge in partnership
with Barclays

Prepared by Team Valor

Group Leader:
Carlota N. Villaroman

Members:
Kehn Rohn Frederick M. Abad
Anna Marie O. Dela Cruz
Daisy R. Laureano

Central Luzon State University

April 01, 2013

 TABLE OF CONTENTS

Introduction 3
Main Issues Facing Jot Company 3
Discussion of the Issues Facing Jot Company:
Priority 1: Late Delivery of Christmas Products 4
Priority 2: Fault in flying spaceship toys 7
Priority 3: Near shoring proposal in Voldania 10
Priority 4: Launch of new range of toys for 9-11 age group 13

APPENDICES
Appendix 1 Ethical Issues 16
Appendix 2 Industry Research 17
Appendix 3 SWOT Analysis 18
Appendix 4 PEST Analysis 19
Appendix 5 Michael Porter’s Five Forces Model 20
Appendix 6 Financial Ratios 21
Appendix 7 Distribution Schedule 22
Appendix 8 Cost Differential Analysis 23
Appendix 9 Recommendations 25
 1. INTRODUCTION

There is every reason to consider that Jot will continue to be successful and profitable
but it needs to urgently address the four main issues (two problems and two proposals)
currently faced by it, in connection with the market trends shown in Appendix 2.

This report is aimed to prioritize and discuss the main issues faced by Jot Company,
and give strategically sound recommendations upon them. This report makes use of
strategic and financial analyses to understand the strategic and financial position of Jot
Company. Revenue growth and margin and geographic distribution of the business
sales are areas that deserve focus.

2. MAIN ISSUES FACING JOT COMPANY

Order of Type Business Issue
Priority
1 Problem Late delivery of Christmas product:
This became the number one priority because it needs immediate action.
The 3rd and 4th quarter is very important for the company because the
industry is highly seasonal wherein 75% of Sales came from these
quarters. So, due to its huge impact on revenue and its relationship to its
customers, this calls for immediate action making it the number 1 priority.
Priority 1 and 2 are ordered in such way because they are problems,
which needs to be addressed and they pose threat to the company.
2 Problem Fault in new flying spaceship toys:
The second priority is the fault in the newly launched flying spaceship
toys, with the premise that the company’s reputation is at stake. The
reported incidents and complaints of customers (including all the major
retailers) results to external failure cost that needs primary attention.
External failure costs are costs that are incurred after a faulty product has
been shipped to customer/retailer. For Jot to decrease selling
price/increase value and thus increase sales and profitability, it must
decrease its failure cost and increase productivity and quality. The Team
Valor believes that lack of quality is more expensive than the pursuit of
quality.
3 Proposal Near-shoring proposal in Voldania:
Toy companies may also solicit toy components from third party
manufacturers and assemble the toy at a separate facility or geographical
location in order to cut down on manufacturing costs.
4 Proposal Launch of new range of toys for 9-11 age group:
Entering in new market is least prioritized. Valor considers the financial
feasibility and liquidity of the firm in order to finance the proposal. We
also put into consideration the time frame for launching new products.
 3. DISCUSSION OF THE ISSUES FACING JOT COMPANY

Priority 1: Late Delivery of Christmas Products

Suppliers are a distinct part of company’s ability to either satisfy customers or create
extreme dissatisfaction. Delay in supplies often results in loss in demand for the
business. Businesses usually refrain buying from entities that supply the order late.
Unsatisfied consumer demand in Jot’s toys is a big problem that needs immediate
attention.

Due to its high seasonality, consumers purchase most of the products during the Third
and fourth quarters, which accounts for more than 75% of the Year’s sale. Sufficient
amount of inventory should be secured to meet the demand for these quarters. Delivery
of the products by the retailers then is crucial in order to take advantage of the high
demand.

