The economic growth of the Middle East has turned the region into an exciting playground for Toys"R"Us. But what tricks does the global retailer have up its sleeves to manage its increasingly complicated supply chain?
One could be forgiven for assuming that supply chain management for toy retailers is fun and games. After all, the operations are largely unburdened by the stringent requirements of a pharmaceutical cool chain, for example, or the transportation of hazardous cargo.
However, the logistics challenges facing today's toy retailers actually lie within the fickle nature of the market itself.
The latest gadget being coveted by millions of children one day can easily be forgotten and replaced with a completely different alternative the next.
With the industry relying heavily on anticipating what toys are going to sell best, and to what extent or volume, further issues, such as short product life, speedy product turnover and seasonal demand, can also present challenges for the supply process.
The silver lining to all of this is, of course, the big booming business that toys bring along with them - and in this respect the Middle East region has been thriving. According to sources, the UAE is ranked eighth in the top ten toy importing countries in the world.
With the Middle East toy market itself estimated at a hefty US$1.5 billion per year, with an impressive 11.8% annual growth rate, setting up a successful toy shop in the region promises very healthy returns indeed.
This lucrative lure has not gone unnoticed by global toy seller Toys"R"Us, which has been operating in the region under the prestigious eye of the Al-Futtaim Group since 1995.
As one of the leading companies in the UAE, with many well-known global brands under its belt including Toyota, Panasonic, Marks & Spencers, IBM and Ikea, Al-Futtaim Group knows a thing or two about smooth logistics operations in the region.
Coupled with the reputation of Toys"R"Us for successful logistics operations in the US and Europe, running a smooth supply chain in the region should be plain sailing for the retailer.
"We buy merchandise from all over the world and deal with more than 300 manufacturers to get the best possible prices for our customers," explains Devrim Anadol, buying and logistics manager at Toys"R"Us.
"We plan our ranges according to worldwide trends, movie releases, seasonality, and consumer behaviour and fashion in the GCC. And of course we take into account our sales targets and financial objectives."
The retailer currently operates in the UAE, Bahrain, Qatar, Oman and Egypt, with products for the stores coming mainly from China, Europe, UK and the USA. For this reason, it relies on immaculate support from its chosen third party logistics partners to ensure an efficient toy supply chain.
"Considering the number of countries and the number of vendors that we deal with, our operation requires a flawless process and great teamwork," Anadol emphasises. "To ensure the smooth flow of the supply chain, it is imperative that the logistics 'parts' work together."
In terms of these logistics 'parts', Toys"R"Us relies on major 3PL players to help them deliver their successful operations, including Agility, UPS, DHL and Aramex. For those critics who may argue that ' too many partners spoil the supply chain', Anadol is keen to explain how it works in practice.
"The first step to getting the merchandise is, of course, processing the purchase orders and we get support from UPS worldwide consolidation services on this," he says.
"UPS operates in 224 countries and supports us by origin coordination, which means timely shipments, assisting on consolidation and follow up with the suppliers on ship windows and documentation. Basically, UPS gets the containers to our central warehouse in Jebel Ali, Dubai."
After getting the containers into the distribution centre, Toys"R"Us' inventory control team plans the stock transfers. "The inventory control team pushes the stock to stores and they plan how much to send and when to send. They work according to our marketing calendar, seasonality and consumer demand," Anadol continues.
When you consider that this involves 15,000 different SKUs, it becomes clear that this no easy task. "We use IBM AS400 to help us on this complicated replenishment activity, and our inventory control team replenishes all UAE stores daily and twice a week out of the UAE," he adds.
The next step in the Toys"R"Us supply chain process involves partnering with Agility, as the retailer's warehouse operator in Jebel Ali. "After the inventory control team writes the transfers, this information goes to Agility, which is mainly responsible for clearing the containers at Dubai ports and item picking in the distribution centre," says Anadol.
Agility's daily responsibilities include loading the trucks, re-packing promotional products and Arabic labelling, together with yearly stock count and peak sales period planning.
According to Anadol, the actual size of the Jebel Ali facility is around 8000 CBM. "We have a team of 15 colleagues, two dedicated customer support representatives and one account manager based there. They move around 2000 CBM to 3000 CBM per month during the peak period," he continues.
Next, in terms of the transportation, the retailer relies on support from DHL and Aramex. "We use DHL for road networks in GCC and sea freight. We also have two trucks from Aramex and they replenish our stores in the UAE," Anadol explains."
The logistical thinking behind the Toys"R"Us supply chain clearly makes good sense. "It looks complicated but when you put everything together, it works fine," Anadol laughs. "But it's imperative that everyone does their job 100% correctly. It's all about teamwork."
It is also about making the most of the unique strengths that each of the service providers can provide Toys"R"Us, whether it be extensive global networks, reliable fleets or warehouse expertise. "Each one is focusing on something particular," says Anadol. "We are happy with the services each one is providing."
So happy, in fact, that the Al-Futtaim Group's retail division recently held an awards ceremony specifically to thank and acknowledge the valuable support of its supply chain partners across its various retail operations, including Toys"R"Us.
"It's a complicated chain and so appreciation is very important. Everyone did a great job in 2007 and we want this to continue in 2008. It's really important for motivating ourselves and our partners," claims Anadol.
Of course, Toys"R"Us is not exempt from some of the common problems that can accost the toy supply chain. For instance, Anadol agrees that changes in market trends can put a strain on logistics operations.
"You have an idea of the mass market and your projections seem quite obvious to you," he explains. "In the toy industry, you can get a brand new product and the package may change from two CBM to a little packet in a week."
Furthermore, meeting the increasingly stringent safety regulations and requirements is part and parcel of the toy business. "All the products that we sell at Toys"R"Us comply with UAE, British, European or American safety standards," Anadol emphasises.
With a significant portion of its produce coming from China, which has previously come under criticism in terms of toy safety, and further initiatives to strengthen the enforcement and implementation of product safety controls throughout the toy supply chain currently being reviewed by the EU, the retailer is taking this issue seriously.
"There is no exception; every single container that we receive into the GCC has proper safety test certification from reputable worldwide recognised testing laboratories - nothing is more important than the safety of children," Anadol says with complete conviction. "As you see it is a very serious fun business," he jokes.
With these challenges under control, Toys"R"Us is facing a promising future in the Middle East. "I think the customers trust us, and they believe that they can find the brands that they are looking for in Toys"R"Us," says Anadol.
"We also have a big range of 'private-label' brands, which provide great choice, quality, exclusivity and value to our customers."
At present, the retailer is in the enviable position of having a market share of around 40% on core toys in the UAE. Unsurprisingly, Toys"R"Us is keen to expand and increase its position with new stores in 2008 and 2009, which Anadol hopes will raise its share up to 45%-50%.
However, it seems that immediate changes to the supply chain will not be required, at least in the short term. After all, it has served the company remarkably well. As Anadol concludes, simply, "it is cost-effective and has proven successful."
• The value of the Middle East toy market is estimated at US$1.5 billion per year, with about an 11.8% annual growth
• Dubai alone imported toys worth around $140 million in 2006, with the region also serving as a major distribution hub for neighbouring markets
• The average annual expenditure per child on toys and video games in the region is $327 per child, almost double that of Europe and second only to that of North America
• A growing Middle East population with more than 55% below the age of 16 has led to a huge 300% increase in the number of nurseries and play areas in the region, according to current industry estimates
Information supplied by EPOC Messe Frankfurt GmbH, organiser of the Middle East Toy Fair (www.toyfairdubai.com)