Strategic Analysis and Recommendations for Jot

Contents
SWOT ANALYSIS ............................................................................................................................................ 4 STRENGTHS ................................................................................................ Error! Bookmark not defined. WEAKNESS ................................................................................................. Error! Bookmark not defined. THREATS ..................................................................................................... Error! Bookmark not defined. Opportunities ............................................................................................. Error! Bookmark not defined. FINANCIAL ANALYSIS ..................................................................................................................................... 7 Current Ratios ........................................................................................................................................... 7 Quick ratio:................................................................................................................................................ 7 Net working Capital................................................................................................................................... 7 Debt Ratio: ................................................................................................................................................ 7 Debt equity Ratio: ..................................................................................................................................... 8 Account receivable turnover ratio: ........................................................................................................... 8 Average collection period: ........................................................................................................................ 8 Accounts payable turnover: ...................................................................................................................... 8 Average payment Period: ......................................................................................................................... 8 Inventory turnover:................................................................................................................................... 9 Average age of inventory: ......................................................................................................................... 9 Total Asset turnover: ................................................................................................................................ 9 Gross Profit Margin: .................................................................................................................................. 9 Operating profit margin: ......................................................................................................................... 10 Net Profit margin: ................................................................................................................................... 10 Return On Equity:.................................................................................................................................... 10 SCENARIOS AND RECOMMENDATIONS ...................................................................................................... 10 Voldania .................................................................................................................................................. 11 Fault in new flying ship toy ..................................................................................................................... 13 Recommendations .............................................................................................................................. 14 Launch of new range of toys ................................................................................................................... 14

Strategic Analysis and Recommendations for Jot

Supporting Factors: ................................................................................................................................. 15 Risk Factors: ........................................................................................................................................ 15 Acceptability: ...................................................................................................................................... 16 Feasibility: ........................................................................................................................................... 16 Recommendations .............................................................................................................................. 16 Late delivery of customer product:......................................................................................................... 17 Recommendations: ................................................................................................................................. 17

Strategic Analysis and Recommendations for Jot Introduction

Toy Industry has been one of the most profitable industries in the euro region and Europe toy industry is the second largest toy industry in the world just behind the United States of America. To be successful in toy industry it is necessary to have capacity to innovate and launch new products according to demand and taste of the buyer. The toy industry has an ever increasing trend due to continuous and investments in marketing research and development of their products. This sector is one of the most dynamic businesses in Europe, according to a survey 60% of total toys on market are newly launched products. Jot is one of the toy companies who are having an increase in growth and market share since the year of its launch 1998. Jot has targeted two of the main age groups 3-5 year olds and 5-8 year olds as both age groups are the maximum profit generators. Jot sales revenue was increased by almost 18% to 9,866,000 only because of its designing and innovation in new toys, effective management and efficient business model. Jot has a team of highly skilled members who develop, theme and design new toys after viewing the market trends and identifying the need and wish of the customer. Jot has 12 product lines of licensed toys from popular film and TV shows for the manufacture and sales of toys. After the design and proper sampling, Jot outsources the manufacturing and outsources the production of toys to China. Jot has strong inventory system and has outsourced many of its IT administration so that it can work properly without making errors. Jot has developed a strong brand image as provider of quality electronic toys through effective marketing and will target the markets of Russia and Asia in future.

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Strategic Analysis and Recommendations for Jot SWOT ANALYSIS

Strengths

Jot Company has vast and diversified range of products which means that while some ranges are underperforming some are outperforming according to BCG matrix (Boston consultancy matrix) Jot is known by quality product maker in the market Jot has a in house team of designers who keep on designing and innovating new products for the company .They see to it that the toys are unique, innovative and fun to play and according to the new market trends JOT is also into research and development of new products. Jot launches 5 new products each year and every product is fully tested by JOT before launch JOT has licensed toys of film and TV programs which increases the demand of toys due to popularity of characters (5-10% license fee) Jot has ensured product safety all products designed by JOT meets the required safety regulations of the European Union Jot is blessed with experienced and dedicated key personnel Deals in multicurrency