Supply was hampered by Gull, one of Jot’s suppliers in China, who has been expanding
rapidly and is rumored to have been giving preference to higher margin orders. Gull
failed to meet its obligation to deliver on time the 2,400 units of Christmas product. The
best thing Gull can do is to provide 75% of the order in time. The remaining 25% will be
delivered to suppliers by a delay of approximately 41 days.

Valor come-up with three options to solve the problem:

Distribute the on-time delivery, which accounts for 1,800 units (2400 units x 75%):
a) To the seven (7) major customers
b) To all the customers on a pro-rata basis based on percentage sales
contributed to Jot
c) Equally to all customers
Table 1. Assessment of Options to be Considered for Priority 1

Option Means Advantages Disadvantages

 Send all 75% of the products to  The relationship of Jot to its major  The 343 distributors and small and
its main customers, who are customers will not be tainted, and medium-sized retailers may be
the seven major retailers since 68% of Jot’s sales belongs lost.
accounting for 68% of sales to these seven, 68% sales will not
revenue and apologize to the be affected in terms of these  They may feel that the company is
1. 75% to remaining small retailers. The products. being unfair in dealing with them.
the seven concern of this option is to not
major annoy the major customers  It will not disrupt existing and  In the long-run, the 32% of sales
customers who have the choice whether future business with them. which came to these groups may
or not to disrupt existing and be gone , thus affecting the
future business with them. sustainability of Jot.
 68% of Jot’s Sales is from the  Jot will show that they are giving  It may pose a modest problem with
major retailers, and the equal importance to the small its major customers for the not
remaining 32% from the other retailers. delivering the whole order.
customers. However, using
this approach will only lead to  It may enhance the relationship it
1 per unit of the products to has with the independent toy
2. Based the other toy retailers, thus we shops.
on Sales came up with reducing the
proportion to 62% and 38%.
(See Appendix __)

3. Equally  The 1,800 units will be equally  Jot will show that they are giving  The large retailers will be
to all distributed to Jot’s customers, equal importance to the small annoyed.
customers i.e. only 75% of the customer retailers.
order will be discharged.  Major customers may reduce their
 It may enhance the relationship it orders with Jot which can lower
has with the independent toy the sales of Jot.
shops.  It can damage the relationship it
has with its major customers and
affect future business.
Recommendation

We recommend Option 2 in solving the problem of late Christmas delivery. 68% of Jot’s
sales are from the seven large retailers, which shows that they are valuable customers
and very important for the sustainability of the company. However, Jot has 343
distributors and small and medium-sized retailers which contribute 32% of its Sales.
These are located around the world, so having a good relationship to them is important
in keeping and establishing Jot’s brand image.

We recommend distributing the products based on sales percentage to give priority to

the valuable customers while not neglecting the small toy shops. This approach may
however affect the large toy retailers, but losing the independent toy shops in the long-
run poses a bigger demise.

In compensating for the late delivery which will be delivered on December 15, 10 days
before Christmas, we suggest that trade discounts be given to the customers. In Gull
case, Jot should sue the company and ask for compensation for the damage it created
to the company.

Furthermore, Jot should consider shifting to more reliable and preferred suppliers and
establishing long-term relationships with them. We agree with Boris Hepp that if the
supplier cannot fulfill its contract, then we should not use it again. Jot should not be
making so many mistakes. Jot should choose suppliers who have increased
productivity, who delivers quality supply on a timely basis, and who see themselves as
extensions of the company. Increased productivity benefits all company stakeholders by
improving cash-to-cash cycle time, generating higher asset turnover, generating higher
inventory turnover, and reducing inventory risks.
Priority 2: Faulty New Flying Spaceship Toy

Brief investigations on 12 reported incidents and complaints revealed that the insulation
around the electrical circuitry of the flying spaceship toy was not designed to be
sufficiently fire and heat resistant for a long time. Problem arises on the excellent brand
image of Jot being put at risk. Product-harm crises often result in product recalls, which
can have a significant impact on a firm’s reputation, sales, and financial value. It can
potentially damage developed brand equity, spoil consumers’ quality perceptions,
tarnish a company’s reputation, and lead to revenue and market share losses.

