Toy Story

April 17, 2020 6 min
Toy House

Julia Moravej, Business consultant

Toy retail is a very challenging business. New and new generations of small shoppers are becoming more and more demanding, and when they enter a toy store they need emotions, fun and joy. It is essential to have a place where customers love to go and enjoy spending quality time with their children, a place with beautiful interactive displays, full of colourful products.

Experience is becoming a new currency in toy retail, both offline and online. In order to compete on online market, business has to keep up with customer appetites. Parents want fast shipping for the toys they have chosen for their little ones, they need 100% product availability and reasonable price.

To be competitive, businesses have to constantly adapt new approaches and innovative strategies. Retail giants no longer count their inventory in spreadsheets, or rely on constant demand or make inaccurate forecasts.

Business needs a highly efficient supply chain, quick real-time response to customer moods, smart replenishment and reordering and a very efficient warehouse functioning.

Being a very ambitious retailer, Toy House decided to modernize and revolutionize the way its inventory system works and integrated an automated demand management software into its business processes.

Since opening its first booth-like shop, the company used the so-called “push” inventory model, and based all order and reorder volumes on projected (in other words, on anticipated) customer demand. The main drawback of a push strategy is a high risk of forecast error, which could lead to imbalance between real demand and supply, influencing company’s financial performance.

4 years ago the company decided to level up its inventory management, and get better control and visibility of reordering and supply chain operations. Toy House has carefully studied the market and decided to integrate ABM Inventory, a Theory-of-Constraints-based software into its existing business eco-system.

The new strategy Toy House implemented by integrating ABM Inventory software into its operations, is roughly called a “pull” inventory strategy - a model based on real customer demand. The company opened a functional Distribution Centre (DC) which became the main regulator of the whole supply chain, serving as a point of contact and transfer for all orders and inventory deliveries between online and offline sales locations.

Head of Toy House supply team shares his memories on the process:

“In 2015 we have realized that the inventory planning model we have been using for many years, is no longer cost-effective. First, our managers workload was growing every single day. Second, the percentage of lost sales and excess inventory was high. Our business is fast-growing, and each mistake in inventory planning could cost us a lot of money. We no longer could rely on intuition-based or manual forecasting. Same, we could not afford having operational costs tied in dead stock. At the same time, we could not leave our shoppers with empty shelves. So we decided to invest into a modern so-much-talked about inventory software and switch to demand planning model.”

This strategy was successfully translated into performance. Switching to real-time demand-based inventory management model has brought tangible results.

Toy House managed to decrease excess inventory level from 44.6% to 32.6%, AND dramatically increased its turnover rate, reducing logistics and delivery costs. In one year, 2018 to 2019 the company increased the rate of goods which are automatically reordered from 72.1% to 96.2%. Human work has become more efficient and effective - the whole supply chain of toy retailer is run and controlled by 2 persons.

When warehouse, DC, delivery and store supply operations have been synchronized with the help of an intelligent inventory management tool, the company could keep their delivery costs low, customers happy and people productive.

Inventory is delivered on time, in right quantities, the percentage of lost sales is considerably lower, and the company gains and sustains its high reputation among its clients.

What are the elements of this successful inventory strategy?

  1. Dynamic safety stock management

Each retail business can experience the unexpected demand fluctuations, force-majeure, delayed deliveries etc. Safety stock (meaning, safety buffer) allows business to be confident about its future sales, deliveries and shelves. By integrating a new inventory system, Toy House got its safety buffer level managed in real-time, making advanced highly accurate calculations.

The system automatically determines the necessary quantities of safety stock for each SKU across all offline and online locations and intelligently manages safety buffer levels which can change according to current (real!) demand and order frequency.

  1. Keeping store shelves stocked and fancy-looking

Toy store is a world of emotions, that shall look attractive and catch children (and parents’) eyes quickly. Disorganized, messy or empty shelves will never convince people to buy.

Intelligent inventory management and smart merchandising is the key to beautifully decorated stocked shelves. Toy House invested into inventory system that helped them to keep their shelves stocked by balancing a right amount of safety buffer, main SKUs for sale, promotion goods and extra stock kept for the case of stockouts (without freezing up extra costs!).

  1. Smart reporting

One of the great benefits the demand forecasting software offered to Toy House is a highly customizable database of paperless analytical reports which are available to system users and can be generated in seconds. The reports reflect ABC(D) analysis (categorizing products depending on their consumption value), supplier relationship, as well as daily, weekly and monthly performance indicators dynamics (including turnover, sales, lost sales, excess stock etc).

The information can be sorted out and filtered per every manager, employee, store, warehouse etc, that makes strategical analytics easier and more effective.

  1. Managing extra and promotional inventory

Keeping control of excess inventory is one of the most important elements of inventory strategy. Holding too much inventory on a sales location is very costly and it can lead to lost sales.

There are plenty of inventory techniques that help to monitor and control extra stock, while the best strategy is to combine and mix them depending on company’s individual needs and goals. ABM Inventory has offered Toy house a perfect customized combination of the best widely-used techniques, so that the company can control, reduce and rotate slow-selling goods in case of necessity. The system automatically defines and calculates the level of extra (excess) stock and proposes several rotation options (for example, between stores to compensate inventory gaps or potential shortages). Excess inventory is not a problem if duly managed.

The same smart principle is applied to promotion management. With the help of built-in functions of its inventory software Toy House can get revised promotion forecasts based on previous promotions data, then the system automatically compares and analyzes statistics to adjust the orders for new promotion periods accordingly.

A national toy retailer Toy House started as a tiny toy shop 20 years ago, with very small assortment and ambitious dreams. Through hard work and passion for their business, the owners turned Toy House into a superstore, known to every kid and parent in 18 cities across the country. Toy House has grown to include more than 50 000 unique SKUs in 57 retail stores and a successfully working online platform.

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