In a strange turn of events, the once-doomed Toys R Us franchise has apparently shown signs of new life. As discussed in a previous post, the brand was a very well-documented case of poor and uncompetitive supply chain practices, lack of uptake of advanced technologies, bad timing on bankruptcy announcements before the holiday season and poor business management in general.
But apparently, it seems that the hedge fund lords saw more value in reviving its intellectual properties instead of selling it all off in pieces. An interesting turnaround like this is certainly a good moment to reflect further on how supply chains can be revived after a disruptive disaster.
In the case of Toys R Us, its intellectual properties appeared to be what chased away the shadow of the brand’s death. However, don’t be fooled if you think recovery is only a matter of PR.
In this post, we’ll be discussing exactly what other hidden factors are in play that keep a supply chain from making a full comeback.
Factor #1 – Refusal to treat failure as a learning experience.
Here is one thing you shouldn’t do: Blame your customers for an alleged lack of support, just like what Toys R Us’ former CEO did when he announced the company’s bankruptcy.
For one thing, today’s customers are people you have an obligation towards and not the other way around! If your supply chain hasn’t innovated itself in an age of online delivery service and faster shipping times, then you are in no position to blame those who opt for companies that offer such conveniences.
Put in short, you should just accept the fact that you played the horse-and-buggy salesman for far too long and now need to start spotting key areas in desperate need of innovation and taking action. Take it as a lesson in market realities instead of crying conspiracy and foul play. How can you call it a recovery when you are still holding on to the very same problems that caused your supply chain to go under in the first place?
Factor #2 – Smaller disruptions that aggregate to greater losses.
Most people view supply chain disruption in the form of highly-damaging, high-impact events like the arrival of a hurricane, a massive earthquake or even the outbreak of a war. However, smaller disruptions can also aggregate to create higher losses compared to singular, disastrous events.
It was certainly a mix of both for Toys R Us (what with its calamitous failure during the holiday season that followed their bankruptcy announcement and already poor sales performance for the year).
However, most supply chain heads naively aren’t seeing the smaller disruptions as potentially negatively as they may be. For instance, they believe that the cost of carrying inventory isn’t really that high (even when you could buy our own island many times over with the cost)!
These are the same companies who pretend that tariffs and trade wars don’t have an impact on their smaller businesses. But when you have at least one company reporting that a mere 25% tariff resulting in a rough 50% cost increase across its board, then it might be time to call your logistics partners.
Other forms of aggregate disruption are competitors gradually stealing more and more of your customers with each passing year. Just look at Amazon and the list of companies its been putting out of business. You think a majority of people just sat down one day and started getting their groceries online? No, it happened gradually! This happened over an extended period from the burst of the Dot Com Bubble to today. Throughout that time, it just eventually occurred to consumers that they can save time on the window-shopping and cart-pushing with just a single press of a button.
And lastly, let’s not forget the companies who pretend that their suppliers are completely compliant (and then they are shocked as news of abuses, strikes and a demotivated workforce are crippling their own production with delays).
It’s not just the one big supply chain disruption that we are trying to guard against. It’s also the amalgamation of many small and frequent disruptions.For a recovery to be feasible, start identifying the areas where you need to improve, and these may be small and frequent areas of disruption, that with some focus could have a major impact, such as at the customer interface and on improving end to end visibility.
Because the sooner you can work on them, the sooner you can start planning how to make your supply chain even more resilient to larger disruptions.
Factor #3 – Misunderstanding the role of Intellectual Property.
Most people think that their supply chain is just fine and dandy because they are somehow linked with a big-name retailer or supplier along the line. Well, Hasbro, Mattel, Lego and other major toy manufacturers certainly thought so about Toys R Us (and vice-versa).
Then, the latter filed for bankruptcy and all the hidden ugliness of such relationships rose to the surface.
Here’s the real truth: Intellectual property (IP) isn’t some magic bullet that will draw in all the revenue to keep the chain running. It carries with it a lot of legal issues such as ownership and this demands you pay very close attention to the role you play in the supply chain network. Are you the IP’s true owner, sitting somewhere at the top of the stream, risking losses on a failing retailer? Or maybe you’re like the toy store itself, thinking it can ignore all inefficiencies and succeed without making the slightest change in business?
If you are not careful, you could end up like Rockport who was bought out of the Adidas Network by its investment arm. You think the $280 million spent on the buyout would’ve saved it from the cost of the disconnection? It didn’t.
Intellectual property has its place but it’s not more significant than other areas such as logistics, analytics and other places vulnerable to disruption. Understand its role and your own first!
While there are quite a number of cases where PR and branding played a pivotal role in recovery, they are still but two areas that need attention if you want to make such recovery a reality. Toys R Us may yet be saved but there’s no doubt it will never be the same.
Your business will be no more different. Don’t just stop with your efforts in the public space. Go beyond!