Weakness

JOT is very much dependant on large customers. in the financial year 2011 JOT 68% sales are with & large customers out of 350 customers JOT heavily rely on outsourced manufacturers JOT is dependent on customers preference because toy products are being dependant on fluctuating customer choices. JOT has 12 product lines which are highly based on demand JOT has licensed products of film and TV program so their demand is dependent on the popularity of those film and TV programs

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Strategic Analysis and Recommendations for Jot

Jot business is seasonal the 50% of jot sales are in quarter 4 near Christmas. The significant proportion is in quarter 3 and 4. For the preparation of quarter 3 and 4 high level of sales causes the cash flow for the second half of the year to be negative JOT is not developing toys for the age group less than a year Jot has a problem with IT system. The systems provided by the JOT IT

consultancy company are not ideal and it do not provide all of the data required by the management team plus IT systems do not except data directly from any of JOTs other IT system

Opportunities

Jot can participate in various toy fairs around round the globe Main markets of the JOT are Europe and USA but they have a chance to step into another markets such as south Asia and china The demand in US is very high of JOT products They should come up with a YouTube channel in which they show interesting videos of user manual which results in increase of the popularity of toys JOT can open its own retail outlets of toys JOT Should design extra learning toys which enhance kids learning and

creative abilities JOT can do Near-shoring which is defined as the transfer of business processes to companies in a nearby country. as the wage rate is continuously increasing in China, this would be an opportunity for Jot to have some outsourced manufacturers within Europe JOT can sale slow moving products rather than write off

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Strategic Analysis and Recommendations for Jot

Threats If They perceives the designer team as burnt out they let them go with the idea of providing new innovative products to market they keep the designer team fresh by bearing the expense of burnt out designers by letting them go . The designers full potential is not maximized if not given a chance. Jot is servicing only 2 age groups. it is not producing toys for babies aged less than a year it may cause their competitors an edge over them Their biggest threat is large number of other companies of various sizes which designs and sells toys globally to various retailers JOT is dependent on 7 large retailers which used to make late payment until 60 days after the invoice date .JOT is very much inclined towards these retailers The supply needs should match from demand in all the markets round the globe Computer games, smart phones, play stations The imposed tariff rates by countries and trading communities to enhance

internal manufacturing this is one of the potential problem

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Strategic Analysis and Recommendations for Jot FINANCIAL ANALYSIS

Current Ratios The current ratio is the ratio of total current assets and total current liabilities. The current ratio of a firm measures its short-term solvency, i.e. its ability to meet short term obligations. Its more than 1 i.e 1.74 in 2010 and greater than 2 i.e 2.19 in 2011, so it gets better in second year Quick ratio:

The term current asset refers to the assets which can be converted into cash immediately] This ratio is used to check that how much inventory is unsold and includes in current assets. This too improves in 2011 the higher the better.
2010 2011

Acid Test Ratio Net working Capital

1.519696251

1.939250119

Working capital indicates the short run solvency position of the business. Jots working capital has improved by roughly three folds which is a good sign. Working Capital 2010 1,565,000 2011 4,628,000

Debt Ratio: Debit ratio is calculated to check the total asset financed by the firms Creditors. The lesser the debt ratio the better for company and since its lesser in 2011 compared to 2010 so thats an improvement. Debt Ratio 2010 0.544047348 2011 0.476013388

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Strategic Analysis and Recommendations for Jot