Three potential options are identified:

a) To spend additional €10 per unit on improved insulation for the already produced
units at hand that includes any additional distribution costs.
b) Continue the product without repairing the units.
c) Close the product and lose the contribution margin.
Table 2. Assessment of Options to be Considered for Priority 2

Option Description IMPACT ON

Financial Customer Relations
1. Spend Additional €10 per  Selling to retailers the 3200 units  The brand image of Jot will be saved
repairing unit on improved of inventory already held can while earning a reasonable
cost for the insulation for the make a profit of €19200 contribution margin
remaining already produced {3200*€(40 selling price to
inventories units at hand (3200 retailers-24product cost-
units) that includes 10repairing costs)}.
any additional
distribution costs.
2. Continue Continue the  Earn the contribution margin  Short-term financial objectives which
the product product without before repairs per unit of €16. are the growth in sales and revenue
without repairing the units. are maximized but the decision could
repairing The product will be  To improve the financial position harm its long-term strategic objectives
sold as it is. in the long run may jeopardize like higher product quality than rivals
the long-term market share of and thus, larger market share.
Jot. Jot may earn a large
contribution margin of €51,200  Consistent with achieving financial
but the brand image will be at objectives rather than strategic
stake. objectives like good customer brand
perception
3. Close the Close the product  Disposing the product at hand  Closing the product outright may save
product and lose the and completely writing off the the company from further damage of
contribution product will account for the an already bruised reputation but it will
margin. €76,800 loss (€24 product cost also show the incompetency of Jot to
multiplied by 3200 units held in produce non-defective and high
inventory). quality products.

 It will lead to loss and thus cannot

be a strategically sound decision.
Recommendation:

We recommend Option 1 as the best choice, with the belief that this option has
concerns both to financial and strategic objectives of Jot. The brand image of Jot will be
saved while earning a reasonable contribution margin. By spending additional €10 per
unit on improved insulation, the health and safety of consumer will be put first. Potential
benefits of maintaining consumer confidence and instilling brand loyalty can arise. Also,
it can be noted that after the repairing costs, the product still earns a contribution
margin per unit of €6. If a product line is adding contribution to the overall business;
the product should not be ceased right away.

Supporting Computation for Option 1:

Jot’s selling price to retailers 40
Jot’s product cost 24
Contribution margin before repairs 16
Repairing costs 10
Contribution margin after repairs 6

We do not recommend Option 2 as a viable solution to the problem because we firmly

believe that the best way to ultimately sustain competitive advantage over the long run
is to relentlessly pursue strategic objectives that strengthen Jot’s position over rivals.
Option 2 may perceive repairing as not feasible especially if there are only 1% defective
units (12 reported incidents over 1200 units sold to customers) but this option can be
further construed if Jot has negative or insufficient cash flow.

Also, Option 3 might earn the business good publicity but the social responsibility of
repairing the faulty products will remain. Consumers prefer a socially responsible
business. This will, likewise, have a detrimental effect on the image of the brand. A
growing body of literature has argued that there is a positive link between firms’ socially
responsible strategies and their financial market performance.
Furthermore, the group of Valor recommends high attention on product design and
quality control measures. Significant costs may be attached to product defects and this
cost is likely to be passed on to customers, thus decreasing a product's value. Jot
should implement Six Sigma system which strives to identify and eliminate defects in
product development. It considers the value of a product from a customer's perspective,
and questions the necessity of all costs associated with product development. Hence,
production inefficiencies are reduced and product quality is increased.

Priority 3: Near-Shoring Proposal in Voldania

Near-shoring is defined as the transfer of business processes to companies in a nearby

country. Jot is considering whether to outsource parts of manufacturing from China to
Voldania, especially that wage rate in China is increasing. This proposal is intended not
to completely outsource in Voldania but to consider near-shoring in Eastern-Europe
which is closer to Europe and USA market where major parts of Jot’s sales are carried
out. The focus is not to completely stop outsourcing in China but to consider product
and market expansion.

