When Arvind arrived at his office on Monday, July 1, 2009, to review end-of-year sales, several matters commanded his attention. The most urgent was that sales of his Toy Company were growing more than anticipated and it had already stretched his production capacity. To meet further sales growth projections, he needed to decide on an alternative.
His company was founded in 1980 with a mission to “reach children’s imagination and bring out their creativity.” He called these toys as “Learning Toys.” The keys to success in this market were continual development of innovative products and a high level of product quality. Toys needed to be creative or durable, available to consumers easily and on time. New toys were to be introduced in the spring toy show, so that orders could be fulfilled by Christmas. The capacity decision had to be made soon so that next spring’s production need could be met.
Arvind, considering that nature of his decision, requested his marketing director, to come up with sales projections for the next four years. The Projections showed that the sales increase were attributed to the following: • Baby boomers reaching pre-school and elementary school. • Growth of international markets @2.5% per year.
• The largest range was patterned after robotic cartoon characters and was showing strong sales or sales potential. Options:
1. Arvind’s first option was to expand existing facilities. However, even if space was available, adding to the facility would put a strain on the already thin management.
2. The process was labour intensive, with plastic parts moulding being the only skilled positions. The process consisted of moulded parts being assembled into kits and packaged for shipment. This rendered the process easily replicable. The operating cost breakdown across three toy lines was estimated...