Toy World, Inc.

Early in January 1994, Jack MeClintock, president and part owner of Toy World, Inc.. was considering a proposal to adopt level monthly production for the coming year. In the past, the company's production schedules had always been highly seasonal, reflect. ing the seasonality of sales. Mr. McClintock was aware that a marked improvement in production efficiency could result from level production, but he was uncertain what the impact on other phases of the business might be.

Toy World, Inc. was a manufacturer of plastie toys for children. Its product groups included toy cars, trucks, construction equipment, rockets, spaceships and satellites, musical instruments, animals, robots, and action figures. In most of these product categories, the company produced a wide range of designs, colors, and sizes. Dollar sales of a particular product had sometimes varied by 30-35% from one year to the next,

The manufacture of plastic toys was a highly competitive business. The industry was populated by a large number of companies, many of which were short on capital and management talent. Since capital requirements were not large and the technology was relatively simple, it was easy for new competitors to enter the industry. On the other hand, design and price competition was fierce, resulting in short product lives and a relatively high rate of company failures. A company was sometimes able to steal a march on the competition by designing a popular new toy, often of the fad variety.

Such items generally commanded very high margins until competitors were able to offer a similar product. For example, Toy World's introduction of a line of super hero action figures in 1991 had contributed importantly to that year's profits. In 1992, however, 11 competitors marketed similar products, and the factory price of the Toy World offering plummeted. In recent years, competitive pressures on smaller firms had also intensified due to an influx of imported toys produced by foreign toy manufacturers with low labor costs.