The Necessary Evil of Pre-Ordering (A North American view point)

[bill937ca]

We are all used to reservations for popular items from Japan.  But rarely are we told any of the details of why this is necessary.  Jason Shon, President of Rapido Trains gives some background details of producing model trains.  A similar article is currently running as an open letter in April 2010 issue of Model Railroader. I actually like the wording of the magazine ad better, but I haven't found this online.

 

A lot of this has been brought about by batch processing and the lowest price mentality. There are few models in constant production year after year anymore. A production run is done and at least in Japan with its far higher participation rate, there may still be hope of another production run. In North America there used to be distributors who had plenty of stock and your dealer could order from them, but under the big-box store  scenario this wasn't "efficient" and has disappeared.

 

It sounds like Rapido Trains is using steel molds just like the Japanese manufacturers.

 

The Necessary Evil of Pre-Ordering

 

I discussed this in issue 10 of the Telegraph, but I think it's worth revisiting. Many people, myself included, have bemoaned the "pre-order" culture that has taken over the model railroad industry. Unfortunately, it is a necessary evil that we have to live with. Here's why.

 

The capital investment involved in a model railroad business is huge. A friend of mine started up a software company about four months ago. His expenses are salary, rent, desks and computers. That's it. In a few months he is already doing a roaring business, growing by leaps and bounds, and - most importantly - he's bringing home the bacon. His advertising costs are nil (he relies on word of mouth for his business), and his capital investment (that means the money he spends on physical stuff) is peanuts in comparison to what he brings in.

 

In contrast, in order to bring a model train product to market, we must first design and build the plastic and metal molds - collectivey called the tooling. A diesel locomotive can cost up to $175,000 to tool. A passenger car with our level of detail can cost up to $100,000. Then there is the product cost itself which has to be paid, as well as rent, salaries, overhead costs, and a huge advertising budget. (Remember, my software programmer friend spends nothing on advertising whereas it is our biggest expense after product and payroll.) All of that money is spent before a single product ships and a single payment is received from our dealers.

 

The thing that will make or break a model train business is cash flow. I could have a great product and sell a million of them, but if I don't have the cash to pay for the product then I will be out of business. It's as simple as that.

 

So the manufacturer has already spent thousands of dollars on the tooling, and now he has to spend money to make the models. If orders are low for a given product, the manufacturer can do one of three things: delay the product, cancel the product, or make lots of inventory hoping that the products will sell eventually. We can't just make, say, 12 Illinois Central coaches of a given number because we need to spread the cost of the painting masks and printing pads over a larger number of cars to make production economical.

 

The problem with making inventory is that the manufacturer has spent the money for that product, tying up vital cash that can be used for overhead, advertising, new product, etc. And in today's economy, what almost all manufacturers are finding is that sales from inventory have come to a virtual standstill. Yes, people want the new stuff - and they order it in advance. But whatever is not sold by the time the goods arrive tends to sit on the shelf.

 

So if a model train manufacturer wants to stay in business he needs to take pre-orders and make the products to those pre-orders. If the pre-orders are too low, it is better to delay or cancel than to spend a lot of cash on inventory and hope it sells. Pre-ordering is a necessary evil in our industry, but without pre-orders we would have a much smaller selection of products.

 

The good news for those of you in the kitbashing, construction or scenery stages of your layout is that building supplies and parts (such as our "Totally Wired" Telephone Poles) are usually stock items and do not need to be pre-ordered. But for that snazzy locomotive or high end passenger car you've had your eye on, chances are that pre-orders are the only way.

 

That's it for me. As always, please give us a shout if you ever have any questions, comments or concerns about our products.

 

All the best,

Jason

 

Jason Shron

President

Rapido Trains Inc.

 

 

http://www.rapidotrains.com/telegraph20.html

And the follow up article with a picture of Rapido Trains factory in China.

 

The (un)reality of order deadlines and delivery dates

 

Those of you who have been with us for a while have no doubt noticed that our order deadlines and delivery dates are, shall we say, "fluid." Here's why.

 

I determine our initial order deadlines when we announce a project. Chances are, at that time the tooling is not yet finished and all we have is an early sample (if that!). I do my best to estimate how long it will take to finish the changes and when we will have production time available in the factory.

 

In most cases, my estimate is about as accurate as Back To The Future's predictions of life in 2015. As we are unlikely to develop hover skateboards or replace emails with fax machines in the next six years, that gives you an idea of how wrong I usually am. But I'm getting better... honestly. We are actually delivering our first run of cabooses in fall of 2009, as promised. Well, half of them at any rate.

 

Projects can be delayed by unexpected tooling problems, function issues with the circuit boards, and a myriad of other hiccups. Sometimes we find a mistake in our research right at the last minute, as we did with the steam generators.

 

You have to understand just how small a company we are. We have three full-time employees in North America, and our factory in China is just three rooms and an office. That's it. If we're busy making cabooses, we don't have the capacity to finish up some of the other projects that are in progress. It's always a tough choice deciding what will be in production at any time and what will have to wait. This is determined by things like how high our sales are for a given item, if an item is new and hot or a 3rd run of a paint scheme, if a paint scheme is particularly difficult and time consuming, etc.

 

We're often grouped in the same category as big guys like Athearn, Atlas and Walthers. I am truly flattered when I read or hear that, because we are really, really small by comparison.

 

One more factor that has led us to keep pushing back our order deadlines is that I've found that a lot of people in the far reaches of the USA and Canada order our products weeks or months after the original announced deadline. It's tough to get the word out to everyone. Now, if we haven't yet started production because of my awful estimating abilities, we can still take the orders. But if we have started production, forget it. We've turned away late orders for hundreds of cabooses.

