Trains, planes and chains

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Hornby is a well-loved brand, and watching the company struggle with supply chain problems in China has been a painful experience for all of us whose childhood toys included its model trains, aeroplanes, and Scalextric sets.

So there was some good news last month when the company announced that it had reached an agreement to exit trading with a long-standing major supplier of model railway product – a move that allows it to diversify its supply base.

“I am confident that this draws a line under this painful period of the group’s recent trading,” said executive chairman Roger Canham, in Hornby’s interim management statement the last quarter.

The problem arose more than a year ago when model railway supplies from the group’s largest supplier in China, “reduced considerably after their decision to close down the main factory supplying Hornby and transfer activity to another that didn’t have the experience of producing our products”.

As a result of this new deal, the company can make available the remaining tools and moulds to its other manufacturer partners.

But it has been a long drawn out process that has hurt sales. The supply chain disruption means that Hornby now expects the annual total of model rail purchases for the year to be about 61 per cent of budget in the UK and 68 per cent in Europe. That compares to expectations of 88 per cent and 80 per cent respectively when it issued its half year results.

Write-offs mean that the company expects a break-even performance at the underlying pre-tax level for the year to 31st March. And supply delays have resulted in losses on the sterling value of currency held to purchase products. It expects this to lead to a £1 million loss overall.

There are some obvious lessons from this regarding supply chain risk, but what is particularly striking is the additional difficulty and delay involved is resolving problems in the extended supply chain.

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