Supply chain management practices

in toy supply chains

Chee Yew Wong
Center for Industrial Production, Aalborg University, Aalborg, Denmark
Jan Stentoft Arlbjørn
University of Southern Denmark, Engstein, Denmark, and
John Johansen
Center for Industrial Production, Aalborg University, Aalborg, Denmark

Abstract
Purpose – Innovative products usually experience highly unpredictable and variable demand. This is especially valid for the volatile and seasonal toy
industry, which produces high obsolete inventory, lost sales and markdown. In such a volatile industry, what supply chain management (SCM) practices
are applicable and effective? This study seeks to explore SCM practices, and identify practical and theoretical gaps in toy supply chains.
Design/methodology/approach – This article includes a longitudinal and in-depth case study during the past year in an international toy
manufacturer, which includes qualitative semi-structured interviews and questionnaire with 11 main European toy retailers.
Findings – The study concludes that there are three main SCM practices for toy retailers in terms of ordering behaviours (one-off, JIT, and mixed
model), and one dominated SCM practice for toy manufacturers (traditional mass-production or push-models). These low-responsive practices in the toy
supply chain are not caused only by slow knowledge diffusion. SCM know-how is not yet capable of managing such levels of volatility and seasonality.
Therefore, explanations of these theoretical gaps and what new theories are required for such extreme volatility and seasonality are proposed.
Originality/value – It reveals actual SCM practices in a volatile and seasonal supply chain, such that theoretical and practical gaps are identified. Also,
it proposes a model to match manufacturing SCM-practices with retailer SCM-practices.

Keywords Supply chain management, Toys, Economic change

Paper type Research paper

1. Introduction and seasonal in nature, which is relatively different from the

Studies on supply chain management (SCM) practices in
different industrial sectors allow their special features to be
distinguished to the applied practices, and improvement of
SCM theories. These studies have been very valuable. To-
date, studied industrial sectors are, for example,
pharmaceutical (Lurquin, 1996), automobile (Helper, 1991;
Choi and Hong, 2002), apparel (Dapiran, 1992; Christopher
and Peck, 1997), chemical (Vlasimsky, 2003), computer
(Magretta, 1998), telecommunication (Reyes et al., 2000;
Catalan and Kotzab, 2003), agriculture/food (Wilson, 1996;
Cunningham, 2001) and grocery (Fernie, 1995; Zairi, 1998).
However, creative industry, which includes cultural, artistic
and entertainment values, has not been broadly explored.
Toy industry is one of the world’s oldest creative industries.
For centuries, toys help children to have fun and to transform
to creator, masters, emulators, nurturers, friends, collectors,
story lovers, and experience seekers (Del Vecchio, 2003).
However, creative business such as toys is extremely volatile
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Supply Chain Management: An International Journal
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above studied industries. Volatility in the toy industry is
caused by variable and unpredictable demands, very short
and specific selling-windows and short product-life-cycles.
Therefore, investors and practitioners know very well that the
toy industry is far from tranquil (Johnson, 2001a). The toy
industry has incurred relatively higher costs on obsolete
inventory, lost sales and markdown as compared to other
industries. These are the typical consequences of volatility in
the toy supply chains, akin to the fashion clothing industry
(Christopher et al., 2004). To survive, these industries face a
very unique challenge, that is to provide the right toys at the
right quantity at the right stores during the very short selling-
windows and to frequently provide creative and yet price-
competitive toys.
These volatile conditions cause high investment scepticism
and forecast ambiguity among retailers and manufacturers. As
a result, sourcing, production, distribution, and retail
practices in volatile toy supply chains can be significantly
different from other less-volatile industries. One interesting
question is “what SCM practices are applied to manage
volatility and seasonality in the toy industry?” To answer this
question, this study explores SCM practices of toy supply
chains, and reveals their practical and theoretical gaps. The
study also explains the rationales behind the choices (and
absences) of SCM practices. The study further establishes
taxonomies to differentiate toy retailers and manufacturers
according to their SCM practices. Different types of
manufacturers are then evaluated if they are capable in
fulfilling requirements from different types of retailers. The

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 Supply chain management practices in toy supply chains Supply Chain Management: An International Journal
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen Volume 10 · Number 5 · 2005 · 367 –378