 

The practical implications of all of this are that we will take orders for a product until we have to order materials. About two weeks before that time, we will send out a reminder to our distributors (USA) and dealers (Canada). Once we order materials, that's it. The production numbers are set in stone. If you haven't ordered by then, you won't get the models.

 

I hope this gives you an idea of what's involved, and why your Chicago & North Western N scale coach or your HO scale BN Exec car hasn't yet arrived. All I can ask is that you bear with us and be patient. We've come a long way in the last three years, but we're still the little guy of the model railroad manufacturing world.

 

http://www.rapidotrains.com/telegraph_currrent.html

[traindork]

I've seen pretty much the same story from some of the other manufacturers. Personally, I hate the whole pre-ordering system. Sometimes I walk into a hobby shop with a pocket full of money and I leave empty handed because there's nothing on the shelves. I think one of the reasons for the whole pre-ordering system is that you have manufacturing done by another company, and once your order is set, it's set. If you get a couple hundred extra orders for a caboose, you can't just walk to the back of your facility and tell Jim to make a few more. You lose control over that, and are at the mercy of another company. Look what happened in the last few years with Sandra Kan, the company that manufactured lots of model trains for most of the American companies. They went bankrupt, and manufacturing came to a standstill. Kader bought them out, and they're still not caught up.

I think I'm spending less because of pre-ordering. At least, on the American stuff. 

[KenS]

I agree.  I've always preferred to see/touch things before I buy. Getting into Japanese trains I had to give that up, as it's hard for me to "see" things I'm ordering from a store in Japan. But I'm still much more likely to buy somthing that's "in stock" rather than commit to a future purchase. I've only pre-ordered one Japanese train to date, and that was something I really wanted.

 

I can understand the economic pressure that causes limited runs with minimal extra stock production. And Japanese companies reportedly have additional pressure from a lack of warehousing (although I suspect the root cause there is also cash-flow; not only are warehouses an additional expense, but treating your dealers as your warehouse probably gets you paid faster). But, ultimately, the lack of inventory hurts the hobby, as people who want to specialize but have limited spending money may be shut out due to the timing of a new release. And new entrants are limited to the "lowest common denominator" stuff that's on the hobby store shelves (assuming they can even find one, as online ordering is destroying what was left of that business), and if that doesn't address their interest, they'll find another hobby.

 

I love wandering around hobby stores, and I try to patronize my local ones as best I can. But even when I was doing North American HO, that was limited due to their really poor selection.  Today I mostly buy scenery materials and general magazines, although I do try to get most of my unitrack elements from the local stores even if they cost slightly more (they've saved my bacon more than one when I needed one particular thing for a weekend's planned work, so I see paying a bit more than I might be able to find online after shipping a reasonable cost for that convenience).

[ToniBabelony]

It understandable that it happens in such a way. In contrary to other then Japanese manufactures, you are almost guaranteed a high-quality product. Especially from the likes as Tomix, Kato and MicroAce.

 

At first I was annoyed by the fact of pre-ordering, but this phenomenom always guarantees a constant flow of new products, of which they buyers have high expectations.

[disturbman]

Like every collector I like to be able to see and touch things before I buy. It's part of the process of finding the one train I want. It's part of the pleasure. But, after seing allways the same not so sexy trains years after years in the shops, limited prodution run and pre-ordering conquered me. At least, I've the impression that something is happening in the hobby. It keep things flowing.

 

Plus, once you get a grasp of what's going on, you can order the one you really really want and don't need to hike your way to the closer hobby shop that probably won't carry the item you are looking for. Pre-ordering really goes well with an e-economy and a world where it's getting harder and harder to find a suitable shop. Anyway, this "necessary evil" is not so much a problem. If a company aimed to low the first time, it can do another run some months afterward. That's the beauty of the system, you know more or less exactly the quantities you are going to sell.

 

In the end, I'm quite happy like that and I'll be more than please to shop in Japan next month. 

[cteno4]

I see this as a balance. there is pretty much a fixed amount of money out there to draw from for model train sales to base your potential market for a new production run. yes you can grow the hobby on a whole some, but this is a slow process and you cant bank your shorter term production runs on that changing in the course of a production cycle. this then means its a balance between either high inventories (and therefore being able to touch the models at dealers) of a few trains or low or no inventories of a lot of trains. its like the diversity vs abundance game in ecology. its just does not work when you try to have your cake and eat it too here unfortunately.

 

japanese also tend to be a collector market as well so the limited reserve production runs sell well to this market, but makes it really hard for the modelers that just want to model a particular area and unless they were collecting for a while that means they will have little to choose form at any one time. In NA microtrains has been doing a lot of the collectors series type stuff to this market, but they are experiencing a big backlash from the rest of the market that wants stock of just good general stuff to run on their layouts as well.

 

i think the only good news in this equation is that with CAD, 3D fabrication, and computerized milling, tooling is getting a bit easier, faster and cheaper to do than it was traditionally (although i have heard a few in manufacturing say it has not changed it all that much, but never sure about this). seems the simpler stuff like the tomytec lines are coming out a lot faster and more often than anything else i have seen in the model train industry in the past.

 

granted not getting to touch and feel a model does make it harder to get new modelers started, but would they be as interested if there were only a limited number of trains out there that they could buy if the industry was focused on keeping inventories of trains in stock all the time... it also makes it really for the LHS to have much in the way of stuff on their shelves then. when things run to mostly reserve ordering, then no reason to have a physical shop, it can be a phone/email internet shop then.

 

cheers

 

jeff