How To Manage The Current Logistical & Operational Chaos In The Toy Business
These are crazy times in so many ways…aside from the ongoing health scare of COVID-19, the logistical situation for those in the toy & games business is as disrupted as it has ever been before. Among the issues we’re trying to manage in our industry, we have container shipping rates which are anywhere up to 1000% of the standard rates in more normal times. We have manufacturing cost increases due to the price of oil going up (increasing the price of plastic), a cardboard shortage increasing packaging costs & costs for games & puzzles, shipping delays out of China – in part due to the container crisis, but also due to COVID-19 outbreaks in and around the port of Yantian, plus we had the closure of the Suez canal which blocked the shipping system even further.
There has been no other time this millennium, and possibly for decades before that which has seen such cost inflationary pressures and such logistical issues with getting stock from the Far East. Even if we can afford to put our inventory on a boat, the reality is that delivery timings are far less predictable than we have become used to.
So now we’ve run through the problems we all know about, what can we do about it? Here’s some suggestions, which although not perfect, may represent the best options available right now:
- Commit to stock earlier – a toy & game company without inventory to sell is not in business. Even if there are cost and therefore profitability impacts, we need stock to sell, especially during peak season. What this means is that prudent action would necessitate ordering stock earlier than normal. Obviously, this not ideal, because then you have additional warehousing costs and cashflow requirements, but these are not ideal times! Any toy companies not having ordered all their stock for the back end should probably consider getting those P.O.’s sent out asap.
- Negotiate price increases – retailers understand what the cost pressures are currently because many of them run their own FOB programs from Asia. Needless to say as always, some retailers will make these unavoidable price increase discussions harder than others, but nevertheless the conversation needs to be had.
- Review ‘Near shoring’ alternatives – let’s take a step back and consider why we source manufacturing from the far side of the world? The answer is cheaper labour and therefore lower inventory costs. But if we are paying as much as $15-20k per container for shipping, and let’s say we have between 5k to 10k units per container, we are looking at a crazy situation of paying between $1.50 to $4 USD per unit (!). So, if we are in the USA, the cost benefit of sourcing from Asia versus Mexico, or if we are in Europe, the cost benefit of Asia versus Eastern Europe or Turkey is completely eroded. The issue of course, is that there is nowhere near enough capacity ‘Nearshore’ for what our industry demands overall, but that is no excuse for not looking around and seeing what is available. The other advantage of manufacturing closer to home is speed. An Eastern European factory can truck product through to anywhere on the EU mainland in just a couple of days, meaning that resupply can be more closely aligned with demand as we enter the beginning of peak season.
- Manufacture/Assembly in local warehouse – it is not uncommon for local warehouses to have to fix small manufacturing issues, to apply labels and to repack products on occasion. But there may be more that your local warehouse can do. For instance, maybe your product needs to come from Asia still because your tooling is in the factory, and tooling transfer for a (hopefully) short-term problem is not deemed practical. But maybe the product can be assembled or placed in packaging locally. The more you can control the better in crazy times like these.
- Embrace the appeal of Scarcity – It’s hard to see how there won’t be some stock shortages this Christmas, and while hot lines normally do sell out, this year seems likely to have more out of stock products than ever before due to the logistical hurdles we are faced with. Should that happen, and you end up with less stock on hand than you wanted, you must do all you can to ensure it all sells out. One of the primary principles of consumer durables marketing is scarcity. By way of example, nothing makes a hot new product like a new iPhone, Xbox or other aspirational product become over subscribed more than a stock shortage. Therefore, if your stock looks short, you need to communicate that to your retail customers and consumers to try to drive scarcity perceptions and sell out what stock you do have.
Truth be told, none of these solutions are great – the bottom line is that everyone (aside from shipping companies!) would prefer to see the current issues resolved, but we have to deal with the grim reality which is in front of us. Here’s to hoping that 2022 is an easier year!
Do you need help to grow sales for your toy company? We help people from all around the world to sell more toys, both in their home markets and into export markets. 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/