study concludes with gaps of SCM practices in the real world
and limitations of the current SCM knowledge in managing
the volatile toy supply chain.
2. Framework of SCM practices
Data collection on SCM practices is guided by a framework of
SCM practices as shown in Table I. SCM involves a wide
variety of subjects and its boundaries are not yet well defined
(Cooper et al., 1997). However, in this study, SCM practices
are defined as approaches applied in managing integration
and coordination of supply, demand and relationships in
order to satisfy consumers in effective and profitable manners.
With this definition, SCM practices suitable for toy (or in
general retail) industry are selected (see Table I). Suitable
measures for the SCM practices are referred from the
references in Table I. These measures are used to derive
suitable questions for data collection, which are explained
hereafter.
3. Research methodology
To explore SCM practices and explain their choices, this
study mainly utilised data from a longitudinal and in-depth
case study during the past one year in an international toy
manufacturer. Case study (Yin, 1994; Ellram, 1996) is the
chosen methodology because two main questions that are
raised in the research – the “how” (SCM practices) and
“why” (choice of the practices). The basic unit of analysis for
the case study is a toy supply chain in European countries,
which involves one toy manufacturer (sales, production, and
distribution) and its customers (buyers and logistics managers
from 19 retailers).
SCM practices of toy retailers (see section 4.2) and
characteristics of the toy supply chain (section 4.1) are
revealed by the case study and close-form questionnaire as
well as feedbacks from the involved retailers. The
questionnaire is executed in three steps, as shown in Table
II. First, semi-structured interviews are conducted with six
selected European key account managers from the toy
manufacturer. The interviews have secured preliminary
understanding of the leading retailers and their SCM
practices and strategies, and have assisted in developing
questionnaires. Second, questionnaires on SCM practices for
retailers are derived, verified and sent to the 19 selected
retailers. The questionnaires have mainly examined the retail
ordering models, key performances, and current and future
SCM initiatives (see results in the appendix). Finally, the
answers of the returned questionnaires from 11 retailers are
analysed and necessary clarifications are made.
Recognising the importance of data sampling (Miles and
Huberman, 1994), appropriate data samples are derived, as
shown in Table II. The 19 retailers from the European
countries are chosen because they are among the leading
retailers in the region with the leading best practice and
visions in the toy industry. They are also the most attractive
customers for the toy manufacturer. Among the 19 retailers,
11 retailers have returned usable answers and were willing to
further explain and discuss about the SCM practices. Key
account managers from the toy manufacturer who served
those selected retailers are involved in interviews and
clarification meetings. Ten interviews were conducted

Table I Theoretical SCM practices used in this study

SCM practices
Supply chain performance
Product differentiation
Lead-time management
Postponement and customisation
Inventory and cost management
Bullwhip effects
Information sharing and
coordination
Buyer-seller relationships
Distribution and logistics
Retail strategy
SCM initiatives
Measures on SCM practices
Inventory turn, gross margin and profit, average in-stock
inventory, ability to measure inventory, etc.
Physically efficient (MTO), physically responsive (MTS) and
market responsive (ATO) for functional, intermediate and
innovative products respectively
Time-to-market, time-to-serve, time-to-react
Logistics postponement, manufacturing postponement,
standardisation, customisation
Gross margin return on inventory (GMROI), obsolete
inventory, markdowns, lost sales, etc.
Demand variability, induced seasonality
EDI/POS, flow coordination, risk coordination
Arms-length, cooperative/partnership, collaboration and
integration
Direct delivery, cross-docking and merge-in-transit
Location, pricing and mark-up, assortment, performance
metrics, forward-buying, delivery destination,
replenishment frequency, order batch sizes
Electronic data interchange or point-of-sales (EDI/POS),
continuous replenishment planning (CRP), efficient
consumer response (ECR), collaborative planning,
forecast, replenishment (CPFR), vendor-managed
inventory (VMI), radio frequency identification (RFID)
Major references
Chain Store Age (2002); Beamon (1999)
Fisher (1997); Li and O’Brien (2001); Wong et al. (2004)
Suri (1999); Christopher et al. (2004)
Pagh and Cooper (1998); Van Hoek (1998); Lampel and
Mintzberg (1996)
Fernie (1995); Ketzenberg et al. (2000); Chain Store Age
(2002)
Lee et al. (1997); Kurt Salmon Associates (1993);
El-Beheiry et al. (2004)
Walker (1994); Lee et al. (1997); Lee and Whang (1998);
Sahin and Robinson (2002)
Kumar (1996); Golocic et al. (2003)
Aichlmayr (2001); Käkkäinen et al. (2003)
Holmström (1997); Zairi (1998)
Lee and Whang (1998); Vergin and Barr (1999); McKenney
and Clark (1995); Pearce (1996); Holmström et al. (2002);
Waller et al. (1999); Käkkäinen (2003)