Alternatives of Jot
a) Continue outsourcing part of its manufacturing in China
b) Shift outsourcing part of its manufacturing from China to Voldania
Table 4. Assessment of the Proposal in Three-Fold View

Point of View Implication

Strategic  Provide not only cost reduction but core competence and flexibility.
 Focus on its core competencies
 Redirect its resources to where they make the greatest positive impact
 Acquire greater flexibility in managing demand swings
 Reduce the organization’s risk by sharing it with suppliers
 Control of outsourced process. Sufficient control to ensure that outsourced processes
are performed according to ISO 9001:2000 Standard, customer requirements and
regulatory & statutory requirements
 Ensure conformity not only of process outputs, but also the process itself, and any interactions
with internal processes.
Operational  For production, there will be provision of number of production lot which is within the capacity of
the outsourcer supplier
 For socioeconomic relationship, trade relations are enhanced
 Improve responsiveness of delivery to their warehouse or directly to customers.
Financial  The differential cost analysis on both options (see Appendix) shows a benefit of near-shoring of
€260,460 in five-year period
 Low inflation rate in Voldania and reduced distribution costs as Jot gets nearer to European
market (labor in China is substantially lower than Voldania, but the inflation rate in Voldania
(2% per annum) is lesser than in China (12% per annum))
 Level of efficiency is achieved through specialization and economies of scale
 Achieve significant cost savings to cover additional layer of overhead and still meet target profit
while performing a function for less than other organizations
Recommendation:

We strongly recommend the acceptance of near-shoring proposal in Voldania especially

that Jot belongs to a turbulent, high-velocity market where it must sustain market share,
specifically in Europe and Russia. Additional costs on vendor selection and transition
costs are to be surely incurred but the long-run advantages of reduction in project
timelines and savings on account of lower labor costs (effects of inflation included) will
be vital. In eventually doing so, Jot could set lower prices than that of competitors.

The Voldanian government is willing to help Jot with the change in outsourcing facilities.
However, with the highly bureaucratic nature of the government, documentation is
expected to be time consuming. Ethical ramifications of €25,000 personal donation to
speed up the documentation process should also be considered. It is a strategic
decision for Jot to refrain from acts that might hamper company’s image in time.

Distribution costs of Jot

will be relatively lesser in
Voldania than in China
because the locations of
Jot’s warehouses in
Europe and USA are
much nearer to Voldania
than in China (as shown in
the map).
Priority 4: Launching New Range of Toys for 9-11 Age Group

Jot currently has a relatively small range of 34 products aimed at only 2 age groups.
These are the pre-school age group of 3 to 5 year olds and the next age group of 5 to 8
year olds. Alana Lotz, Product Development Director is considering the opportunity for
Jot to reach beyond its traditional market segments. She is thinking of introducing a
range of products including a smartphone application that has both gaming and
educational aspect to the untapped 9-11 age group.

Table 5. Assessment of the Operational Proposal

Operations Financial Time Frame

Suitability Finding of Cash is tight and Finding of outsource
outsourced strapped with trade manufacturer (CAD
manufacturer, the receivables. and CAM IT system).
need to find raw
materials.
Acceptability Development of the Bank advice Designs and other
new product moratorium. processes for the new
including the toy are too late to be
prototype testing. implemented.
Feasibility Limitations on Dependent on loans. Three months-time for
resources and on the toy fair in the first
financial aspects. month of the calendar
year.

Arguments:

1) Priority argument
We have accepted the proposal of near shoring and Jot must prioritize on this proposal.
Because no organization has unlimited resources, Jot must decide which proposals to
pursue. Strategic and operational proposals commit an organization to specific
products, markets and resources over an extended period of time. Pursuing the two
proposals at a time for will thinly spread the resources and full commitment of the
resources cannot be given to the innovation a new product. It will be a potential
development for Jot to move into new era and new market and look ahead with
confidence. The fruitful effects of innovation are not the same with efficiency. Both are
essential for business success but efficiency is not enough to sustain business growth
in the long run. Given a financially viable position, Jot can consider this proposal in
future time.