Debt equity Ratio: (Long term debt to equity)The debt equity ratio indicates the relationship between the long-term funds provided by creditors and those provided by the firms owners. The standard .Debt equity ratio is 60:40. From 2010 to 2011, a decreasing trend can be seen. Account receivable turnover ratio: This ratio shows the proportion of sales to receivable. It means that how many times in a year our receivables are collected. Company wasnt able to collect its receivables as efficiently in 2011 as it did in 2010 Avg Receivable Turnover Average collection period: This ratio indicates that in how many days receivables are collected. The smaller the answer is the better it is for the firm, so 2011 was not good in this regard for Jot. Avg Receivable Period Accounts payable turnover: This ratio shows the portion of credit purchase to the accounts payable. It means that how many times we have paid our creditors in one year. One should utilize full credit limit so the lower the accounts payable turn over the better it is. SO in 2011 the figure is better than 2010. Accounts Payable Turnover 2010 4.535541195 2011 3.772599663 2010 138.3520487 2011 150.3876951 2010 2.63819729 2011 2.427060271

Average payment Period: Average payment period tells that after how many days the firm pays its Creditors. The greater the answer is the better it is for the firm. So in 2011 Jot has improved on this aspect as well. Avg. Payable Period 2010 80.47551202 2011 96.75026046

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Strategic Analysis and Recommendations for Jot

Inventory turnover: This ratio reveals the number of times finished stock is turned over during a given accounting period. In other words this ratio indicates that how many times in a year inventory can be converted into sales. High inventory turnover ratio is better than a low ratio. In 2011 there is a slight increase compared to 2010 which is a good sign. Inventory Turnover 2010 17.8106383 2011 18.20295203

Average age of inventory: This ratio shows us that for how many days the inventory remains with the company after its conversion from raw material and work in process to finished goods. The lower the days the higher the performance is for the firm. It didnt improve much in 2011. Avg. Age of Inventory 2010 20.49336997 2011 20.05169268

Total Asset turnover: Total asset turnover ratio tells us that how efficiently company is using its total assets to generate sales. The more the answer the more it is good. In 2010 the TATO was better compared to 2011. Total Asset turnover Gross Profit Margin: This ratio indicates the efficiency of operations and firm pricing policies. It reflects the firms efficiency with which a firm produces its products. The ratio tends to rise whenever cost of goods sold decreases and gross profit rises and vice versa when 2010 1.905531527 2011 1.834510971

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Strategic Analysis and Recommendations for Jot

sales increases. In 2010 Jots COGS were lesser than in 2011 so it gross profit margin decreases in 2011. 2010
Gross Profit Margin 32.92318719

2011
31.8974255

Operating profit margin: This ratio indicates the firms profitability after taking account of all its operating expenses. The ratio tends to increase whenever operating expenses fall and operating income rise and ratio falls when operating profit decrease or sales increases. As operating expenses were lesser in 2011 the operating profit margin was better compared to previous year. Operating Profit Margin Net Profit margin: This ratio indicates the firms profitability after taking account of all interest expenses and income taxes etc. of the firm. The ratio tends to increase when net profit rises and decreases when net profit decrease or sales increase at higher rate than net profit. In 2011, net profit margin was higher. Operating Profit Margin Return On Equity: Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. It 2010 5.41153984 2011 5.584836813 2010 5.41153984 2011 5.584836813

measures a firm's efficiency at generating profits from every unit of shareholders' equity ROEs between 15% and 20% are considered desirable. Since its 26% so its very ideal. Return on Equity 2010 0.2696793 2011 0.263948498

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Strategic Analysis and Recommendations for Jot

SCENARIOS AND RECOMMENDATIONS

Voldania

Jot is planning to outsource its parts of manufacturing to Voldania , located in eastern Europe. The finance and IT director TANI GRUN has roughly estimated that

the cost of the products made in china relative to made in Voldania and has both almost same but costs like labor rate, machining cost and distribution cost vary in these two regions and going to affect the overall costs. Being consultants we have to develop the feasibility report for Voldania as well china and come up with the solution whether Jot should outsource its manufacturing to Voldania or not. Analysis: Labour rate in per hour () in Voldania & China in 5 years are as follows Voldania (labour rate grows at 2% per China (Labour rate grows at 12% per annum) per hour 1 2 3 4 5 5.000 5.1 5.202 5.306 5.412 annum )per hour 1.750 1.96 2.195 2.458 2.753

