LeapFrog: Trouble In Toyland
Toy company, LeapFrog Enterprises, Inc. stumbled when it couldn't handle a surge in orders from retailers. Did the delay of a Manugistics implementation backfire? (Baseline)LeapFrog Enterprises may enjoy strong demand for its educational toys, but the Emeryville, Calif. manufacturer could use a primer on how a supply chain needs to work as Christmas approaches.
The basic lesson: a company should think twice before putting off the deployment of new software for managing the manufacturing and distribution of toys, when it is heading into a season that accounts for 75 percent of its annual sales.
That became obvious on Oct. 21, when this toymaker, whose key backers are former junk bond trader Michael Milken and Oracle chief executive Larry Ellison, blamed distribution and logistics problems for missing analysts revenue estimates by $32 million in the third quarter. The revenue may be made up in the last three months of the year, but the disclosure damaged managements credibility and ended the companys 18-month run as a darling of Wall Street.
The real problem: LeapFrog suspended deployment of new supply-chain softwarebefore the third quarter began.
"We started the implementation in the first half of this year but didnt complete it," says LeapFrog spokeswoman Cherie Stewart. "Were just moving into pilot right now."
LeapFrog is installing version 6.15 of logistics software from Manugistics. The automation is designed to link up and synchronize orders from retailers to the inventory the company already has on hand to fulfill orders, and to run the rest through factories in China. Stewart says the company plans to fully implement the new supply-chain management system in the first half of 2004when the hectic holiday shopping season is over.
In the meantime, LeapFrog is using a combination of its own existing software and some pieces of the Manugistics system. LeapFrog officials declined to comment on its internally developed system or how the eventual deployment will be an improvement.
Analysts say the companys decision to run the not-yet-ready-for-prime-time Manugistics software in unison with their customized supply-chain system made sense at midyear, even if it meant the companys ability to forecast fourth-quarter demand would be limited.