Toys 'R' Us Embraces Just-In-Time

As Senior Vice President— Logistics, Toys "R" Us, Inc., Michael Jacobs' functional responsibilities include distribution, import/export logistics, U.S. Customs compliance, the company's vendor-partnership program, and its merchandise information off

Jacobs has nearly 20 years of experience in retailing and logistics. Prior to Toys "R" Us he managed logistics and supply-chain activities for Kay-Bee Toy Stores. He held strategic management positions at PepsiCo. He earned his M.B.A. in Accounting and a B.S. in Finance and Management Information Systems from Manhattan College (Riverdale, N.Y.)

In August 2004, Toys "R" Us announced it may sell its toy business to focus on its faster-growing Babies "R" Us unit. The retail toy industry has struggled in recent years as kids have been growing out of toys at younger ages, opting instead for electronic games, as well as the impact of mega-mass merchandisers such as Wal-Mart and Target. Company executives could not comment on the current state of the proposed sale.

During the recent holiday season, Toys "R" Us toy sales dropped 1.4% to $3.89 billion excluding the impact of currency fluctuations. Same-store sales fell 2.2% domestically for the nine-week period ended January 1, 2005. Holiday sales of the company's Internet retail outlet, Toysrus.com, fell $6 million to $176 million. It attributes the slight decline in online sales to the modification of its freeshipping policies. The company expects the policy change to have a positive impact on the division's overall financial performance. When it announced 2004 holiday results, Toys "R" Us reported dramatic improvements in inventories, which decreased by 11% versus the preacrossvious year after adjusting for currency fluctuations and inventory markdowns.

MHM: How was Toys "R" Us able to achieve such dramatic inventory reductions over the previous year?
"As a retailer, inventory is the largest asset that we have. In order to minimize that and provide a better return on investment and also reduce potential risk to our business on markdown exposure, we have been working to improve our inventory turns as well as our in-stocks the last three or four years. Within logistics, my specific area of operation, we have been very focused on improving our speed to market and we have taken weeks out of our supply chain.

"We have been working closely with our merchant organization as well as our planning and allocation group to do a lot more cross dock/just-in-time receipts. If you go back a couple of years ago, we almost did no cross dock. Today, we are around 20% cross dock. Ultimately we want to get to where half of our goods go out the same day they come in.... We operate in a wave environment, which makes cross-docking extremely complex. Through working across our organization, by making system changes, and working with changing flow with our merchandising group, we've gotten much more into a just-in-time mode."

MHM: In addition to cross docking, what else are you doing to improve your material handling and supplychain management performance?
"We're working cross functionally with our partners so that we're aligned throughout the supply chain. As we deliver results, we're delivering results multiple groups, as opposed to each silo managing themselves.

"We're focusing on improved planning and forecasting accuracy. We've worked with the [Toys "R" Us] planning and allocation group to create more logical flows of product, tie the flow of product into supply-chain capacity. We're working on product visibility systems. We have groups of people who focus on expediting late product to get our in-stocks higher than they have ever been, and at the same time reducing inventory.

"We have created an operational planning group. The operational planning group is a supply-chain oriented group. They work across the organization. It's not a group that's tied into the merchants, and it's not tied into logistics. It works across the organization to make sure that the needs of the buyers are being met and, at the same time, the plans themselves reconcile to what the logistics physical capacity is to handle the product.... Even during season, our in-stocks are much higher than our competition. We attribute a lot of that to the way we work across the supply chain so that we understand our physical capacities to be efficient and not gridlock our network, and at the same time meet the needs of our merchants."

MHM: Please describe the objectives and activities of the Toys "R" Us merchandise transformation project.
"It's a project that we started three years ago within our company to improve our merchandising capabilities from a tools and systemic support standpoint. We went out into the industry and looked at best-in-class practices, and merchandising technology. Over the last couple of years we've put together a strategic plan for rolling out new systems, and new tools for our buyers and our planning and allocation group, and also for logistics, to allow ourselves to become more of a bestin-class company in retailing."

MHM: How does information technology support that initiative?
"This was a strategic project and not just a tactical one. Obviously you need to integrate across the supply chain. You can't implement Manugistics [Rockville, Md.] as a stand-alone system, or a Retek [Minneapolis]-system, or warehouse management-system, or any of our other systems. They need to work together. Whether it's product visibility, better replenishment methodology, or new logarithms to be able to calculate in-stocks and what safety stocks should be, it needs to work together across the organization."

MHM: What type of skills and knowledge do you look for when hiring people to fill material handling and logistics positions at Toys "R" Us.
"It depends on the individual position, but we look for people who understand best-in-class practices from other companies, not necessarily retailers, with a great deal of experience in other ways of operating than the way we do. When I look at my team that I've put together over the past seven years now, it's a mix of people. It's not just any one type of person. We have people who have come from the consulting side of business, we have people who have come from the manufacturing side of the business, and we have people who come from the retailing side of the business. "We have people who have been with us very long periods of time, and we have new people. The combination of experiences create very lively debates."

MHM: Do you have any advice for those just entering this business?
"If you're just getting into the field, you really want to go with a company that is progressing very quickly and moving to best-in-class practices.... Look at Toys "R" Us and how we have progressed in logistics and as a company over the past 3 years. It hasn't been an evolution, it's been a revolution here. I think the attitude is we have to be competitive in everything we do because our competition is known for supply chain. If we're going to be competitive in this environment, we have to become a best-in-class retailer in supply chain."

MHM: What do you like about working in logistics for Toys "R" Us?
"It's kind of a strange time here, but the company and the executive management is extremely supportive of supply chain. From a standpoint of resources and capital we have been very fortunate; we've had everything we've needed to move forward and become best-in-class.... In addition, from a logistics perspective, the nice thing about Toys "R" Us is that this is a global company. Having import/ export responsibility globally for Toys "R" Us makes this job very interesting."

Michael Jacobs
Senior Vice President
Logistics, Toys "R" Us, Inc.

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