Since machine costs are 40% more in Voldania and with the given no of units produced each year these are calculated as follows Machine Cost in Voldania () 1 117,600 Machine Cost in China () 84,000

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Strategic Analysis and Recommendations for Jot

2 3 4 5 196,000 274,400 352,800 431,200 140,000 196,000 252,000 308,000

Now calculating labour hours as it takes .6 hour per unit and it takes 25% less labour time in voldania

Labour Hours in Voldania (hours) 1 2 3 4 5 27000 45000 63000 81000 99000

Labor Hours in China(hours) 36000 60000 84000 108000 132000

Now calculating total labour cost Total Labour Cost () Voldania 1 2 3 4 5 27000*5 = 135000 45000*5.1=229500 63000*5.202=327726 81000*5.306=429786 99000*5.412=535788 Total Labour Cost () China 36000*1.750=63000 60000*1.96=117600 84000*2.195=184380 108000*2.458=265464 132000*2.753=363396

Total Cost ( labor Cost + Machine Cost)

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Strategic Analysis and Recommendations for Jot

Total Cost () Voldania L 1 2 3 4 5 + M = Total Total Cost () China L 63000 117600 184380 265464 363396 + M 84,000 140,000 196,000 252,000 308,000 = Total

135000 117,600 252,000 229500 196,000 425,500 327726 274,400 602,126 429786 352,800 782,586 535788 431,200 966,988

147,000 257600 380,380 517,464 671,396

Distribution cost in China will be 3.78 per unit whereas it will be 1.2 per unit in Voldania Recommendation Hence from the above analysis it is obvious that China is the best choice since cost of production is much lower over there. Also since Jot wants to target Russia & other Asian markets which are quite densely populated it must opt for china because transportation costs would be much lower and product can be distributed directly from china to Russia rest of the Asia. Fault in new flying ship toy

A lot of Jot customers are complaining about a newly launched product that has shown peek sales just after launch. There is a fault in charging a flying ship toy. the Toys battery needs 2 hours for charging but if it is over charged it heats up because the insulation around the electric circuitry is not much fire and heat resistant a new designer hired by jot made that error .They are in the mid way in deciding to get the stock back and repair it to improve the insulation of the product with the cost of 10 euro per unit

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Strategic Analysis and Recommendations for Jot

But Boris Hepp thinks that its far better to write the product off. Being consultant to Jo t we have to provide recommendations that may not affect the overall cost meanwhile helping Jot to maintain its brand image. Recommendations There is no blame attached to the manufacturer of the product. The sales of the product are so strong that it must not be written off. Profit earned by Jot due to sale of 1200 units = (1200*40)-(1200*24) = 19200 Jot must make improvements to the product left in inventory. Cost born by Jot in manufacturing = 24 Cost if fault has to be removed = 24 + 10 = 34 Cost of 3200 units = 108800 Additional cost = 32000 After improvement the product can be sold under a new name and this product can even be sold to customers above 40 but it is optional as a lot of people are buying it 6000 units already delivered must be sold with a warning Toy may heat up if charged for more than 2 hoursAnd an additional message regarding heating up can also be promoted along with the product promotion 6000 units can also be sold to end customer for a price less than 84 but it is optional Launch of new range of toys

The product development director Alana lots has inflexed an idea to design products for children ranging from 9-11 .Instead of teddy bears, today's kids want to