2) Fast Tracking Argument

The fault in flying spaceship toy is attributable to the rush of its product design by Indy
Kaplia and the corresponding error that occurred. With the plan of developing a new
range of toy for a new market segment, Jot should not rush and should consider the
acquisition of raw materials, the design of new product using CAD/CAM IT system, the
production of their first prototype, market research and improvements through to
production of second prototype and the application of intellectual property rights (IPR’s)
for each product design. With all the required processes to be accomplished, Jot has a
very limited time if they pursue the plan of new toy. If they continue to do this proposal,
they’ll be fast tracking the development and the process of the new line of product that
can affect the quality of it.

3) Research Argument
The proposal about the development and production of new toy is a whole new area
that Jot Company knows nothing about. So if they pursue this proposal, the need for
financial support in development cost and research cost must be prioritize and must be
taken into consideration. Jot must take thorough market research on nonconventional
market segments.

Recommendation:

With the current financial position of Jot Company, it is irrational to pursue the
development of new line of toys for the new market segment. The profit of 240 000 euro
as of December 31, 2011 is not enough for the launching of the new toy. Cash flow of
Jot is strapped with trade receivables. The company is also very dependent on loans
and the banks that is giving the company loans now cut the loans because Jot
Company reached their overdraft facility of 1 500 000 euro, their maximum limit.
Another thing to consider is the ability of Jot Company to provide a high quality
prototype in time for the trade fair.

We recommend not pursuing the development of new toy product for the moment. Jot
can focus on the current trend of the business, further increase the sales, and
strengthen the existing products to be able to attain continuous growth and expand the
business in the future, targeting a new market segment and launching additional
product lines.
 APPENDIX 1:

ETHICAL ISSUES
Faults/Defects on New Flying Spaceship Toy

The safety of the children is of primary importance to the toy industry. The issue of 12
reported incidents concerning the manufacture of the flying spaceship poses an ethical
concern for Jot. These incidents are contributory negligence; however, Jot as the
designer has the primary responsibility to ensure that the products it will sell is safe.
Team Valor believes that the strong brand image of Jot is a competitive advantage of
the firm, thus they have to protect it.

Recommendations:

 Jot should repair the unsold inventory of defective toys and highlight precautions
and warning signs in the packaging of its existing and future toys. For the sold
toys, Jot should notify its customers (retailers) that the warranty period is
extended. They should also advise its customers on minor faults and cover the
replacement cost of any products that end customers may return to Jot’s
customers.
 To avoid such problem again, Jot should ensure that safety is incorporated in
every stage of the product development process. To assure the safety of its toys,
it must thoroughly supervise and put substantial work in toy design, development,
testing, and delivery to provide optimal protection for the children.

Firing of Burnt Out Designers

Employees can be the competitive advantage of a firm. Having loyal workforce can get
things done and efficiently. The industry that the company competing is highly
innovative and highly seasonal, thus having designing team with new, unique, and
innovative ideas is very crucial. However, firing of drained employees may result to
anxiousness. Employees may feel unsettled about their position in which case may
result to inefficiency of the employee.

Recommendation:

 Our proposal is to first retrain the employees, get them in workshops and
trainings to enhance and update their knowledge. If the employee is quickly
revitalized, the company can get them back in the design team.
 Involve the employee with the Marketing Department. The department is very
much involved with the current trends of the market which are also an important
input in development and innovation of new toys.
 APPENDIX 2:

INDUSTRY RESEARCH

The “First Research: Toy Manufacture” published by Little and King Co., LLC on June 7,
2010 has released the following significant market trends of toy manufacturing industry.

