Mattel Puts a Lid on Excess Colors

Date: Friday, January 3, 2020
Source: American Shipper

Maker of Barbie, Hot Wheels works to simplify operations; ‘Complexity is really a killer’

Mattel Inc. MAT 1.39% has gotten to the heart of one of its problems: Too many reds aren’t a good thing.

The company’s designers until recently could choose from about 150 types of red when making Barbie dolls, Hot Wheels cars or other toys in its stable. Ink types from glossy to waterproof multiplied the options. Each variation added storage costs and downtime at factories for cleaning equipment to swap out shades.

“Complexity is really a killer,” said Roberto Isaias, Mattel’s chief supply-chain officer.

Mattel has chopped the choices of reds by more than one-third and is doing the same for other colors, part of a broad edict to simplify the company’s supply chain. The change is one of dozens of projects undertaken at the toy maker since Chief Executive Ynon Kreiz took over in 2018 to improve operations and cut hundreds of millions of dollars in costs.

The goal is to improve, modernize and ultimately tame a sprawling supply chain that operates 13 factories, employs as many as 35,000 people during peak periods and delivers toys to 375,000 retail locations world-wide. Mr. Kreiz wants to close, consolidate or sell some plants and remake Mattel into a toy manufacturer that can more quickly churn out products and capitalize on trends.

“Supply chain had become one of our handicaps,” said Mr. Kreiz, who served as a Mattel board member before becoming CEO. “We used to be criticized for being too big, too slow, too heavy, too costly and not as efficient as you need to be in this day and age.”

Mattel has had a vast manufacturing footprint because it has historically been an owner of large brands with predictable sales from year to year. “At certain points in time, it made total sense because they made so many die-cast vehicles and so many Barbie dolls,” D.A. Davidson & Co. toy analyst Linda Bolton Weiser said.

But now, aside from keeping plants that churn out more than half a billion Hot Wheels cars a year or have proprietary methods for sewing hair onto dolls, the need for a vast footprint isn’t necessary, Ms. Weiser said. Mattel says it plans to keep factories that are “strategically important” or that can make certain products at a better quality and lower cost than a third party could, while consolidating plants that are underused.

Mr. Kreiz is tackling problems that he inherited from a succession of three CEOs in the preceding three years. He promoted Mr. Isaias, who had been running Mattel’s Latin America business, to lead the effort, breaking from the practice of hiring supply-chain experts from outside the toy industry.

The company already changed how it sells and fulfills orders to retailers. In Europe, Mattel implemented an automated, online ordering system for wholesale orders, eliminating the need for its sales team to manually process orders. It also increased the minimum order size so that it wasn’t shipping orders valued at just a few hundred dollars into a fragmented retail market.

“That clearly resulted in an unprofitable proposition,” Mr. Isaias said.

Mattel has posted a loss in eight of its last 11 earnings reports.

More broadly, Mattel is using new algorithms to tie its manufacturing output more closely to demand, helping the toy maker to gauge the right number of toys for the holidays. Mr. Isaias said Mattel was shipping 97% of the product that it promised to its various owned subsidiaries across the globe, for sale to retailers in the critical fourth quarter. That is up from percentages in the mid-80s a few years ago.

Where to make products is now considered across the company, to avoid creating extra costs when trying to save. Mr. Isaias said Mattel at one point moved production of the Barbie Dreamhouse, a $200 dollhouse that is a signature toy each year, from Mexico to Vietnam. Projections showed it would be 7% cheaper to make the dollhouse there. But removing it from the Mexico production line meant the cost of operating that plant would be spread across the remaining items made there. “So the other categories go up in price,” Mr. Isaias said.

Mattel also will be making fewer products. The company is planning to cut the number of items it sells by 30%, targeting the 45% of the items it sells that only make up 6% of its revenue.

“We’re really taking action that has not happened in a long time whereby you basically accumulated product in the system with very limited contribution,” Mr. Kreiz said.

Fewer items to produce will help make it easier to cut many of the shades that have built up in Mattel’s color catalog. Mr. Isaias said designers don’t need that many colors and would only select from such a broad range because it was possible.

Having fewer shades of red, blue or yellow will hardly be perceptible to consumers, Mr. Isaias said. “It doesn’t matter,” he said.

 

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