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Strategic Analysis and Recommendations for Jot

sleep with their Smartphones tucked into bed with t hem. Here is the idea to develop a smart phone which is only for kids staring from kids related market apps, gamming and educational stuff excluding every kind of networking and adult stuff. We have to suggest that whether Jots sales and revenues and allocated budget allows the manufacturing of such product and will this product will help the Jot in increasing sales. Supporting Factors: Jot estimated the initial development cost to be 30,000 and the initial

development cost of angry birds was $ 25000 that is 19,196. Now the final cost of angry bird development (that is adding more levels) reached 100,000 but Jot doesnt need this money in one lump sum. The app would start generating revenue and hence support itself. Now the revenue for the previous financial year 2011 is 246,000 and with a Also Jot still has in hand an overdraft margin limit of 540,000. Going public is another way to raise funds but that wouldnt be required. Brand Affiliation is another contributing factor because if you grow up playing

26% constant return on equity is the previous 2 years which is also a plus point.

toys of a particular company, you would give a natural preference to the more familiar brand compared to others and Jot has this edge over other application makers. The basic rule of profit is high risk, high return. According to survey the 9 to 11

age range toys have higher margin and considering the amount of investment involved, its not that great of a risk. Also in 2011 there was an increase in sales revenue by 17.9% compared to 2010 which indicates higher demand for Jots products & it all melts down to brand recognition and brand image. Risk Factors: The only main risk encountered here is moving from making toys into smart phone app development. While the two products are different but target market is not so

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Strategic Analysis and Recommendations for Jot

contrastingly different because the same children playing with Jots toys when they were 3 to 8 years old would go on to become app users at the age of 11. Acceptability: The first point is that the upfront investment being merely 30,000 which does not involve very high risk for stakeholders. Also the future era is all about smart phones and sooner or later the company would have to dive in this segment. So if they enter now, it will be easier for them to make room for themselves in app market because in future the competition would be still higher and that make it much more difficult to capture market share. And with the ever increasing trend of purchasing apps, Jot can forecast healthy cash flows. Feasibility: It is definitely feasible considering the three sources of financing at disposal: 1. 2. Retained earnings since the net income was 246,000 in preceding year Jot has a total over draft limit of 1,500,000 given by its three banks and they

have already used 960,000 which imply that they still have 540,000 limit available. But this wouldnt be needed because upfront cost is 30,000 3. Since jot is a privately owned company, it can go for an IPO

Recommendations There are two other un catered market segments of children which are:

1. Less than 1 2. Less than 3 Since they want to diversify the market they can focus on these age segments and make plush toys, rockers and climbers for children less than 1 year old. While hopping, building, stacking and learning toys can be made for children less than 3. Now the market would expand in this way and it is not so different from what they already make.

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Strategic Analysis and Recommendations for Jot

Late delivery of customer product:

Jots Up to 50% of sales are held in 4th quarter near Christmas .jots supplier from china named as GUL would not be able to fulfill the 25% order .jot can get the 75% of order by December 15 at that point of time jot has to decide whether they should send all the 75% of supplies to jot main customers or to divide equally among all of the customers. Recommendations: Boris Hepps suggestions must not be conside red as Jot is about to have its maximum sale season because of arrival of Christmas and they must make sure the availability of product in the market. So Jot must take 75% of the order and must wait for the delivery of remaining 25% which is due 15th of December. It will also maintain a good supplier and company relationship. The rest of 25% of supplies must be sent to customers by GULL and if GULL fails to keep his promise Jot can ask for compensation and is such case it is best to share the product more equally among all the JOTs customers to maintain a good buyer and seller relationship. Though 7 main retailers constitute 68% of the total sales but remaining customers which contribute 32% to the total sales cannot be ignored as it will damage the buyer and seller relation so Jot should divide the product more equally so independent toyshops at least get something of what was ordered on time.

Conclusion:

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Strategic Analysis and Recommendations for Jot

Jot is one of those companies who have grown amazingly because of its strategy and customer oriented marketing approach and will continue to grow if it maintains its brand image by not comprising on quality, introducing new range of customers, maintaining good relations with suppliers and buyers and one of the most important thing is that it can maximize its profit by minimizing cost so it must view the cost offered by it outsource manufacturers more carefully.

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