Otis Toy Trains Company of Minneapolis, Minnesota, was extremely popular in the 1960’s, 70’s, 80’s, and somewhat the 90’s, however since then they have struggled to meet sales that cover their total costs. This lead to a proposal by the Joyous Luck Prosperity Toy Company (JLPTC) of China, who offered a price per unit of production to be between 40 and 60 percent lower than their current costs. When considering the attractiveness of this proposal, Otis Toy Trains must look at more details than just the lower costs JLPTC is suggesting. One major factor is the fact that their product will no longer be American made. To some customers this is extremely unattractive, and it may affect their loyal customer base. Along these same lines, the idea of overseas production may impact their brand image and history, considering they take pride in being an American classic toy. Keeping these two factors in mind, Otis Toy Trains might also want to consider other impacts on total costs.
For example, will the added transportation and transitioning costs as well as potential lost sales actually outweigh their savings in production? In other worlds, the company is looking at a make or buy decision. These lower costs may come across as pleasing, however there needs to be a reasoning behind them. This is where Otis Toy Trains may need to look into JLPTC’s reliability, and whether or not they are suitable for the tasks they are requiring of them. If Otis Toy Trains accepts this proposal, they should limit their relationship in the early years, where they start out slow and test how the relationship is going to go. This us because it may not work out as well as they hope, and it is too early to commit long-term.
This relationship hopefully works towards a full partnership. Within this relationship, they could have problems with product quality, logistics, and communication. To avoid the quality issue, Otis Toy Trains should focus on a six sigma strategy, which would help them monitor their new manufacturing process. Along with this, they should have regular on site visits to ensure they are meeting the standards. Transporting the goods should be done as efficiently as possible, where they pool their deliveries. Lastly, Otis Toy Trains can satisfy their communication needs by taking advantage of new technology, such as electronic data interchange (EDI) and supplier scorecards.
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