Document Sample
					                                          CASE IMAGINATIVE TOYS
When Gerald Kramb arrived at the company offices early            snapped together to form from two to four different toys.
on Monday, July 1, 1991, to review the end-of-the-year            Designs were patterned after the robotic characters in chil-
sales and operating figures, several pressing matters com-        dren’s Saturday morning cartoon shows. Namura was sure
manded his attention. Sales had been much stronger than           that this new line was just beginning to take off.
projected in 1990 to 1991, and existing production capac-             As Kramb reviewed the alternatives, he wished that
ity had been fully utilized, with excessive overtime, to meet     expanding existing facilities were a viable option. Were the
demand. Sales forecasts for the coming year indicated fur-        necessary space available, adding to the Seattle facilities
ther rapid growth in demand, and Kramb knew that added            would put much less pressure on the company’s already
capacity was needed. Several alternatives were available to       thin management structure. As it was, suitable space was
the company, and he wanted to be sure that all the key fac-       nowhere to be found in the Seattle area. However, the
tors were considered in making the decision.                      processes used to manufacture the three product lines
    Imaginative Toys was founded in Seattle, Washington,          could be replicated easily at any location. All three line
in 1975. When he founded the company, Gerald Kramb                processes were labor intensive, with plastic parts molding
envisioned that Imaginative Toys would develop and pro-           being the only skilled position. The construction toys con-
duce toys that “reach children’s imagination and bring out        sisted of molded plastic parts that were assembled into kits
their creativity.” He liked to call these toys “learning toys.”   and packaged for shipment. The maze and mind toys
Two product lines quickly emerged as the mainstays of the         required some parts fabrication from wood and metal
company: construction toys that were similar to Lincoln           materials. Then these parts were assembled into toys that
Logs and Legos and maze and mind toys that focused on             were packed for shipment. The transformers were made
solving puzzles and developing hand–eye coordination.             from molded plastic parts that were then assembled with
The toys were quickly accepted in the marketplace and             various fasteners and packed for shipment. The operating
became a popular choice for day care centers, preschool           costs breakdown across all three toy lines was estimated to
facilities, and elementary schools, as well as for parents.       be 30 percent materials, 30 percent labor, 20 percent over-
    Keys to success in this market were continual develop-        head, and 20 percent transportation and distribution.
ment of innovative products and a high level of product           Obtaining the raw materials used to manufacture the toys
quality. Toys needed to be both creative and durable. Two         would not be a problem for any location.
other important factors were timing and availability. New             Kramb and his staff had researched two alternative
products had to be ready to be introduced at the spring toy       locations for expansion. One was in a maquiladora in
shows. Then sufficient capacity was needed to fill retail         Nogales, Mexico, across the border from Tucson, Arizona.
orders by late summer in order to be ready for the                The improving trade relations and projected relaxation of
Christmas buying season. Hence, Kramb knew that any               tariffs and duties made this an attractive alternative. Labor
capacity expansion decisions had to be made soon to meet          costs also could be substantially reduced. If skilled labor
next spring’s production needs.                                   was not available to mold and fabricate the parts, these
    Because of the long-term nature of the decision, Kramb        operations could be done in the United States and the parts
had asked Pat Namura, the marketing director, to prepare          could be shipped across the border to Nogales for assem-
a four-year sales forecast. This forecast projected strong        bly and packaging.
growth in sales during the four-year period for several rea-          The second alternative was to locate in Europe. A plas-
sons. First, the 1960s baby-boomers’ children were reach-         tic injection molding company outside Brussels had
ing preschool and elementary school age, and child care           decided to close and was looking for a buyer. Labor costs
facilities were rapidly expanding to accommodate these            would be comparable to those in Seattle, but transporta-
children, whose parents typically both worked. A second           tion cost would be 10 to 15 percent higher on toys shipped
factor was the growth of international markets. Domestic          back to the U.S. market. However, the Brussels location
sales remained strong, but international sales were grow-         was attractive because of the European Community’s pro-
ing at the rate of 25 percent per year. An important factor       jected single-market program. It was designed to bring free
to consider was that, in a trendy business such as toys, the      movement of people, goods, capital, and services to the EC
European market was one to two years behind the U.S.              by January 1, 1993. The 1988 Cecchini report developed
market. Namura attributed this lag to less developed tele-        for the European Commission forecasted an increase of
vision programming targeted toward children.                      5 percent in the gross EC product from this program. By
    Finally, Imaginative Toys had just launched a new line        producing in Brussels, Imaginative Toys also could avoid
of toys, and initial sales figures were very promising. The       the 6 percent tariff on goods entering the EC.
new line of toys was called Transformers. Much like a puz-            As Kramb prepared to meet with his staff, he wondered
zle, each of the transformers could be rearranged and             how the company would be affected by expanding to a
multisite operation. Conceivably, the decision would be to     2. What role, if any, do the competitive priorities of
expand into both Mexico and Europe. If the sales projections      Imaginative Toys play in the location decision?
held, the demand would support a three-plant network.

1. In making the location decision, what factors would         Source: This case was prepared by Dr. Brooke Saladin, Wake Forest
   you consider to be dominant? Secondary?                     University, as a basis for classroom discussion.