VIDEO CASE Supply Chain Design at Crayola Crayola LLC is a profitable wholly-owned subsidiary of Hallmark Cards of Kansas City, Missouri. The company's world headquarters are located in Washable Deluxe Painting Kit Easton, Pennsylvania and house marketing, sales, operations & manufacture ing, finance, R&D, Internet services, customer care consumer affairs and cor- porate communications. Sales offices in Easton, Bentonville, Arkansas, and Minneapolis manage domestic accounts, while offices in Canada, Mexico, France, Italy, Japan, and Hong Kong handle international business. The Global Operations Division in Easton is responsible for the sourcing, quality, manufacturing, and logistics of Crayola products worldwide. Two thirds of what Crayola sells globally is produced in its three Penn- sylvania facilities in the Lehigh Valley. The "Forks I" plant is devoted to man- ufacturing crayons and markers, the "Forks II" plant handles plastic molding, and the Lehigh Valley Industrial Park (LVIP) plant creates paints, modeling compounds, activity kits, and Silly Putty. A single 800,000 square foot Pearson distribution center in nearby Bethlehem, Pennsylvania handles finished goods for logistics to U.S. and international customers, and to global busi- ness units. The Washable Deluxe Painting Kit, assembled at Crayola's Lehigh Each plant and its products have their own unique supply chains be- Valley Industrial Park plant, contains paints and watercolors produced in cause the raw materials, suppliers and requirements all differ. For example, the USA and paint brushes, a smock, and a sponge produced in Asia. paraffin wax for crayons comes from sources in Louisiana and Pennsylvania Demand for the kit has grown substantially in international markets, via rail tanker cars twice a week, so proximity to the railroad is essential for prompting a redesign of the supply chain so that Asian demand can the Forks I plant making crayons. All raw materials for each supply chain be satisfied by Asian production facilities capable of producing and are first evaluated by independent board-certified toxicologists so Crayola can assembling the entire kit. assure its products are not only of the highest quality, but also safe and non- toxic. Then, design hazard and risk assessments are done for all products during development to assure production meets the stringent standards set expand sales into the growing Asian market. The kit's paints and watercolors by the Art and Creative Materials Institute (ACMI). are made by Crayola in the U.S., but the paintbrushes come from China, the Pete Ruggiero, Executive Vice President-Global Operations and his smocks come from Vietnam, and the sponges come from China. Labor costs team have responsibility for designing supply chains that are innovative, resil- for assembling the kits in the U.S. is a significant component, so if Crayola ient, responsive, and sustainable while assuring quality, ethics and cost con- wants to sell the kits internationally, it needs to explore whether it makes siderations are met. Whenever the company's marketing division develops a sense to keep the existing supply chain design in place, or make a change new product kit that might contain paints, clays, crayons, markers or other to begin producing the kits closer to the growth in its international customer products, the supply chain sourcing of the raw materials as well as the down- base. The lynchpin of this decision is that all components (including paint stream production processes must be addressed to be sure the forecasted and watercolor trays historically manufactured in the United States) need to demand can be accommodated within the existing facilities. Not long ago, the be made in Asia to make production efficient, and minimize duties and lead company introduced an innovative new product called ColorWonder that con- times. By producing the entire product-including its components and pack- sists of pens that only write on the special paper they are packed with for sale. aging-in Asia, Crayola is able to optimize its delivered cost to the markets. This required examining whether the existing supply chain could support the Producing this product in the U.S. and shipping it to Asia would be an impedi- addition of producing the specialized ink markers, where to source the coated ment because of cost and lead time challenges. paper, and how to best create the kits containing both markers and paper. Now in production, ColorWonder is a best seller worldwide, with nearly QUESTIONS 40 percent of Japanese sales coming from this product alone. Managers received feedback from the market that the pens in the kits were lasting 1. Describe the text's four external and internal pressures on supply chain longer than the paper, so the supply chain responded by creating separate design as they relate to Crayola's supply chains for ColorWonder and paper packets so consumers may purchase just the paper after the initial Washable Deluxe Painting Kit. pages in the kit are used. The result of this action has had a ripple effect on Review the strategic implications of supply chains as described in the the demand for markers, which is now lower, since consumers are buying text. Does Crayola have efficient or responsive supply chains, or both? fewer full kits but more Color Wonder books, so the supply chain and pro- Explain your position. duction had to adjust once again. 3. Regarding the design of the Washable Deluxe Painting Kit supply Another major challenge is the assembly of kits whose components chain, Crayola must evaluate the strategy of next-shoring in Asia or are derived from diverse supply chains and assembled into finished products retaining an existing network that involves the assembly of the kits in in the company's LVIP plant. An example is the popular Washable Deluxe the U.S. Compare and contrast these two supply chain designs from Painting Kit. The kit consists of paints and watercolors, paint brushes, perspective of the decision factors and pitfalls for outsourcing dis- smocks for the artist, and sponges for special effects. The company wants to cussed in the text