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 Supply chain management practices in toy supply chains
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen
Table II Data collection methods for retailers’ SCM practices
Date Spring 2004
Method Qualitative semi-structured interviews
Respondents Six key account managers (four from Germany, one from
Scandinavia and one from France)
Themes Obtained preliminary understanding of the leading retailers and 1. Retailer ordering
their SCM practices and strategies, and developed
questionnaires together
during spring 2004 with the six key account managers. They
assisted in construct validations for the questionnaires,
ensured respondents from and clarifications with the
retailers. Terms such as “push”, “pull”, “CPFR”, etc. are
explained in the questionnaires with the “languages”
understandable by the retailers, so that construct validity is
enhanced. Furthermore, reliability of the study is maintained
by a developed case study protocol consisting of the list of all
completed interviews and the themes being discussed during
the interviews.
Nevertheless, the results of this study have a few limitations.
The studied toy supply chain is limited to one toy
manufacturer and 11 retailers (the manufacturer’s
customers) in the European region. SCM practices for other
toy manufacturers are based on the retailers’ feedback and
other secondary data (analysis made by the toy manufacturer
or available case studies from literature). The data is also
limited to the downstream supply chain. Therefore, the
external validity of this study shall be limited as SCM
practices from case studies of the 11 European retailers and
their toy manufacturers. The study does not intend to provide
statistical generalisation because it focuses more on revealing
the reasons of using certain SCM practices, which requires
interviews and explanations in addition to questionnaires.
4. SCM practices in the toy supply chains
This section briefly introduces the toy supply chains, their
terms of its structure, supply chain members and
characteristics (section 4.1), and is followed by descriptions
of the SCM practices for the toy retailers (section 4.2).
4.1 Characteristics of toy supply chains
Toys can be divided into traditional (such as dolls, plush,
action figures, building bricks, vehicles, puzzlers, etc.) and
video games (such as video games, computer games, internet
games, etc.). In recent years, sales growth for traditional toys
has been stagnant while sales for video games have been
growing steadily (Toy Industry Association, Inc., 2004).
Typically, a toy supply chain consists of component/raw
material suppliers, toy manufacturers, toy distributors or
wholesalers, toy sellers and toy consumers. Toy consumers are
children, parents, grand-parents and gift givers. Children are
the main purchase decision-makers, though parents and
grand parents are paying for them. Consumers used to
purchase most of their toys from the traditional channels such
as department stores, supermarkets and independent toy
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Autumn 2004 Autumn 2004
Questionnaire-survey Qualitative interview and clarification
(close-form)
11 out of the 19 leading Five key account managers (four from Germany
European retailers and one from Scandinavia)
Clarification and interpretation of the 11
behaviours answered questionnaires with the 11 retailers
2. Retailer key
performance indicators
3. Retailer current and
future SCM initiatives
specialists. Currently, emerging sale channels such as
hypermarkets, discounters and toy specialists (superstores)
are dominating the toy sales. The electronic channel is still an
insignificant toy seller (therefore the electronic channel is not
discussed in this paper hereafter), but its toy sales are growing
(Toy Industry Association, Inc., 2004). Geographically, toys
are mainly consumed in the European and North American
countries.
Toy sellers purchase toys from manufacturers or
wholesalers. Toy wholesalers or distributors are needed in
some countries especially when toy manufacturers are
geographically distanced from the markets or the markets
are too small for the toy manufacturers. Toy manufacturers
usually have their own brands and designs. Currently, major
toy manufacturers are Mattel, Inc. (Barbie dolls, Hot Wheels
die-cast toy vehicles, Cabbage Patch Kids, etc.), Hasbro, Inc.
(GI Joe, Monopoly, Transformer, etc.), and LEGO Company
(building bricks, etc.). Toys are made from different raw
materials (plastic, woods, textile, and metal), components
(moulded components and electronics components), and
packaging materials (box, can, and printed material).
Manufacturing of these components usually require manual
assembly processes; therefore outsourcing to low-cost
countries is a common strategy. For example, there are
more than 8,000 toy suppliers in China, which exported over
70 per cent of the toys consumed in the US in 2003 (Toy
Industry Association, Inc., 2004).
Currently, the toy supply chain is facing a few challenging
trends. First, kids are getting older younger (KGOY). Toy age
has now been shortened to ten because children have grown
up and out of toys by the time they reach double figures
(Garner, 1996). Second, is the emerging of “tween”, those
age eight to ten these days, a generation of fashion-conscious,
fad-loving, filled-with-attitude youth, who demand for more
sophisticated and fad-driven toys and entertainments. Third,
toy retailers (also retail businesses in general) are
consolidating. Nowadays, toy sales are increasingly
dominated by mass discounters and toy superstores. A NPD
survey indicated that top-five retailer shares of toy market in
the US have been increasing from 46 per cent in 1992 to 52
per cent in 2001. Similar consolidation trends are observed in
most European countries (NPD Group, Inc., 2002). Fourth,
retail price is falling. This is due to the growing of mass
discounters as well as the frequent-discount strategy in the toy
market place. Consequently, consumer price index for toys
has been stagnant and mark-up between manufacturer’s
whole sales price and retail price for toys is lower than the
 Supply chain management practices in toy supply chains
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen
average of all consumer hard goods such as appliances and
house-wares (Toy Industry Association, Inc., 2004).
The above challenges are shaping the characteristics of the
toy industry in certain manners. These characteristics are
specified so that their special features can be distinguished
from other industries:
.
Highly concentrated seasonality. Toys are sold in a cyclic
manner and their sales are mostly concentrated in very
short selling-windows. According to the toy manufacturer,
most toys (60-70 per cent of the toys) are sold during the
last quarter of the year, with a seasonality factor of five to
ten. This means toy manufacturers need five-to-ten time
larger capacity if they wish to produce according to the
actual consumer demand.
.
Short product life cycle. Nowadays, toys introduced during
the current years contribute to the majority of the annual
sales. The percentages of dollar sales by product during
the introduction years have grown from 3 per cent before
