Tag Archives: toy manufacturing

Supply Chain Diversification – The Second Biggest Toy Industry Trend

Supply Chain Diversification – The Second Biggest Toy Industry Trend

Aside from (the hopefully) short-term of impacts there are two massive trends having a massive effect on the toy business now and probably for the next decade. The first is sustainability. If your company isn’t in a sustainable product category or if your products are primarily made of plastic materials, then sustainable initiatives are becoming more and more important to keep consumer onside and buying toys.

Aside from sustainability though there is one major shift happening which does not get the headlines but is nevertheless throwing up massive challenges for toy companies. The shift is coming in terms of manufacturing hubs. Whereas we once relied primarily, or often completely on China for manufacturing at affordable costs and with good efficiency, the situation has changed significantly in that a proportion of production is seeping away from China into other countries.

There are a number of drivers of this, which we have covered in detail in other articles, but perhaps the best way to share that with you is to watch this YouTube video explainer we published a year or so back:

This video explains why China is not going to remain the same primary source for toys as it once was.

The point of this article though is to discuss how toy companies can manage the ongoing change.

There have been ongoing problems in toy supply recently – from the initial shutdowns in China due to Covid-19 through to shipping problems, and before that Trump’s tariffs on China, rising costs and much more.

The bottom line here is that toy companies are going to move from a model of having a relatively easy and efficient sole manufacturing hub to needing to diversify their risk across more regions. We have been advising our clients to set up multi-hub capability.

This comes with some pain though – because there is no perfect solution to replacing what China has become. Despite occasional pain points, China has been very reliable and the easy option compared with many other manufacturing hubs. But what happens for companies who don’t set up the multi-hub set up is that when issues hit like they have in the last 18 months or so, supply gets threatened. By having at least small production already set up with vendors to diversify risk, companies can ramp up more quickly than those starting from scratch.

The reality toy companies need to accept though is that these hubs are not necessarily going to be easier. Moving from China’s vastly experienced factories to lesser experienced companies in areas with less mature supply chain can be painful & take a lot of work. But this is where the trend is heading to whether we like it or not. As per our video presentation above, we believe China will keep around half of the toy production they had at the start of this decade, but the rest is going to dissipate further afield with India, Vietnam, other Asian countries and ‘Near shoring’ taking up some of the slack.

The multi-hub sourcing strategy is going to be an ongoing major factor in the toy business for the next decade.

 

Do you need help to understand the toy & game business? We help people from all around the world to understand and successfully enter the toy business. For more information on how we do this, check out our services here: www.KidsBrandInsight.com/services

 

Have you listened to our Playing At Business podcast? We talk about selling toys & games, interview successful people from across the toy business & we look at key trends in the toy & game business: https://playingatbusiness.libsyn.com/

 

5 Must Haves For Toy Factories

Toy manufacturing is a critical part of what we do in the toy business, but because it is boring compared to new product development or less glamorous than glitzy awards and agency lunches, many toy companies fail to pay manufacturing enough attention.

We came up with 5 must haves for any toy factory your company works with:

Certifications – it should go without saying that many retailers will insist on ethical audit certification for factories e.g. ICTI, SEDEX etc. Other certifications which may be needed/which show a certain level of standards attained in the toy business would include Walmart or Disney certification. Normally most established toy factories will have an ISO certification also.

Established customer base – why would you ever want to be a factory’s first customer? New factories have to set up and then refine a bewildering array of processes, procedures and staff training. Why would you ever choose to take on such an unproven supplier, when there is no shortage of established toy factories out there? Unless your business model is to set up captive factories to focus on only your business (in which case, you would tend to start from scratch so you can set things up the way you are used to working) there is a lot of risk in working with an untried supplier. The first question asked should be which toy companies are you already supplying? If the answer doesn’t include a number of long standing established toy companies, then you are likely to be taking the factory on a learning curve at the expense of efficient and trouble free supply!

Matching Core Competence – if your main product lines are small metal cars, why would you work with a factory that supplies primarily large plastic items? Will they have the skills and capability to be a reliable and cost effective supplier? Possibly not! Your factory may be sub contracting production somewhere else, which is all well and good, but they will be adding a margin to the price you pay, so beware of over paying to a factory that has no core competence in the product area you are concerned with.

Competitive and Future Proofed Pricing – pricing is such a factor normally in toy companies moving production from one factory to another. Pricing is of course really important – when c. 30-35% of your sales value is in manufacturing, a few %age points saved can soon add up to big amounts of money. The challenge though is that many toy companies are attracted by ‘golden hello’ pricing, which then creeps up, either on the initial product lines or on subsequent product lines, due to either cut-throat pricing upfront to start the trading relationship or because of genuine cost inflation. If you are considering moving production at the time of writing, the best approach to future proofing pricing for toys is to consider alternative manufacturing regions with lower labour costs for your toy sourcing vs China e.g. Vietnam or India.

