Toys Case

The case study highlights how decisions that pertain to supply chain outsourcing contributed to troubles at a major manufacturing company. The new CFO Liz Jackson was facing massive challenges with outsourcing decisions, pricing models, outsourcing models, and management of its supply chain. These problems have translated to a substantial loss in the market share and a shocking drop in the total annual sales. The management at DB Toys had to move avert heavy losses by initiating cost-cutting measures amid stiff competition from major market players such as Hasbro, Tyco and Mattel. DB Toys recorded net sales of $1.5 billion, down from $1.7 billion in 1999. Liz Jackson was facing heavy scrutiny from media experts and the press. Inflection Consulting had to intervene by recommending viable cost-cutting recommendations. Young, a partner at Inflection Consulting, proposed to Don Grace, chief information officer of DB Toys, that it would feasible to outsource the supply chain of DB Toys to Inflection.

Inflection was offering two outsourcing options, business application outsourcing and business process outsourcing along with three pricing alternatives. Business application outsourcing could benefit the company in savings through outsourcing the current supply chain applications. It will also enable DB Toys' staff to focus on other projects within the company. Business process outsourcing could revamp the existing ineffective supply chain management system as well as taking operations and support by using the design-build-run application. The risk involved in business application outsourcing is the high upfront fees associated with the contract. The business process outsourcing has a risk of high annual run costs at the beginning of the projects.

DB Toys should choose option 1, business application outsourcing since it has little financial risks as compared to business process outsourcing. It is necessary since it will result in immediate savings through outsourcing the maintenance of the existing supply chain system. This option would facilitate efficient management of the software, which will be a high cost saving to the organization. The pricing option for business application outsourcing is adventurous since it needs a lesser advance fee than that of business process outsourcing.

Strategic risks exist for each outsourcing option. To start with, business application outsourcing would not change the current system. This may lead to problems in the future due to using an old system that may be overtaken by technology. On the other hand, the strategic risk involved in business process outsourcing is the possibility of spending more than the industrial average in capital expenditure. The prevailing economic conditions may not favor the system since it would be difficult to recover from the investment. It would also have adverse financial impacts on other parts of the business. If they require any additional