the 1990s to 18 per cent in 2003 (NPD Group, Inc.,
2004). This trend is mainly caused by changing consumer
preferences of the KGOY and tween children. Their
attention gap is getting smaller, thus product life cycles are
getting shorter. Also, play is increasingly driven by stories
and characters, therefore success toys are mostly driven by
fashion and crazes. Furthermore, sales window for movie-
related toys has been compressed; once it was four to six
months, now two months or less.
.
Intense competition on innovation and pricing. Toy rivalries
traditionally have been competing against each other on
innovation and pricing. Innovativeness is critical because
most new toys fail in the market (Del Vecchio, 2003).
Furthermore, creativity and innovativeness of toy
designers are challenged by the falling retail price.
Unfortunately, falling price has forced many toy
manufacturers to produce more retro toys (old toys or
toys with old ideas); because they have an in-built brand
awareness and they require lower marketing investment
than the completely new concepts (Chandiramani, 2003).
.
High supply and demand uncertainty. Changing consumer
preferences, high impulse purchase, concentrated
seasonality and intensifying price-competition are among
the main factors that contribute to high uncertainty on
consumer demand. Furthermore, due to low supply
reliability, most retailers and manufacturers usually do not
order according to actual consumer demand. Low supply
reliability is somehow triggered by the low demand
predictability, different ordering behaviours and long
manufacturing lead-times.
.
Intensifying vertical competition and power-asymmetric.
Concentration of retailers has increased purchasing
power of the large discounters and hypermarkets, which
contribute to the increase of price-competition.
Furthermore, many toy retailers have started to compete
with their suppliers (toy manufacturers), as they design
their own products (private labels) and subcontract
manufacturing elsewhere. This threat of backward
integration is increasingly significant, because many toy
component suppliers in low-cost countries (for instance
China) are able to produce complete toys, and also
because retailers are concentrating and increasing their
brand power enough to gain consumers loyalty to their
stores and low-price products instead of the branded
products. The increasing power asymmetric has also
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encouraged the payment of contribution-to-trade (similar
to slotting fees) by toy manufacturers to the large retailers.
Contribution-to-trade is used as aids for in-store
promotional activities or as transportation and
warehousing allowances. Contribution-to-trade is also
used as general agreement on annual volume discounts or
as a mechanism to induce the retailers to allocate shelf
space for the toy manufacturers.
Because of the above volatile characteristics, toys are less
profitable than before due to their unstable and unpredictable
demand patterns. Toy sellers and manufacturers face high
levels of risk and volatility. Therefore, some toy manufacturers
offer early-order or quantity discounts to push the inventory
risk to the retailers. Some retailers use their buying power to
avoid risk-taking or pass some costs to the manufacturers.
However, these practices have promoted inventory
obsolescence and blocking of manufacturer’s capacities from
being more responsive. Furthermore, because markdowns are
seldom allocated, new toys introduced after the selling
seasons (after Christmas) are usually difficult to sell,
whenever there are too high inventories left from the
previous selling seasons.
4.2 SCM practices for toy retailers
As mentioned earlier, toys retailers can be divided into
different channel formats (such as department stores, toy
specialist, discounters, etc.). However, this study reveals that
retailers of the same retail channels do not necessarily operate
their supply chain with similar approaches. Therefore, it is
more appropriate to classify retailers into different ordering
behaviours so that their distinct SCM practices can be
clustered. This clustering approach also enables derivation of
supply and logistic requirements for the toy manufacturers
(Torres and Miller, 1998). Research data (mainly from
questionnaires) show that even though there are many
different channel formats, toy retailers can be divided into
three types from supply chain perspective. These three types
of toy retailer are shown in Figure 1.
The first type of toy retailers is called “just-in-time” (JIT)
or “pull” retailers. They are usually (more advanced)
discounters and toy specialists. They are usually located at
sub-urban, offering low to medium pricing but deep
assortment. Their demands are approximately 60-80 per
cent continuous (pulled) and approximately 20-40 per cent
discrete (pushed). The “pushed” demands are usually due to
the introduction of new products and preparation for the
Christmas seasons. These retailers usually (especially toy
specialties) do not own a distribution warehouse.
Replenishments to stores are made daily (two to three times
per week) directly from the supplier’s distribution warehouse,
with small batch-sizes, pulled by consumer demand.
Therefore, demand variability and induced seasonality
generated by this type of retailers are low. The JIT retailers
are risk averse in terms of carrying inventory and facing
potential inventory obsolescence. Their shelves are usually
filled with low inventory and shelf availability is of great
importance; therefore, they rely greatly in sharing point-of-
sales (POS) information and accurate response from the
manufacturers. These retailers are usually the most
sophisticated one in terms of IT infrastructure and
implementation of novel SCM concepts, such as continuous
replenishment and collaborative forecast. Some of these
 Supply chain management practices in toy supply chains
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen
Figure 1 SCM practices for three different types of toy retailers
retailers plan to implement accurate response and CPFR to
reduce lost sales; and to implement cross-docking to reduce
numbers of receiving from many suppliers and to consolidate
delivery.
The second type of toy retailers is called “mixed model” or
“main-order” retailers. These retailers usually do not sell only
toys, but also many other general merchandises. Many of
these retailers are the discounters and hypermarkets, and the
more-advanced department stores or supermarkets. They
offer medium (and promotional) pricing and medium
assortment depths. Their demands are approximately 20-40
per cent pulled and approximately 60-80 per cent pushed.
The “pushed” demands are mainly for introduction of new
products, promotional campaigns and preparation for
Christmas seasons. These retailers normally own regional
distribution centres (RDC). Deliveries are made from
supplier distribution warehouse to retailers’ RDC on weekly
or monthly and pushed basis. These retailers usually commit
to early orders in exchange for early-order discounts.
Therefore, they create high demand variability and induced
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seasonality to the toy manufacturers. These retailers are risk
