Up, up and away

by Array

Five years ago, Toronto-based toymaker Spin Master Ltd was a rapidly growing company shackled by a clunky, inefficient supply chain. Today, with full visibility and more efficient processes, it is soaring far above its competitors. Deborah Aarts explains how the right technology and strategy enabled take-off.

Ask any eight-year-old: Spin Master Ltd makes cool stuff. Brands like Air Hogs, Bakugan Battle Brawlers and Moon Sand have propelled the Toronto, Ontario-based company to the top tier of the North American toy market. Today, children in more than 50 countries around the world seek out its products, and the number is growing.

The company has gone from being a small start-up with a few SKUs to a global powerhouse at the vanguard of an ultra-competitive, fast-moving market.

This large a transformation wouldn’t have been possible without a modern supply chain. Five years ago, Spin Master didn’t have one. Now, it does—one that’s efficient and nimble enough to work with the Wal-Marts of the world, no less.

Here’s the story of how Spin Master came to play in the big leagues.

A struggling supply chain
Spin Master was born in Toronto in 1994 when three university pals banded together to sell a novelty product called The Earth Buddy. The toy—a small figurine that sprouted plant ‘hair’—turned out to be a hit. Inspired, the trio sought out new brands and two years later launched Air Hogs, a series of air-pressured toy aircraft that continue to fly off shelves today. Growth has followed the company ever since.

As is common with many growing companies, Spin Master’s supply chain was something of an afterthought, ranking far below revenue growth and market share on the priority scale.

By its 10th anniversary, the company was attempting to storm ahead, planning new products and expansion around the world—all while its methods of sourcing and distributing product lagged far behind.

“We were a small company that grew really quickly,” explains Iain Kennedy, Spin Master’s chief operating officer. “In many of those cases, you don’t have time to go back and spend the time to fix what you didn’t do quite right the first time around, because you’ve got five other things to do. You’re doing tomorrow what you should have done yesterday, so you just keep scrambling.”

The crux of the problem was inefficient data management. All information pertaining to orders and shipments was entered, analyzed and communicated manually with a seemingly endless series of Excel files.

As it is today, most of the company’s product was manufactured in Asia and sent out from Hong Kong. Scott Cleaver, Spin Master’s vice-president of supply chain and operations, remembers the problems the manual process created.

“Once we established an order at the factory, we didn’t have any time to make changes. There was no baseline information anywhere…Someone here would call the factory and say ‘we need to cancel 50’, and the factory would ask ‘Is that in addition to the 50 we cancelled yesterday?’ No one knew.

“So our factories were very frustrated with us. After a while, they were as confused as we were about what we really wanted.”

Once an order was (finally) determined, product was shipped from Asia to Vancouver, where it was sent by rail or truck to Toronto for distribution. Visibility into in-transit shipments was practically non-existent.

“To get a status on inbound shipments, we’d be making about 500 calls a day,” says Kennedy. “We’d have to ask about everything. ‘Is it on the boat or in the port? Is it with Customs? Has the trucking company taken it to the train? Where are the trains? What is the ETA for Mississauga?’”

The company’s Canadian distribution operations were split between six warehouses in the greater Toronto area, run by four different 3PLs.

Each warehouse was unique. Some were paper-based, with inbound/outbound deliveries and inventory managed on a card basis. Some used an automated system augmented by manual processes. None was able to communicate with Spin Master with sufficient speed and depth.

“There was no visibility and a lack of control,” Kennedy recalls. “If you want to be effective in consumer products, you want to be opportunistic at all times in inventory management. For instance, if you’re carrying a little more than you want to carry, you can offer discounts.

“If you’re only looking through this information once a month manually from a list, you’ll never catch these opportunities.”

Playing catch-up
The paper-based process propagated miscommunication between Spin Master and its 3PLs, which yielded delays, incorrect shipments and missed deliveries. None of this impressed the company’s retail customers.

“We actually got calls from our customers saying that they didn’t get product, prior to us knowing or the warehouse knowing,” Cleaver says. “We’d spend a lot of time telling the warehouse it was their fault, and they’d say it was our fault, and no one knew who was right or wrong because we were so manual.”

“We had to chase information constantly, not really knowing where the handoffs were. At the same time, we were seeing shelf space at retailers start to decline, because we couldn’t commit to when we were going to be able to ship the goods,” adds Kennedy.