Matching Volume Aspirations – factories vary from huge plants set up to churn out massive volumes to smaller plants supplying lower quantities of really high quality products. One of the key considerations for a toy or board game company looking for new manufacturing is matching likely demand with the level of supply which is motivating for the factory. If your business is too small for a larger factory, focus will go elsewhere and you will be unsatisfied with the level of service/focus you get. If you take big volume business to a factory not set up to handle your volume you can run short of supply if they cannot meet demand.

Finding and selecting new toy and board game factories can be very time consuming and risky. We can help, via www.KidsBrandInsight.com/services we work with toy and board game companies to find cost effective factories. We also work on a consultancy retainer basis with a limited number of tried and trusted factories to help them grow their businesses, for more information on how we can help, just drop us a line.

The Future Of Toys – Part 4, Toy Manufacturing Evolution

In the final part of our series looking at ‘The Future Of Toys’, we move onto the potentially dull, but nevertheless essential topic of manufacturing.

There are a number of disruptive factors/trends relating to toy manufacturing whiich are discussed below:

FACTORS DISRUPTING TOY MANUFACTURING

China’s Rapidly Advancing Economy – toy business old timers can tell you of the pre-China era of toy manufacturing, but for most of us in the business, the major source of manufacturing has been China for decades. The reason why China originally attracted toy manufacturing was low labour costs. In recent years, China has maintained the bulk of toy manufacturing due to relative ease of doing business, reliability and capacity. Labour costs in China have been rising constantly though, and today we are reaching a point where the living wage in toy manufacturing hubs in China is moving beyond what is viable for cost effective manufacturing. Our prediction is that China will keep a substantial share of toy manufacturing long term, because a). Evergreen items which can be automated will reduce the need for labour b). China will retain a large amount of tech heavy/high end toy manufacturing which supports higher labour costs c). China will retain manufacturing for the Chinese domestic market which is now the 2nd biggest in the world & growing. However, most toy companies need to start to look outside China for low labour cost manufacturing on standard toy items which aren’t suitable for automation/robots on the production line.

Environmental Concerns – The current plastic backlash we are seeing around the world is a major disruptive threat to the toy business and to toy manufacturing. There are tens of millions of jobs if not more in the manufacturing of plastic products globally. It is likely that we will see either a). Reduction in demand for plastic items and/or b). A move towards more sustainable materials for toys. Lego for instance now has some products featuring materials sourced from sugar cane, but the toy business is likely to need to seriously ramp up utilisation of materials which are bio degradable. The other environmental factor to consider is the carbon footprint of the supply chain, manufacturing at home may be more expensive but clearly transportation of goods from Asia has a negative impact from an environmental perspective and this will push some to ‘nearshore’ manufacturing.

Automation, Robotisation and Artifical Intelligence – One of the biggest disruptors of the coming 2 decades as far as the human species is concerned will be the loss of low end jobs to automation, robots and artifical intelligence. Automation has always been a part of toy manufacturing, but what has prevented automated production lines as standard is the uncertainty of the toy business. With around two thirds of all toy items on shelf each year being ‘new’, that means we have a huge product churn each year, and automation tends to need long term production to be justifiable. It is much easier and more cost effective to throw cheap human labour at toy production lines for products which may fail after a brief 3 month production run. Going forward while it is inevitable some parts of the factory will be taken over by non human labour, it is at this point hard to see the end of humans on the production line for toys when the demand is so variable and potentially short term! The implication of this is that we will still need low cost human labour at the core of toy manufacturing for the foreseeable future.

Trade Wars – the current friction between the USA & China over unbalanced goods shipments and trading practises has definitely accelerated North American toy companies moving some production away from China to other countries. We run a company which helps toy brands find contract manufacturing in India – www.ToyTeamIndia.com and every time there is a new announcement/new threat to shipping toys from China, new customers approach us for help moving production. Longer term though, it seems likely that this issue and the confrontational approach to addressing it is mostly driven by the incumbent President of the USA. Once he moves on, we suspect the focus will shift elsewhere, but in the meantime there is no doubt that the current situation is accelerating some toy production moving elsewhere.

The Growth Of India & Vietnam As Toy Manufacturing Hubs – we have written elsewhere extensively about the growth of Vietnam & India for toy manufacturing. In summary, Vietnam is the easier place for Chinese factory owners to set up new factories for cultural and geographical reasons, and as such many of the major China based manufacturing groups have set up plants in Vietnam. India however, has far more scale potential, in fact it is the only country in the world with similiar population to China, and is currently around 1/3 the labour cost on average. This combined with the existing industrial capacity, especially for plastics manufacturing means that India is likely to become the 2nd biggest toy manufacturing hub in the world in the next 5 years.

Technology has revolutionised business in general in the past decade or more. Currently though the majority of toys are still manufactured with human labour using similiar if evolved injection moulded plastic machines as have been used for a long time. The next wave of technology and the next evolution of toy manufacturing looks set to be an interesting journey for all of us!

For more information on how to find toy manufacturing in India, please refer to our Toy Team India website: www.ToyTeamIndia.com, or feel free to get in touch via the Contact page.