Taking a lesson from Barbie, Mattel builds a more nimble supply chain
Summary
The toy maker is shuttering some plants and trimming product lines as it tries to respond more quickly to consumer demand.When “Weird Barbie" became an unexpected breakout hit of the “Barbie" movie last year, Mattel kicked its new supply chain strategy into action.
The toy maker accelerated the doll’s design and manufacturing process to tap in to the attention to the character, rapidly bringing to store shelves a doll that—like its on-screen inspiration—looks like it’s been “played with too much."
It was one example of how one of the world’s largest toy makers has revamped its supply chain, shuttering some factories, outsourcing production at others and fine-tuning work at some sites to prepare for the expected spark from the Barbie movie.
The idea for the El Segundo, Calif.-based company has been to reset a supply chain long focused on relatively predictable seasonal patterns in the children’s toy market to make it more flexible to respond to rapid shifts in consumer demand.
The changes have cut Mattel’s costs and helped increase its profit to $57 million in the quarter ended June 30, from $27 million a year earlier, even as sales declined. The toy industry is facing a broader slump as kids shift their focus to videogames and smartphone apps, and Mattel has seen the boost it got from Barbie merchandise fade a year after the movie’s release.
Roberto Isaias, the company’s chief supply chain officer, said the strategy has helped Mattel better project demand to have products available when customers want them.
“We’re trying to revitalize the brands and be commercially successful," Isaias said this month at the Council of Supply Chain Management Professionals conference in Nashville, Tenn. “At the same time, we’re trying to get to the lowest possible cost."
The toy market in the U.S. has been on a roller coaster in recent years. Sales surged early in the Covid-19 pandemic as families stuck at home ordered more toys, but demand has since pulled back. Toy sales in the U.S. fell 8% in 2023 from the previous year to $28 billion, according to market-research firm Circana.
Mattel has faced pressure to take action on weaker parts of its business. Activist investor Barington Capital Group had built a 0.18% stake in Mattel as of June, according to FactSet. Barington in February sent a letter to Mattel’s leadership recommending the company pursue strategic alternatives for its Fisher-Price and American Girl businesses.
Mattel brought in $5.4 billion in its fiscal year 2023, roughly flat with 2022. Its gross margin increased to 47.5% last year from 45.7% in 2022.
The maker of Hot Wheels cars, Fisher-Price toys and American Girl dolls is developing more movies and TV shows starring characters from its brands to drive demand for its toys and replicate the Barbie movie’s success.
To align its supply chain more closely with event-driven sales, the toy maker has closed or sold five factories and invested in its most productive sites in Mexico and across Asia. It has cut the number of products it makes by about 45% since 2018 to get rid of some of its less popular items.
Trimming the variety of toys it sells has helped the company better forecast shopper demand, reduce inventory and improve in-stock levels, Isaias said. The company’s inventories fell to $777 million in the quarter ended June 30 from $972 million a year earlier.
Many retailers and brands have slashed the variety of goods they sell since the pandemic to focus on their most popular items, said Brian Gibson, a professor of supply chain management at Auburn University. Cutting items that don’t sell as quickly means “there’s less complexity overall in your supply chain, and you’re not having to try to manage so many different inventory items," Gibson said.
At its plants, Mattel has extended the time that each line produces a particular toy. Previously, it seemed as soon as Mattel factory workers got the hang of making one particular toy, “Boom, we changed it to a different toy," Isaias said. Now, workers have time to master the production of each item, he said.
Isaias, who came to Mattel in 2002 from consumer-goods supplier Procter & Gamble, said workers can change manufacturing lines for products such as laundry detergent relatively quickly because the difference between a two-pound or five-pound container is minimal. Toys come in different sizes, shapes and materials, so it can take on average up to two to three hours to switch lines, he said.
For items with long lead times made in Asia, Isaias said Mattel found it had time to focus on increasing output and to reduce labor costs instead of rushing to get toys to shelves in the U.S.
“When you’re in Asia, two and a half months away from your market, if you run for a day, or half a day, or a day and a half, it makes no difference," he said.
The company also moved to outsource more manufacturing, including for items it makes under movie licensing agreements with entertainment companies. Although using contract manufacturers costs more than making the toys at its own factories, Isaias said it can help keep Mattel from getting stuck with unused capacity when demand drops off.
Mattel has also adjusted its supply chain to react quickly to unexpected demand when toys go viral online, as it did with “Weird Barbie." When the company needs to quickly get goods to shelves, it makes some items at its factory in Mexico, close to U.S. customers, and absorbs the higher manufacturing costs, or it airfreights products to the U.S. from Asia.