Thedecline margins our popular in on Gtoftry doIIproduct become has intolerable. production Increasing haae costs dropped pretaxmarginto less our than10%, below historical our 257omargins, wearegoing If far to increase margins, need consider our we to drastically shiftingour production towards sfecialtydolts aie that earning large prnniumin priceoaer standard line. a our doll -Robert Parker,President, G.G.Toys
Robert Parker, president of G.G. Toys, was discussing last month's operating results with Audrey Hausner, G.G.'s conkoller, and David Morehouse, G.G.'s manufacturing manager. The meeting was taking place in an atmosphere tinged with apprehension because margins on thelr most popular product, the "Geoffrey doll," had been declining rapidly in the last few years due to rising production costs (summary operating results for the previous month, March 2000, arc shown in Exhibits 1 and 2). Parker saw no choice but to shift the company's product mix towards specialty dolls that carried a high price premium, and thus, a 34% margin. G.G. Toys was a leading supplier of high-quality dolls to retail toy stores throughout the U.S, The comPany had started with a unique design for molding highly durable dolls using vinyl and resin materials. G.G. quickly established a loyal customer base among retailers because of the high quality and popularity of its manufactured dolls. It soon established a major presence in the market with its high-volume Geoffrey doll product line. The company operated two separate plants. The Chicago plant was used for the production of various dolls. The Springfield plant was used solely to assemble doll cradles to complement the company's dolls. The Geoffrey doll was designed to be a replica of an infant boy or girl clothed in a simple pajama outfit with movable acrylic eyelids and jointed, movable arms and legs. Boy and girl versions of the doll were produced to almost identical specifications with minor differences in the face and length of hair. The early popularity of the Geoffrey doll allowed the company to produce both versions of the doll in high volumes using the same production process. While prices for the standard Geoffrey doll line remained steady, rising costs of production had eroded gross margins in this product line from well over 25%to9%. Competition from other doll manufacturers and demand from retailers prompted G.G. Toys to complement its existing product line with higtrly specialized versions of the Geoffrey doll that
retaiierscould brand as their own line. G.G. Toys beganproducing customizeddolls for retailers under their "specialty-branded" product line. Under this product line, retailers placed orders for dolls with their own customizedspecifications hair color,skin tone,and pajamastyle to reflectthe for tastes the customer of segments they served.
Chicago Manufacturing Plant
G.G. Toy's production processfor dolls started with the purchase of raw materials, such as vinyl and resin for the doll bodies and wool and other fibers for doll hair and pajamas, from several suppliers. ln its modern Chicago manufacturing facility, the company machine-molded the vinyl and resin into doll bodies, hand- and machine-sewed the various fibers into pajamas and hair for the dolls, and assembledthe final product. Doll bodies for the specialty-branded line were produced to the same specifications as the standard Geoffrey doll in terms of shape and size. However, the pajama outfit of this line was often more ornate than the simple pajama outfit of the standard Geoffrey doll. Thus, more specialized material cuts and hand assembly were required. Also, because of the customized nature of the specialty-branded product, there was much more variety in skin tone, eye color, hair color, and hair length for these dolls than there was for the standard Geoffrey doll. The same equipment and labor were used for all doll product lines, and production runs were...