averse in terms of lost sales but rather carrying inventory and
face potential obsolescence/markdown. Because demand
predictability and manufacturer’s responsiveness are low,
they usually face high retail closing inventory and markdown.
Currently, there is only a few SCM initiatives commenced by
the main-order retailers in the European toy supply chain,
such as VMI, accurate response and collaborative forecast
(see the appendix). In fact, some of these retailers already
successfully implement ECR, cross-docking and CPFR for
other categories (mainly fast moving consumer goods) but not
yet for the toy category. Some of these retailers have also
initiated discussions with toy suppliers to implement accurate
response, cross-docking, CPFR and RFID.
The third type of toy retailers is called “one-off” or “push”
retailers. They are mainly the traditional wholesales, some
department stores and supermarkets. They usually offer
medium to high pricing and different assortment depths at
different times of the year. They may expand the assortments
just for Christmas season but only with those popular and
 Supply chain management practices in toy supply chains
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen
profitable toys. Therefore, their demands are “one-off” in
nature. Most of the retailer demand is discrete and pushed
but replenishment is rare. These retailers order only few times
each year (per item) with large batch sizes, and they create
very high demand variability and induced seasonality to the
toy manufacturers. These toy retailers take all the risk of
carrying inventory and facing potential obsolescence. These
retailers avoid risks by selling only (proven) marketable toys,
so that their margins are more secure. Therefore, these
retailers do not invest in sharing demand information because
they do not expect accurate replenishment. However, due to
low demand predictability, they still incur certain levels of
obsolete inventory and markdown. These retailers are among
the most “traditional” SCM practitioners. One of these
retailers are currently considering including toy category into
their cross-docking projects.
Overall, the study reveals that most toy retailers apply the
main-order (. 70 per cent) and one-off business models (,30
per cent). More retailers have expressed their intentions to
move towards the JIT or the main-order models, in order to
reduce the risk of inventory and markdown. A few JIT
retailers are formed recently. Some of these JIT retailers,
especially those that have consolidated, are moving back to
the main-order models (by establishment of RDC), or
remaining as JIT retailers (by cross-docking).
5. Evaluation on SCM practices in toy supply
chains
Upon revealing the SCM practices in the toy supply chain,
this section discusses their gaps in four areas: practical gaps
for the toy supply chain (5.1), practical gaps for the retailers
(5.2), practical gaps for the manufacturers’ response to
retailers’ business models (5.3), and finally theoretical gaps of
the current SCM theories in managing the toy supply chain
(5.4).
5.1 Practical gaps for the toy supply chain
This case study concludes that the analysed toy supply chain
is relatively behind in terms of the use of technology,
information sharing, and contemporary supply chain
initiatives such as CPFR, cross-docking and VMI. The level
of information sharing (POS data) is still very low in
European countries (below 50 per cent) compared to the
North America (over 90 per cent), according to the toy
manufacturer. The result of this study is congruent with a
survey reported by Lowson (2002). Both studies conclude
that the use of technology and information sharing (for
example bar-coded merchandise, product data information
sharing, POS data sharing, EDI, sales captured at item levels,
etc.) by the toy sector is relatively lower than other sectors
such as clothing and grocery industries. This is mainly
because most toy retailers are utilising the one-off or main-
order models, and they are less motivated to share demand
information.
For the same reason, SCM initiatives such as CPFR, cross-
docking and VMI are not discussed until the recent years. For
example, among the 11 retailers, only one of them has started
implementing CPFR, and four of them are planning to
implement CPFR (see the appendix). Thus, collaboration
and coordination in forecast and replenishment is still new in
the toy supply chain. Therefore, this study provides similar
conclusion to the study reported by Lowson (2002), that the
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capability of the toy supply chain in reducing risk exposure to
excess inventory is not evident, as there is very few toy (JIT)
retailers or manufacturers who reported the use of “open-to-
buy” period compression, pre-season delivery reduction, or
small order-batch-size replenishment.
5.2 Practical gaps for the toy retailers
Comparing the three types of retailers found in this study, the
JIT (continuous replenishment) model is theoretically the
most effective practice for the toy industry, provided that the
toy manufacturers are responsive enough. However, from the
analysed toy supply chain, only a few retailers have
implemented the JIT model. This is due to two main
reasons. First, the demands for (innovative) toys have been
highly concentration and unpredictable, and most toy
manufacturers are not responsive enough to supply to the
JIT retailers during the peak seasons. Second, the value of JIT
model has not been recognised by the sales people and the
retail buyers, because the savings due to lower inventory
carrying and obsolescence are not well explained or
transparent to them (Lambert and Burduroglu, 2000), while
loses due to empty shelves are easily visible. With these two
reasons, many toy retailers and manufacturers tend to take the
risk of inventory obsolescence, inventory holding and
markdown by ordering large discrete quantity in advanced
of the real consumer demand. Toy manufacturers, especially
the sales people, tend to offer incentives to induce retailers to
commit early-order so that retailers are taking some of the
inventory risks and the problem of capacity constraint can be
eased.
5.3 Practical gaps for the manufacturers’ response to
retailers’ business models
In order to investigate how toy manufacturers have responded
to the different types of retailers, interviews and meetings on
supply chain strategy at the toy manufacturer are carried out.
The toy manufacturer uses a sense-making model to discuss
four strategic choices of toy manufacturers in the toy industry,
based on knowledge from the practitioners and SCM theory.
The sense-making model for the four types of toy
manufacturers is shown in Figure 2, and their SCM
practices are summarised in Table III. The four types of
manufacturers are classified based on some specific
determinants. Classifying manufacturers based on different
strategic determinants, such as product complexity and
dominant stage of product life cycles, are proven beneficial
Figure 2 Manufacturer business models for volatile (toy) supply chains
 Supply chain management practices in toy supply chains Supply Chain Management: An International Journal
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen Volume 10 · Number 5 · 2005 · 367 –378