Low Wholesale Prices (between 2004 and 2008)

 Wholesale prices of toys, games, and children’s vehicles averaged 1.4%
 Retail prices for toys declined 20%

Educational Toys
 Tend to have a longer life cycle and consumers can justify the higher-pricing
 In 2009, sales of learning and exploration toys outsold the overall sales of
traditional toys. (NPD Group; TIA)

Online Gaming
 One of the fastest growing segments of the electronic gaming industry
 Greater social interaction
 Enable chat and voice conversations
 Downloadable games from the Internet
o Consumers find it convenient
o Game developers save on packaging costs
o Projected revenue is estimated to increase ten times from 2008 to 2013

Targeting Tweens (ages 9-12)

 Toy manufacturers last chance of marketing to this target group before
reach teenage years
 Look for toys that are integrate technology, fashion, sports, and music

Toy Demand and Demographics

 Population changes of young children affect toy demand
 Baby boom produces surplus of children followed by significant drop in births
creating uneven demand
 Population shifts affect demand for products designed for specific age groups
 Total population of children expected to increase through 2050, families are
having fewer children that may limit future toy growth

Large Retail Dependency

 Many companies depend on large retail stores, such as Toys’R’Us, for half of
their sales.
 Just-in-time delivery has forced manufacturers to carry the burden of inventory
costs.
 Cancelled orders and retailer bankruptcies can significantly impact toy
manufacturer sales
 APPENDIX 3:

SWOT Analysis

STRENGTHS WEAKNESSES

 Excellent brand image  Sales revenue is dependent on

 Successful and fast growing company just 7 major retailers
 Profitable company  IT systems is not suited to
management’s need of data it
 High growth in sales revenue (from
requires and lacks integration
16.8% to 17.9%)
 No published corporate social
 Jot’s products mainly include
responsibility
electronic features
 Huge inventory write-down
 Jot launches 5/6 new products each
 Dependent on senior
year and enhance the features some management team, product
of its existing products designers and key employees
 Creative and innovative design team  Dependent on loan finance
 Key employees who are experienced  Reliant on outsourced
in their field manufacturers
 Business is seasonal with
 Experienced and committed sales peaking in the 4th
management team quarter or pre-Christmas
 Excellent marketing team headed by period
 Current reported incidents on
Sonja Rosik product default
 Expanding geographical markets

OPPORTUNITIES THREATS

 Current trend in toy sales is towards  Unpredictable fashion trends

electronic toys and computer  Changing customer preference
assisted learning  Late delivery of suppliers
 Global toy fairs where international  Small changes in product design
retailers and prospective customers by competitors so as not to breach
attend Intellectual Property Rights (IPR)
 Increasing demand of Jot toys in  Large discount market for inferior
Russian and Asian markets products where retail price is 50%
 To earn higher revenues by lower than conventional markets
aiming at new age group  Ethical issues(personal
 To invest in IT solutions in order to donation and gifts)
improve the quality of data for
decision making
 APPENDIX 4:

PEST Analysis:
Macro External Environment Analysis for the Toy Industry

POLITICAL/LEGAL
Loss of sales from “copied” products which does not necessarily breach
Intellectual Property Rights (IPR)
 Loose safety standards in Chinese factories caused the massive toy recall of 2007
which involved over 10 million toys that contained unsafe levels of lead which, if
swallowed, could cause serious injury or even death. This recall not only cost
millions of dollars but severely damaged consumer confidence.
 Toy companies fiercely protect their copyrights and patents. This is illustrated when
Hasbro recently filed suit against Buzz Bee Toys Inc. and Lanyard Toys Inc. to stop
them infringing on Nerf and Super Soaker patents. Companies can be too
aggressive about protecting their copyright.
 Most toys and games are now exported and imported duty free. This relates in
particular to the EU countries. A zero customs rate or a rate of several percent
(depending on the type of product) is applied in the import of toys from China.
ECONOMIC
 Recession resulting in lower disposable income resulting in lower levels of sales
 Increased wage rates in China resulting in higher outsourced manufacturers’ prices.
China’s up and coming working class is demanding more pay and benefits as
China’s economy grows. Example is a worker riot in Hasbro factory in China in
November 2008.
 The combination of cheap labor and undervalued currency in China has been a very
attractive recipe for keeping production costs as low as possible. Though profitable,
it has also made toy companies very susceptible to problems within China itself.
SOCIAL
 Children and “tweens” are spending more time on the internet and social media
sites as high-speed internet and mobile devices enter aggressively the market. A
study released by Henry J. Kaiser Family Foundation found that young people, aged
8-18, spends seven and a half hours seven days a week consuming media.
 While consuming, they are also multitasking. They can fit almost eleven hours of
media into those seven and a half hours (Rideout, Foehr, & Roberts, 2010). This
leaves no time in the day for imagination play with traditional toys and games.
 European toys made of wood enjoy the greatest popularity on foreign markets. They
find many buyers all over the world owing to the high aesthetic value, interesting
designs and the fact that they are made of natural material.
TECHNOLOGICAL
 Increased cost of new technology and electronic chips
 Risk of faults on key electronic components
 Fad toys come and go often and quickly in the marketplace. Toy fads like the Pet
Rock, Tamagotchi, Furby, Tickle-Me-Elmo, and Zhu Zhu Pets can be all the rage
one Christmas then disappear as quickly as they arrived. This cuts into the sales of
larger toy companies with legacy toy lines that have been around for years.
 APPENDIX 5:

Competitive Analysis: Michael Porter’s Five Forces Model

Potential Development of Substitute Products:

High. Children at different ages have shifted
preferences. They areexpecting more stimulation
from their playthings than before. Toy companies
need to compete by making toys with more
technology in them. High-tech toys now compete
directly with non-toy items such as cell phones,
mp3 players, and tablet computers.

Bargaining Power of Suppliers:

Bargaining Power of Consumers:
Relatively high. Majority of Jot's Rivalry Among
products require a range of electronic Competitors: High. Toy outlets are very
components. Some components concentrated. Jot depends on 7
High. All companies
contain application-specific integrated major retailers who accounts for
fight for shelf space,
circuits which are procured from 68% of sales revenue. This leaves
with each other and
specialist suppliers. Although these Jot in a weak bargaining position
every company that
are available from suppliers other with its customers.The rise of online
makes toys and games,
than in China, they are still sales opens the door for
at all of the same
susceptible to price fluctuation. manufacturers to sell directly to the
stores.
(justification) public, retail stores still rule.

Potential Barriers to Entry of New Competitors:

Very low. The industry is fiercely competitive. Many
companies create products that vie for children's
attention and well-known brands invest a lot in
R&D which allows them to introduce new product
all the time.Hasbro, Mattel, BanDai and others
compete with each other for product licenses to
characters from movies and other media.
 APPENDIX 6:
FINANCIAL RATIOS

LIQUIDITY
Financial Indicator 2011 2010
Working Capital 1,782,000 1,565,000
Current Ratio 1.63 1.74
Quick Ratio 1.44 1.52
Operating Cash Flow 551 453

PROFITS AND PROFITS MARGIN

Financial Indicator 2011 2010
Gross Profit Margin 31.9% 32.92%
Operating Profit margin 5.58% 5.41%
Net Profit Margin 3.56% 3.15%

BORROWING
Financial Indicator 2011 2010
Debt-to-Equity Ratio 4.77X 5.4X
Cash Flow Leverage 8.07X 8.18%
Cash Flow Coverage 2.57X 2.25X
 APPENDIX 7:
DISTRIBUTION SCHEDULE

Supporting Computation for Option 1:

Units to be Units per Percentage

distributed customer
7 Major 1,800 257 100%
Companies

Other 0 0 0%
Customers

Total 1,800 100%

Supporting Computation for Option 2:

Units to be Units per Percentage

distributed customer

7 Major 1,120 160 62.22%

Companies

Other 680 about 2 37.78%

Customers

Total 1,800 100%

 APPENDIX 8:
COST-DIFFERENTIAL ANALYSIS

Costs in China
Year 1 327,000
Year 2 575,600
Year 3 852,320
Year 4 1,160,712
Year 5 1,504,668
Total 4,420,300

Costs in Voldania
Year 1 324,600
Year 2 552,700
Year 3 790,846
Year 4 1,039,806
Year 5 1,300,288
Total 4,008,240

Benefit of Nearshoring 412,060

The differential analysis showed a benefit of near-shoring of 412,060 for the five-year
span. The labour rate in China is substantially lower than in Voldania, however its
increase is robust (12% per annum) compared to Voldania (2% per annum). In a span
of 10 years, labour rate in China will exceed to that of Voldania.

Distribution costs will be favorable to Jot because the positions of its warehouses are
much nearer to Voldania (as shown in the map). Also, there is an increasing demand for
Jot products in Russia, which is near to Voldania, so the products of Jot will be
accessible.
 Total Variable Cost in China
Year 1 Year 2 Year 3 Year 4 Year 5

Production in Units 60,000 100,000 140,000 180,000 220,000

Labor Time 36,000 60,000 84,000 108,000 132,000
Labor Rate 1.75 1.96 2.195 2.459 2.754
Machining Rate 1.4 1.4 1.4 1.4 1.4
Distribution cost per unit 3 3.18 3.371 3.573 3.787

Variable Costs Year 1 Year 2 Year 3 Year 4 Year 5

Labor Costs 63000 117600 184380 265572 363528

Overhead 84000 140000 196000 252000 308000
Distribution Costs 180000 318000 471940 643140 833140
Total Costs €327,000 €575,600 €852,320 €1,160,712 €1,504,668

Total Variable Cost in Voldania

Year 1 Year 2 Year 3 Year 4 Year 5
Production in Units 60,000 100,000 140,000 180,000 220,000
Labor Time 27,000 45,000 63,000 81,000 99,000
Labor Rate 5 5.1 5.202 5.306 5.412
Machining Rate 1.96 1.96 1.96 1.96 1.96
Distribution cost per unit 1.2 1.272 1.348 1.429 1.515

Variable Costs Year 1 Year 2 Year 3 Year 4 Year 5

Labor Costs 135000 229500 327726 429786 535788

Overhead 117600 196000 274400 352800 431200

Distribution Costs 72000 127200 188720 257220 333300

Total Costs €324,600 €552,700 €790,846 €1,039,806 €1,300,288

 APPENDIX 9:
E-MAIL ON RECOMMENDATIONS
To: Jon Grun, Managing Director
From: Valor, Central Luzon State University
Date: 31 March 2013

Re: Recommendations

 In order to reduce product over demand, companies may offer early-buy

programs. Jot may promote non-holiday toys such as educational and sports-
related toys during the quarters that have limited revenue such as the third and
fourth quarters. They can also promote toy sales for other holidays, offer
collectibles for sale, promote complementary accessories, and signing licensing
deals with television and movie studios.

 New ways of reaching the youth consumer must be found aside from TV
advertising, especially when budgets are extremely limited. Avenues of
marketing and promotion include newspaper, in-store displays, events with
companies offering complementary products, and trade shows.

 Toy companies may choose to use a certified overseas manufacturing facility in

order to protect the company’s image and reputation. Because of the unfair
wages and employee treatment in countries such as China, the International
Council of Toy Industries (ICTI) offers toy manufacturing facilities a certificate for
providing acceptable wages and safe working conditions.

 Strategic IT alignment to support existing business strategy and support new

technology-enabled initiatives. An effective dynamic IT capability in the area of
supply chain management will attain a competitive advantage, particularly if this
capability is matched by or includes a similarly effective set of complementary

Regards
Valor, Central Luzon State University