Correcting these mistakes became part of day-to-day business. Emergency airfreight and expedited truck shipments were regular occurrences, chewing up money and staff time.

All these inefficiencies took up a tremendous amount of Spin Master’s resources. Its head office was packed to the rafters with paper, filing cabinets and increasingly frazzled employees. When a staff member was asked to look up information on a specific order, for instance, he or she might lose a morning trying to locate it.

“Staff were working 12 hours a day, and it was all very manual work, non-value-added activity,” Cleaver says. “We could see the frustration, because they could see that they weren’t contributing in an effective way.”

“We found we were very busy, but we weren’t able to accomplish that next step for growth,” adds Kennedy. “It was satisfying, because we were busy, but completely dissatisfying, because we weren’t able to get anywhere.

“People loved us. They loved our product, they loved our creativity, but it wasn’t reflected in our business growth.”

Choosing a catalyst
Amid all this chaos, Spin Master had its sights set on a lofty goal: global expansion. Its products continued to gain popularity, and the company wanted to capitalize on it by expanding in the US, Europe and beyond.

But by 2004, it was glaringly obvious this couldn’t happen without some serious operational change.

“We couldn’t get there from where we were by doing what we were doing. That realization occurred,” Kennedy says. “It culminated in a commitment to spend some money to find a better way to do business.”

After much discussion, the company decided to invest in a new enterprise resource planning (ERP) platform.

To choose the right ERP vendor, Spin Master started by looking at what its competitors, its customers and leaders in the consumer packaged goods field were using. From there, it developed a list of prerequisites.

A big concern was scalability. The company was fairly large at the time it was evaluating vendors, b
ut it planned to become a lot larger.

“It had to grow with us as we grew, and if we didn’t grow, it had to work really effectively with us as we operated,” Kennedy explains.

Location was another factor. Spin Master wanted a vendor that had presence in Toronto, so that expertise would always be available. At the same time, it needed a supplier with a global scope so that international branches—including those that did not yet exist—could be easily incorporated.

Finally, as Kennedy explains, the solution had to fit the Spin Master business.

“We listed the attributes we need to have a competitive advantage; the things we do really, really well as a leader in our industry. Then we made sure the application was able to deliver on them, rather the other way around.”

After careful evaluation, the company chose ERP supplier SAP.

“Spin Master wanted to show their supply chain partners and their customer base that they were serious about resolving their issues, as they were becoming a tier-one business themselves,” explains Greg Swift, vice-president, central region for SAP Canada.

“As the business grows and evolves, the solution should facilitate that, and that’s a key differentiator for SAP. If you look at a lot of mid-market packages, as business grows and evolves and you get into different areas, the software really starts to degrade and inhibit your ability to do business.”

Laying the foundation
With a vendor selected, the temptation was there to switch on immediately.

But before it did that, Spin Master had to get its own house in order, starting with a wholesale recalibration of the company’s internal processes.

According to Kennedy, this was completed with two goals in mind.

The first was to find ways to free up employees’ time, thus giving them the ability to actively contribute instead of churning through piles of administrative work.
The second was to align the segments operating within the company. Poor communication meant that different groups were not aware of their commonalities, which led to clashes and duplication of work.

To accomplish these goals, Spin Master held meetings with staff at all levels and functions. Together, attendees walked through the process of how orders were handled from start to finish.

“We had a whole group of people that approached it from different angles—demand planners, sales people, logistics planners and warehouse outlet managers,” Kennedy explains. “We realized pretty quickly that everyone had the same goals. We were amazed—there were so many people who had no idea what the other half did. But they really needed to know that to process orders effectively.”

These so-called ‘whiteboard sessions’ were instrumental to the transformation. By setting aside time to map the process collaboratively, employees gained an understanding of how an ERP system would work across all aspects of the business, and were able to brainstorm ideas for how the technology might best be implemented.

“It unleashed a tremendous amount of effectiveness rather than nervousness about implementing something new,” Kennedy says. “We got people intrigued about what more they could do as a result of an implementation, rather than worrying about their jobs or tasks.”

“A single version of the truth”
For the actual implementation of the SAP system, the company enlisted the help of Deloitte. For nearly a year, several Spin Master functional experts worked with a team from Deloitte and SAP representatives. Together, the group went through the SAP system, module by module, to link Spin Master’s business to the interface.

“We did a sign-off review, process by process, to make sure the business leaders and the company were comfortable with how their teams had structured the configuration,” Kennedy says.

