Forecasting the demand for merchandise and toys to support a new Star Wars film always requires a bit of magic and Jedi Arts. How many of each different action figure, light saber and book should be produced? It has been almost 10 years since the last film was released so there is no recent supply chain data to analyze. And, of course, we want to avoid a 1977 style imbalance of the force (between supply and demand) when toys weren’t able to be mass produced in time for the holiday season. What if we forget about the traditional mass production in China model. What if, instead, toy manufacturers should use 3D printing to create action figures and other toys on demand? Here is how it would work.
One year from today (December 18, 2015) the seventh episode of the Star Wars saga will be released into movie theaters around the world. The movie will only last two hours, but kids will relive the movie for years afterwards with the Star Wars action figures and other new toys that will accompany the film. Forecasting demand for toys and merchandise associated with a major movie release can be quite challenging. When the original Star Wars action figures were released in late 1977 there was a huge supply shortage the following Christmas.
On the morning of February 3rd, 1975 Eli Black, the Chairman and President of United Brands Company, arrived early to his office on the forty fourth floor of the Pan Am building in Manhattan. Using his briefcase, Black broke open the window then jumped to his death. Investigations into Black’s death uncovered a large conspiracy between United Brands and the government of Honduras. The incident involved taxes on banana exports from the Central and South American countries such as Honduras, Guatemala, Ecuador, Columbia, Nicaragua, Panama and Costa Rica.
The Consumer Products Safety Improvement Act (CPSIA) will lead to a safer Christmas for children this year due to its tighter restrictions on the use of lead and Phthalates in toys, games and youth apparel. But were toys really that unsafe before the CPSIA regulation? The roots of the law can be traced back to a series of high-profile product recalls in 2007 by leading toy manufacturers. For example, in May 2007 approximately 1.5 million Thomas and Friends wooden toy train sets were recalled by RC2 Corporation due to the use of lead paint on the cars. A few months later Mattel announced a voluntary recall of a group of Fisher Price toys due to a non-approved paint containing lead being used by its contract manufacturer. Mattel conducted several subsequent recalls that ultimately totaled 1.5M toys worldwide.
I recently came across a crowdsourcing model, which I believe has potential to disrupt traditional demand forecasting approaches in the apparel segment if widely adopted. The case study involves a web-based company called Threadless.com, which is an online retailer of T-shirts targeted towards teenagers and Gen-Y consumers. In other words, Threadless sells a fast-fashion, short lifecycle product to highly fickle youth demographic. Yet despite these challenges, Threadless has enjoyed amazing success selling out of every T-shirt it has ever manufactured. Perhaps more impressive is that Threadless has amongst the lowest product development costs of any retailer in the apparel sector.
The Fast Moving Consumer Goods (FMCG) segment spends a considerable amount of its marketing budget on trade promotions. It is not uncommon for FMCG brands to spend 15% of sales on promotions with retailers. Trade promotions are designed to generate uplift in sales for the brand owner. There are hundreds of different types of promotions. Many involve a discount to the end consumer. Examples include price discounts; manufacturer coupons; value packs; bonus packs and special events. Manufacturers also offer financial incentives to retailers to perform specialized in-store advertising and product placement on an end-cap or near a checkout. However, retailers and wholesalers of FMCG products also use the promotions as a strategy to maximize profits.