Table III SCM practices for toy manufacturers

SCM practices Type-I manufacturers Type-II manufacturers Type-III manufacturers Type-IV manufacturers
Examples of toy Many top toy manufacturers which Few toy manufacturers with Some toy manufacturers are None yet
manufacturers outsourced in low-cost countries production facilities mainly in moving towards this strategy
(Mattel, Hasbro) high-cost countries
SC performance High market mediation cost but low High market mediation cost and Medium market mediation cost Low market mediation cost
physical costs high physical costs and medium physical costs and low physical costs
Product All products are functional and All products are functional and Greater response for innovative Detail differentiation of
differentiation made-to-stock and pushed to made-to-stock and pushed to products and lower responsive for functional and innovative
market market functional products products and coordination

Lead-time
Time-to-market 18-24 months 18-24 months 6-12 months 6-12 months
Time-to-serve 7-30 days 7-30 days 1-14 days 1-14 days
Time-to-react 4-8 weeks 4-8 weeks 2-4 weeks 2-4 weeks

Postponement No postponement No postponement Manufacturing and logistics Manufacturing and logistics

and postponement postponement
customisation
Inventory and High obsolete inventory and High obsolete inventory and Lower finished goods inventory Lowest finished goods
cost markdowns markdowns and obsolescence inventory and obsolescence
management
Bullwhip effects High demand variability High demand variability Low demand variability Low demand variability
Information Less information sharing and flow Less information sharing and More information sharing and Extensive information sharing
sharing and coordination flow coordination flow coordination and flow coordination
coordination
Buyer-seller Arm’s-length and trading Arm’s-length and trading Collaborative relationships Collaborative relationships
relationships relationships relationships
(downstream)
Distribution and Centralised distribution Centralised distribution EDI/POS, direct delivery, lead-time Cross-docking, merge-in-
logistics reduction transit, direct delivery
Current and Outsourcing, low-cost production Cost-cutting, cross-docking, Cross-docking, CPFR POS, CPFR, market response,
future SCM CPFR risk-coordination
initiatives

in studying SCM practices (Cigolini et al., 2004). For toy
supply chains, due to their nature of volatility, the
manufacturers are distinguished by their responses to the
markets in terms of the offered market mediation and supply
responsiveness (Fisher, 1997; Wong et al., 2004).
Type-I manufacturer is the traditional business model for
toy manufacturers. They offer low supply responsiveness but
high market mediation allowance. They can be called “low-
cost mass-production manufacturers” or “container
manufacturers”. Their main strategy is mass-production of
early-orders with infrequent replenishment. They consider
toys as functional products and supply them by a physically
efficient or physically responsive supply chain (Li and
O’Brien, 2001; Wong et al., 2004). This strategy usually
relies on low manufacturing and distribution costs (physical
costs) by mass production and distribution strategy, which
allows higher market mediation allowances, for brand
promotion, markdown, discounts and write-off of obsolete
inventory. They avoid investing in shortening lead-times and
postponement. They do not use POS data for accurate
response (POS data are available partially and not fully
utilised). Type-I manufacturers will have a better position if
their brand power is high and the products are perceived as
creative. Typically, most of the largest toy manufacturers (e.g.
Mattel, Inc.; Hasbro, Inc.) reside in this business model.
Most of them outsource to Far East (especially China) in
order to maintain lower cost (Johnson, 2001b).
However, competition among toy manufacturers is
intensifying due to the low concentration as well as the
emergence of many new innovative competitors, and they are
fighting for shelf space from the concentrating retailers in the
slow growing toy market. Toy manufacturers with higher fixed
costs have difficulty to compete, because most of the growing
toy retailers are mass discounters with low-price strategy. This
results in falling retail price. Therefore, some type-I
manufacturers (especially those producing in high cost
countries), which have been losing ground in the intense
price-competition, are now being shifted to type-II
manufacturers.
Thus, type-II manufacturers are usually originated from
type-I manufacturers. They are called “high-cost mass-
production manufacturers”. They have SCM practices
similar to the Type-I manufacturers, but they have higher
fixed and production costs, because their production facilities
are usually located at the high-cost countries (mainly in US or
Europe). Even so, they are not able to take advantage of
shorter geographical distances to the market because of the
mass-production strategy. Therefore, they are trapped in the

