Lil' Me Dolls Deals with the Millions of Toys (MOT) Proposal

It was late on Friday, and Lisa Jacobs, the CEO of Lil' Me Dolls, re-read the document before her. It was a proposal from the MOT (Millions of Toys) retail toy chain offering to carry the Lil' Me line of dolls. At first glance, this seemed to be too good to be true. If she agreed, the demand for Lil' Me dolls would increase threefold in one year, and Lil' Me Dolls would become a household name. Finally, if done right, this deal would provide financial security to Lisa Jacobs, Roberto Martinez, and the other founders of Lil' Me Dolls.

Lil' Me Dolls

Lil' Me Dolls was the brain child of Roberto Martinez, a pediatrician and surgeon located in Albuquerque, New Mexico. As Roberto worked with small children (ages 7 to 13), he noticed that they seemed to do better if they could hold a life-like doll. The dolls appeared to become friends and confidants, someone with whom the children could share their fears and pains. Consequently, he decided to design and make life-like dolls for his small patients. This led him to contacting Lisa Jacobs, an artist that he knew, to make the first doll. The resulting head, based on Lisa's own eight-year-old daughter, Sarah, was the origin of the Lil' Jill series. What quickly surprised Roberto was the demand for this doll! Parents and visitors visiting the ward wanted their own dolls as gifts for their daughters, nieces, and granddaughters. It quickly became apparent to Roberto that this was not something that he wanted to manage, since he liked being a doctor. He approached Lisa with a proposal that together they form a company to make and deliver such dolls.

Lisa quickly recognized that there were several keys to success. First, the company had to release new doll heads on a regular basis. These new heads had to reflect the diversity observed in society. Since Lisa was closely tied into the artistic community of Albuquerque, it made sense for her to secure the involvement of various local artists in designing such heads. Soon, Lil' Me Dolls was able to offer six new doll heads a year. These heads were unique; Lil' Me Dolls became the first company to offer doll heads that were African American, Asian, and Hispanic. Sold primarily on the Internet, Lil' Me dolls were offered in two sizes-18 inches (for $129 plus shipping) and 24 inches (for $179 plus shipping). By the end of the company's first year of business, sales were growing strongly, and the production of Lil' Me Dolls had moved from a rented loft to a small converted warehouse located on the outskirts of Albuquerque.

Lil' Me Dolls benefited from some unique advertising opportunities. For example, Lil' Me Dolls was approached by the "Make-a-Wish" Foundation with an interesting request. One of their candidates had asked specifically to visit the Lil' Me Dolls factory, because she loved its products. Lil' Me Dolls agreed, provided that it could get a picture of the girl. When the girl came to the plant, at the end of the tour, she was presented with her own unique Lil' Me dolla doll that looked exactly like her (this became the Lil' Jenna line of dolls, which was one of the most popular ever sold by Lil' Me Dolls). This story was quickly picked up by the media. After the story appeared, everyone seemed to want their own Lil' Me doll.

From its beginnings, Lil' Me Dolls targeted parents or grandparents or relatives as key customerspeople who wanted a unique, life-like gift for young girls. Furthermore, they wanted dolls that not only were life-like but that also could be dressed like their owners. As Lil' Me Dolls grew, a cottage industry grew up making matching clothes for both the dolls and the children. Since these dolls were primarily given at Christmas as gifts, reliably meeting the Christmas delivery date was essential to successyou could not miss a delivery to a young girl on Christmas. Meeting these delivery deadlines was made inherently more challenging by the very complexity of the product. One day, Lisa calculated that, given the number of head types, eye colors, skin colors, expressions, and sizes, Lil' Me Dolls could make over 60,000 different unique dolls. Because these dolls were often prized and used (or abused), Lil' Me Dolls soon began providing repair services.

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By the time of the MOT proposal, Lil' Me Dolls had gotten to the point where it could grow no more given the current strategies and business model. It was profitable, but barely. Lisa knew better than anyone else that Christmas sales could literately make or break the company. Every year, she worried about the survival of the company; she wanted something more sustainable and that something appeared to be the MOT proposal.

Enter Millions of Toys

MOT was a major retailer of kids toys, clothing, and accessories in North America, with over 2,000 stores worldwide (along with a significant Internet presence). Soon after Lil' Me Dolls was established, MOT recognized that it needed to offer its customers something unique and prestigious. Lil' Me Dolls was that something.

MOT proposed to offer Lil' Me Dolls through both its brick-and-mortar stores and its Internet site. However, MOT made some specific demands of Lil' Me Dolls. First, the price had to be reduced by at least 25 percent. Second, since its customers were primarily price sensitive, MOT wanted only a limited number of dolls25 different types in total. Delivery and sales were expected to occur all year round. MOT would select the dolls, while Lil' Me Dolls would service all returns and repairs. Furthermore, MOT required that an initial order of 5,000 dolls be delivered by the start of November, with an additional 5,000 dolls delivered over the next two months. This was almost twice Lil' Me Dolls' annual production. As with all such contracts, there were penalties for failing to meet obligations.

On paper, the deal looked good. If successfully carried out, it ensured Lil' Me Dolls' survival. Yet, something seemed to bother Lisa about this deal.

1. What recommendations would you give Lisa Jacobs regarding the MOT proposal? In preparing your response, you must consider (and answer) the following: current business model in place at Lil' Me Toys, business model at Lil' Me Toys if Lisa accepts the MOT proposal, and possible implications (investment, time, resources) to support your decision choice. [Hint: You need to either recommend Lisa to accept or reject the proposal or another option that you might consider as appropriate. Justify your choice].
2. Fit is critical to the development and maintenance of a successful operations strategy. When a company face a lack of fit (between the outcomes desired by the critical customer, the value proposition, and the firm's capabilities), what is the impact on the firm of the lack of fit? How the firm would manage the situation (lack of fit) in the short term? Share your thoughts based on your professional knowledge and understanding of the concepts discussed based on operations and supply chain strategy.