First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  December 20, 2007  

Santa Claus Unplugged on Supply Chain Challenges

Santa Says:
We’ve eliminated those physical assets, haven’t we? We’re really trying to become less a manufacturer, and more of a “brand.”

What do you say? Send us your comments here

Our “Unplugged” interview series is always among our most popular features. We recently were able to snag Santa Clause for an in-depth interview on the North Pole’s supply chain and logistics challenges. Highlights below:

Gilmore: I understand the elf population is aging, and younger elves are going into other lines of work. How is this impacting your supply chain?

Santa: It’s a definite issue. We’ve taken two key steps. First, we’ve had to move quite a bit of production to elf manufacturing facilities in China. Second, we implemented an Elf Management System in our distribution centers to drive productivity gains against engineered standards. We’ve been able to move 10% more toys with 20% less elf labor. Incredible. But developing the standards was tough. The firm we used had never worked with associates that average three feet tall.

Gilmore: The outsourcing – have you seen the gains you expected?

Santa: Well, not completely. But it’s taken millions in assets off the books, and I was able to shutter a few toy production centers here. The heating bills alone were killing us – and we have to get our natural gas through a pipeline from Russia. Putin keeps threatening to reduce our supply if Russia’s kids don’t get more toys.

We set a bar for achieving at least 30% savings before we made a decision to outsource, but your right, even though it looked good on paper, it hasn’t all shown up in the numbers. I think part of it is too much expedited freight, but I’m not sure. That’s a hard number to pin down.

Gilmore: With this strategy, you have to be concerned about the recent issues with Chinese toys?

Santa: You know, you give someone a specification, you don’t think you have to add “And don’t put any lead in the paint!” We definitely had to ramp up our direct elf presence in China to monitor these new suppliers, and set up a whole new testing infrastructure here.

Gilmore: That reduces the benefits, doesn’t it?

Santa: Sure. But we’ve eliminated those physical assets, haven’t we? We’re really trying to become less a manufacturer, and more of a “brand.”

Gilmore: Let’s change topics. Inventory management – it can’t be easy for you.

Santa: Well, our business is highly seasonal.

Gilmore: Yes.

Santa: I’d like someone to tell me how I get “demand driven” when I’m building toys to forecast 6-9 months out, and get pull signals that start coming in about Thanksgiving! That’s when the first children’s letters arrive. Demand-driven, Demand-schmiven I say.

Gilmore: You have poor forecast accuracy then?

Santa: Abysmal, like most. Our new Santa and Operations Planning (S&OP) process has helped though. The forecasts are just as bad, but now the top elves and I at least all agree to it on an executive level.

Gilmore: What else are you doing to better manage inventories?

Santa: We’re piloting a multi-echelon inventory optimization program this year.

Gilmore: What does that mean?

Santa: No one is quite sure, but we are seeing strong benefits.

Gilmore: Reductions in safety stock?

Santa: Yes, but overcoming the people issues is so difficult. We have “institutional memory” from some of the big debacles of the past – you know, Cabbage Patch dolls, Tickle Me Elmo. We also can’t really come to grips with how to balance cost and kid service.

Gilmore: Wrapping it up, what are some more of your important supply chain challenges?

Santa: There are a few. The great news is we’re way ahead on this “green” thing. The reindeers feed on bio-fuels, of course, and we have a tremendous amount of load consolidation.

But customer collaboration is a tough one for us. We’ve had to do it rather slyly, using the Internet.

Gilmore: You use web-based collaboration tools with the kids?

Santa: Yes, but they don’t realize it. We call it Webkins.

Gilmore: Brilliant!

Have a merry Christmas and happy holiday! We’ll be back in January.

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