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 Supply chain management practices in toy supply chains
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen
dilemma, whether to return to type-I manufacturer (low cost
strategy) or to find new competitive edge, for example,
creating a responsive supply chain.
Type-III manufacturers choose to partially produce pre-
season demand and chase the remaining demand during peak
season using quick response (QR) strategy (Suri, 1999). They
supply innovative products by a quick response supply chain
while functional products by an efficient supply chain. They
offer high level of supply responsiveness but low market
mediation allowance. This is because market mediation
becomes less necessary as long as the manufacturers are
capable of fulfilling the changing volumes and demand mix.
However, the research found limited successful examples of
such manufacturers in the toy supply chains, even though
most toy products are innovative (Wong et al., 2004). Some
European toy manufacturers are in their progress of moving
towards this strategy, by extensively reducing lead-times and
building packaging factories in cheaper European countries to
serve the European markets. These manufacturers require
information sharing and replenishment coordination with the
retailers in order to enable manufacturing and logistics
postponement, and therefore a more collaborative
relationship. These manufacturers are currently improving
the EDI/POS networks, implementing lead-time reduction
and direct delivery. Cross-docking and CPFR are among the
planned SCM initiatives, in collaboration with some leading
retailers.
Theoretically, type-IV manufacturers are able to
simultaneously offer high supply responsiveness and high
market mediation allowance. They have distinctive capability
in differentiating the supply chain and coordinate with the
relevant supply chain members. They are able to operate and
switch from (and to) mass-production and responsive supply
chains. At this moment, this strategy is not found from this
research but is envisioned by the toy manufacturer.
Unfortunately, toy manufacturers that started
transformation towards quick response are still at their early
learning stage.
Overall, not all these four types of manufacturer are
effective in fulfilling the requirements from the three types of
retailers. Their matches and mismatches are shown in Table
IV. From the retailer perspective, one-off retailers need mass-
production manufacturers because they can provide low
physical cost and high market mediation allowance. This
requirement can be fulfilled by type-I and type-IV
manufacturers. Meanwhile, main-order retailers require
both responsiveness and market mediation, which can be
best fulfilled by type-III and type-IV manufacturers. However,
JIT retailers require a responsive supply chain; therefore, type-
III and type-IV manufacturers are the most suitable
manufacturing models. Generally, type-II manufacturers are
not able to compete with other types of manufacturers in
terms of supply responsiveness and market mediation.
Table IV Matching business models of toy manufacturers with retailers
Manufacturer matching retailer Type-I manufacturer
One-off retailer Perfect match
Main-order retailer Partly match
JIT retailer Not match
Supply Chain Management: An International Journal
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However, this study has provided evident that some
retailers are moving towards the main-order and JIT
models. Due to intensifying competition in the toy industry,
some toy retailers seek to reduce logistic costs and inventory
risks to remain competitive. Then, the risk of low availability
(stock out) becomes the major retailers’ concerns. This is why
traditional manufacturers’ (type-I and type-II manufacturers)
approaches to SCM are ineffective for the volatile supply
chain. Recognising this gap, some toy manufacturers
(especially type-II) are seeking transformations to regain
competitiveness. These manufacturers either choose to move
back to type-I manufacturers (for example, outsourcing to
low-cost countries) or transform to responsive manufacturers
(type-III or type-IV) or using the hybrid model.
Some toy manufacturers choose to employ the hybrid
model by outsourcing functional toys to the Far East for
mass-production and producing innovative toys in the
European or American countries. Similar hybrid solution is
found in the clothing industry (Bruce et al., 2004).
Unfortunately most toys are innovative instead of functional
(Wong et al., 2004); therefore the choice of mass-production
strategy is ineffective. The interesting questions are: why are
most toy manufacturers still using the traditional mass-
production strategy? And, why is the transformation towards a
more responsive toy supply chain still slow and difficult?
5.4 Theoretical gaps for the toy supply chain
The questions above are indeed good indicators of theoretical
gaps. Shortfall in SCM theory might be one of the causes for
the slow transformation towards demand-driven supply
chains (such as JIT retailers and responsive manufacturers),
and the low applications of technology, information sharing
and contemporary supply chain initiatives in the toy supply
chains. These gaps emerged as insights from the case study;
they are identified and explained as follows:
.
Contemporary SCM concepts are inadequate in managing the
extreme seasonality, high uncertainty and short product life
cycle. The poor supply chain performance in toy supply
chain is mainly attributed by the dominant use of the
mass-production manufacturing strategy (types I and II)
and the one-off retail ordering behaviour, which relies
mainly on the use of speculative capacity and investment
in finished goods inventory to respond to the high levels of
volatility and seasonality. Furthermore, the study found
no success cases of the use of accurate or quick response
strategy. This is due to the extreme concentrated and
highly-unpredictable demand. Also, the capability to
master uncertainty and control business environment
remains unreachable due to the fragmentation of toy
manufacturers and the asymmetric power-structure in the
industry. Furthermore, the theory of supply chain
coordination, mostly derived from mathematical
modelling by operations research and management
sciences literature, still lacks applicability in practice,
Type-II manufacturer Type-III manufacturer Type-IV manufacturer
Not match Partly match Perfect match
Not match Perfect match Perfect match
Not match Partly match Perfect match
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 Supply chain management practices in toy supply chains
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen
due to the use of some critical assumptions (Sahin and
Robinson, 2002).
.
Lack of capability in supply chain strategic formulation and
execution. The toy supply chains lack capability to
