Case Analysis Db Toys

This form can be used to organize your thoughts about a case. As you perform your analysis remain open to the fact that your interpretation of the facts may change and therefore you should constantly revisit your answers.

Define the Problem: Describe the type of case and what problem(s) or issue(s) should be the focus for your analysis.

This is a decision case. The case discusses a decision faced by DB Toys and identifies distinct alternatives.

DB toys was a second-tier toy manufacturer based in Massachusetts, with sales in more than 15 countries. The company was losing market share and its total annual sales were dropping at a fast rate. The company's IT budget was $60 million a year and half of it was being spent on supply chain alone annually. The company was looking for viable cost-cutting recommendations to reduce IT expenditure towards the supply chain, and an opportunity to outsource DB toy's supply chain to a leading services consulting company, Inflection was proposed.

The case looks into the benefits and risks associated with outsourcing. There are distinct alternatives identified in the case as offered by Inflection:

1. Business Application Outsourcing

2. Business Process Outsourcing

Further complication for the decision was offered by the pricing alternatives:

1. Fixed-Price

2. Cost-Plus

3. Transaction-Based

List any outside concepts that can be applied: Write down any principles, frameworks or theories that can be applied to this case.

A SWOT Analysis can be carried out to assess the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in the outsourcing opportunity.

A competitor's analysis can be carried out to assess the outsourcing options available.

List relevant qualitative data: evidence related to or based on the quality or character of something.

Several different segments, including infant/preschool, dolls, vehicles, games/puzzles, video games and action figure toys, categorized DB toys industry.

DB toys major competitors included Mattel, Hasbro and Tyco.

DB toys sales covered fifteen countries.

The company's first line of toys was a series of action figures, and company saw a boom from it start in 1950 to 1975.

By 1982, DT Toys's competitive edge was dwindling, given the new entrants were reshaping the industry.

The company gained back its market share in 1988 by relocating manufacturing facilities overseas, placing focus on marketing and expanding internationally.

The company had maintained its position until the year 2000.

The company's IT budget was $60 million a year and half of it was being spent on supply chain alone annually. The company was looking for viable cost-cutting recommendations to reduce IT expenditure towards the supply chain, and an opportunity to outsource DB toy's supply chain to a leading services consulting company, Inflection was proposed.

Inflection made an analysis and specified inefficiencies in DB Toys supply chain. It was found that the company's resources were focused on maintaining the status quo rather than improving the systems.

Inflection came out with two proposals with three pricing options for cost reduction and improving the supply chain operations by either outsourcing the business application or outsourcing the business operation.

Inflection claimed that by just business application outsourcing, DB Toys supply chain IT spending could be reduced by 20%, i.e. saving of $ 6 million per year. It was also claimed that full transition to Inflection was expected to take four weeks, enabling quick implementation and results.

In the other proposal, Inflection suggested a design-build-run model which included revamping DB Toys existing supply chain and then taking over the operations and support.

List relevant quantitative data: evidence related to or based on the amount or number of something.

Weighted average cost of capital, WACC is what the firm would use as a minimum for evaluating a capital project or investment.

For DB Toys, WACC assumed for evaluating the options is 15%, i.e. the cost savings in the supply chain operations should be greater than 15% for an option to be viable. For business application outsourcing option, the expected saving is 20%. For business process outsourcing option, the Inflection services claims improvements in the supply chain operations of DB Toys enabling cost reduction, but no exact expected figure of savings has been specified.

PRICING OPTIONS ANALYSIS

The Initial Investment as described:

* Option 1:

o Upfront fee: $6 million

* Option 2:

o Upfront fee: $6 million

o Build phase cost: $28 million

o Annual cost: Initially $25 million with an inflation rate of 12%

1.Fixed cost

a. Option 1:

* Fixed rate: $9.3 million per quarter

* Annual cost: $37.2 million

b. Option 2:

* Fixed rate: $11.7 million