The system had built-in conversion tools, which were able to funnel in the massive amounts of data from the old Excel files. Suppliers and vendors were given controlled access portals to the system, so they could have access to the same information, regardless of whether they used SAP.

Slowly, Spin Master brought everyone—all employees, all departments, all partners—onto the same platform. This gave everyone access to common information about virtually anything in the company’s supply chain. This “single version of the truth,” as Kennedy calls it, would form the foundation for the company’s future activity.

Going live
The system went live in February 2006.

The group took great pains to keep the implementation as simple—and finite—as possible. The project was to have clear start and end points. So committed was Spin Master to this goal that Deloitte and SAP were to be gone within 30 days of the system launch.

In the period immediately following go-live, the implementation team conducted daily updates with all users. If a concern came up, staff members were grouped together to sort through it.

“They were all part of the process,” Cleaver says. “Once we did that and got into it, it was so easy to see the benefits. They were very tangible for the hands-on people. Right away they identified it as a great success compared to what they used to have in their lives.”

In fact, the SAP system proved so popular that staff members started to suggest new and different ways to use it. As Cleaver explains, it became necessary to rein in this enthusiasm.

“It’s easy to think about what possibilities you have instead of making what you have in front of you work,” he says. “You start brainstorming about what you can do with the solution, and meanwhile the core business is not getting the right attention.”

“You need time to digest the change. There’s a shock sometimes,” Kennedy agrees. “We’d gone far enough to realize the business benefits of this investment, but not too far that it made us dysfunctional. Every day we were shipping product. We had customers to worry about. We couldn’t afford more than a digestible degree of distraction.”

The benefits
Within 30 days of the implementation, Spin Master had full visibility between its Toronto and Hong Kong offices, and the benefits have not stopped rolling in.

Since go-live, the company has more than doubled in size. It manages more than 500 active SKUs at any given time—and the mix is constantly changing, depending on what children deem ‘cool’.

On the international front, Spin Master now serves the US through a warehouse in Seattle. It has warehouses in France and the United Kingdom, and logistics partners in Hong Kong and Yantian, China. Earlier this year, it opened its first facility in Mexico.

In Canada the company is down to a single warehouse—an automated facility in Toronto run by Metro Canada Logistics.

At all locations, everyone has access to the same information in real-time.

“I can tell you what’s ready at a factory to be shipped any day of the week across any one of the SKUs we have in the company, across any of the factories we have,” explains Kennedy. “We have in-transit visibility to every shipment leaving the factory, we know every delivery date, we know the ship it’s on, the container it’s in, the day it’s arriving at the port. We know when it’s cross-docked, which train it’s on and when it’s arriving.

“We have the visibility to allow us to work with our 3PLs to optimize loads, negotiate better terms and look for ways to save more money collectively. We’ve been able to give those providers more business as a result, so their business is impro
ving, too.”

The benefits of this also travel down the supply chain.

“I can also tell you what the demand side of our business is, in terms of what our retailers are looking for—what their point-of-sale needs are, what their inventory needs are, what they have in stock at their DCs. And we can determine whether our supply chain has sufficient in-transit or staged inventory at any minute of the day,” Kennedy says.

In early 2008, with employees fully versed in the system, the company began phase two of the implementation: incorporating analytics. Staff members now aggregate and correlate data about how retail customers are choosing and promoting products. Doing this gives the company the ability to line up orders
from the factory right down to the end consumer’s choice. This information has helped the company shorten lead times, increase forecast accuracy and collaborate better with retailers on potential sale items and promotions.

Positioned for growth
After five years, Spin Master’s supply chain makeover is wrapping up. Kennedy says there are a few small projects on the agenda, but for the most part, the processes are exactly where they need to be to support further growth.

To start, inventory levels are lower than they were before. This means that the company’s revenue growth has outpaced the money it needs to fund inventory levels, improving its cash flow immensely.

Since communication is clear, rush orders and make-goods are rare.

Workers are much happier and more productive.

Perhaps most importantly, the company’s customers—which now include some of the biggest names in retail—are more satisfied. Slowly but surely, this is giving Spin Master more and more coveted shelf space.

“The philosophy was to build a solid foundation and streamline the processes first. Align the teams, look at world-class processes, use a world-class tool, look at ourselves differently and let it digest,” Kennedy says.

“We’ve actually enabled the speed of the business we need to be a very confident and strong competitor in the industry we’re in. We now have all the abilities necessary to execute that.”