transform from traditional mass-production to
responsive and adaptive supply chains. According to the
questionnaire result, a few leading retailers have already
initiated discussions on implementing supply chain
initiatives such as cross-docking, CPFR and RFID since
the early 2000s, but successful implementation of such
initiatives are rare. Unfortunately, SCM theories mostly
define the capabilities required to manage the supply
chains effectively but not the “how-to” in transforming the
supply chains. Especially in highly volatile toy supply
chains, strategy formulation and execution require
dynamic and interactive processes (Fuchs et al., 1998).
Furthermore, execution is really about people
management, and people management across volatile
supply chains is certainly a great challenge. That is why
Beth et al. (2003) mention, “Despite years of process
breakthroughs and elegant technology solutions, an agile,
adaptive supply chain remains an elusive goal. Maybe it’s
the people who are getting in the way.”
.
Lack of integrated SCM framework that includes the retailers,
distributors, manufacturers and suppliers together. The lack of
integrated knowledge is evident from the observed
mismatches between manufacturers and retailers’
business models. Marketing and economic literature
provide knowledge in managing retail business, including
category management, retail strategy, retail purchasing
strategy, but they are seldom extended to the supply chain
literature. Similarly, supply chain literature mostly focuses
on production and distribution, but it is rarely extended to
retail business, consumer buying behaviours and
consumer values. The need for an integrated and
holistic SCM framework is also argued by Gattorna
(1998); he suggested a strategy alignment model for
supply chain alignment, which includes market, strategic
response, cultural capability, and leadership as four main
aspects to be considered in strategic formulation and
execution processes. The needs for understanding and
providing buyer value have also been suggested by Porter
(1985). Therefore, profound understandings of retailers’
business models, business objectives and value chains
become essential prerequisites to integrate the toy supply
chains.
.
Lack of insights on how value may be generated by risk-
sharing among different supply chain members. The practices
of offering early-order discounts, contribution-to-trade
and private labels are evidences of risk avoidance in the
toy supply chain. Therefore, literature of supply chain
coordination needs to operationalise different
coordination mechanisms for different retailers’ and
manufacturers’ risk-taking attitudes. So far, several
coordination theories have been established. For
example, to change the uncertainty landscape in the
supply chain, Lee (2002) suggests a risk-hedging supply
chain in addition to an agile supply chain. Furthermore,
Sharp and Hill (1998) shows that it is possible to
understand customer’s “comfort zone” in order to work
together with customers in enhancing value. However,
more of these theories need to be operationalised.
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Volume 10 · Number 5 · 2005 · 367 –378
.
Lack of exploration on how different SCM concepts may be
combined to cope with the changing business environment. As
mentioned earlier, demands for toys are low and
infrequent during the low seasons, but extremely
concentrated and unpredictable during product
introduction and peak seasons. Furthermore, demand
patterns for toys vary greatly during its short product-life-
cycles. Therefore, there is a need for the capability to
differentiate the business environment and switch to
different supply chain strategies timely. However, it is
evident from the study that most toy manufacturers and
retailers employ only a single strategy without capability to
combine, for example the lean and agile or responsive
concepts. According to Christopher and Towill (2001),
lean and agile are not mutually exclusive paradigms and
they may be combined to gain advantage in many different
ways. Similar approaches in combining lean and agile
paradigms have been proposed by Nylor et al. (1999), by
mainly considering product and demand characteristics as
variables. It is perhaps also possible to combine the
concepts of quick response (Suri, 1999), accurate
response (Fisher and Raman, 1996) and supply chain
coordination (Lee et al., 1997), especially for the volatile
toy supply chains.
7. Conclusions
This in-depth case study reveals the characteristics of the toy
supply chains as well as the retailers’ and manufacturers’
SCM practices. Toy supply chains can be characterised as
volatile and seasonal due to their highly-concentrated
seasonality, short product-life-cycle, intense competition on
innovation and pricing, high supply and demand uncertainty,
and intense vertical-competition and power-asymmetric. The
studied retailers have responded to this business environment
with three distinguished SCM practices, namely “JIT”
(replenishment or pull) model, “main-order” (mixed of
push and pull) model, and “one-off” (push) model.
Most toy retailers and manufacturers mainly apply the
“push” business model, with low utilisation of technology and
information sharing, and they are slow in implementing
contemporary supply chain initiatives. Indeed, most of these
retailers wish to reduce the risk of inventory and markdown
by implementing the demand-driven (JIT) model and
therefore initiating supply chain initiatives such as accurate
response, cross-docking, and CPFR. The volatile nature for
toy demand and these retailers’ wishes require toy
manufactures to be more market responsive; however, most
toy manufacturers have responded with the traditional mass-
production strategy (low market responsive). This
mismatched strategic response is explained by the choices of
“push” business models and SCM practices by most of the
toy retailers and manufacturers.
The mismatch of toy manufacturers’ strategic responses to
the toy retailers’ practices and business models are revealed
through a sense-making model, which provides an imperative
implication to theoretical building. Thus, this paper also
argues that theoretical gaps of the current SCM theories can
be one of the main causes for these observed practical gaps in
the volatile toy supply chain. SCM research shall focus on
deriving conceptual and technical solutions for managing the
extreme seasonal and unpredictable business environment,
enhancing the strategy formulation and execution capabilities,
 Supply chain management practices in toy supply chains
Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen
integrating the SCM theories, and operationalise the theories
of supply chain coordination and risk-sharing.
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Chee Yew Wong, Jan Stentoft Arlbjørn and John Johansen Volume 10 · Number 5 · 2005 · 367 –378

Appendix

Figure A1 Questionnaire results 1-3

378