K'Nex Demonstrates that Coming Home Can Beat Going Abroad

In some of the articles this week, we’ve read about how companies are either considering or have already brought back manufacturing from overseas to the United States. We’ve read how this is due to rising transportation costs and companies’ need to be more agile in the face of stiffer customer demands and increasing competition, which means moving production and inventory closer to the customer (Hudgens 2013). When examining companies that have made these types of decisions regarding their supply chains, I came across a toy company, K’Nex, that demonstrates how formulating a supply chain encompasses decisions about two other topics that we’ve discussed in this class: demand forecasting and product design.

K’Nex makes construction toy sets. If you built a toy roller coaster as a kid, you may have done so using a K’Nex product. Recently, K’Nex has brought home most of its manufacturing from China. While labor enthusiasts (including myself) are jumping with glee, K’Nex’s decision has positive business implications as well. Notably, K’Nex’s move to U.S. manufacturing means faster responses to changes in demand and a more agile product design that cuts costs while satisfying customer needs (Wollenhaupt 2014).

Demand

China is far away…..real far away. A Forbes article that covered K’Nex’s decision to return its manufacturing to the U.S. mentioned that it takes three months for K’Nex to send parts to China and receive fully assembled toys back. The article mentions that such a system prevented K’Nex from tailoring their production to specific demand requirements (Wollenhaupt 2014). Additionally, a few weeks ago we learned that information in a supply chain gets muddled as you move further upstream; that is, as you get farther away from a customer the harder it is to accurately predict the amount of product demanded (Zak 2014). It must have been incredibly inefficient and frustrating for K’Nex to create a production scheme using sales data only to find that much changes in 3 months. By moving their production, assembling, and packaging to Pennsylvania, the company has found itself much more capable of commencing production upon a receiving an order and then delivering the order shortly thereafter (Wollnehaupt 2014).

Product Design

For non-engineers like me, the very thought of product design will make you cringe. However, product design is an inescapable reality of the supply chain process. China was great for K’Nex because skilled labor was cheap and the supply of materials for toys was plentiful. However, the manufacturing climate in the U.S. necessitated a different product design. How did K’Nex cope with a lack of toy-making know-how and requisite materials in the United States? The answer is oursourcing…….to the customer (Hagerty 2013).

Instead of the complicated componentry that made up its production processes in China, K’Nex transitioned to easy-to-assemble toys that children and parents can put together. Series of easy-to-snap pieces are the norm for K’Nex toys and this helps the company cut production costs as well. In addition to the “snaps,” the company has also switched to cheaper materials like plastic to save on production (Hagerty 2013).

The IKEA of Toys     

                                                                                                    

You’re probably thinking that we’ve seen this before. In fact, we have. IKEA designs products that can be easily assembled by customers. K’Nex is doing something similar with toys. What other industries will adopt this model? Will computers and video game consoles ever be designed so that customers can assemble these products themselves? Then, there is the question of modularity. With toys, electronics, and other products, will people be able to order specific parts in order to build a customized product that serves their specific needs?

Sources:

Hagerty, James R. "A Toy Makes Comes Home to the USA: K'Nex Brings Production of Snap-Together Building Pieces Back From China." The Wall Street Journal. March 11, 2013. Retrieved from http://online.wsj.com/news/articles/SB10001424127887323293704578334062190251402.

Hudgins, Matt. "New Hubs Arise to Serve 'Just in Case' Distribution." The New York Times. February 12, 2013. Retrieved from http://www.nytimes.com/2013/02/13/realestate/commercial/new-hubs-arise-to-serve-a-just-in-case-supply-chain.html?_r=0.

"Made in the USA: K'NEX brings manufacturing home." YouTube Video. Retrieved from http://www.youtube.com/watch?v=V87w2nXPN3Y.

Wollenhaupt, Gary. "Why 'Made In The USA' Is Making A Comeback." Forbes. February 5, 2014. Retrieved from http://www.forbes.com/sites/ptc/2014/02/05/on-shoring-can-bring-competitive-advantage-for-manufacturers/.

Zak, Tim. "Planning Demand and Supply in a Supply Chain." Lecture. January 23, 2014.