This story first appeared in the July/August 2024 issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’ DC Velocity.
Supply chain disruptions don’t always come from negative events like a global pandemic or a natural disaster. Sometimes they come out of positive events such as a spike in sales or an innovation.
In the past four years, the toy company Mattel has faced disruptions on several fronts—both good and bad. Like everyone, Mattel had to deal with the challenges of the Covid pandemic. Then last year, the smash success of the Barbie movie drove sales of movie-related items sky high, putting pressure on its supply chain to keep up.
Fortunately, the company and its chief supply chain officer, Roberto Isaias, have been taking steps for years to transform and better synchronize Mattel’s supply chain operations. This transformative work laid a solid foundation that helped them make savvy decisions in the moment and seize opportunities that both these events offered.
Isaias began his supply chain career at Procter & Gamble, which he calls a “formative” experience and excellent training ground for how to conduct large-scale projects focused on supply chain network planning, network optimization, and strategic planning. He then switched over to the commercial side before joining Mattel in 2002. At Mattel, Isaias, who is from Mexico, held a variety of leadership roles in Latin America prior to his appointment as chief supply chain officer in 2019.
Isaias will be discussing his experience guiding Mattel’s supply chain during his keynote address on Oct. 1 at the Annual CSCMP EDGE Conference in Nashville, Tennessee. DC Velocity Editor at Large Susan Lacefield recently had an opportunity to talk to Isaias and provide a preview of topics that he may be covering.
Q: What were some of the first initiatives that you were involved with when you became chief supply chain officer at Mattel?
A: That was a really exciting time, as the company was in the midst of a turnaround led by our current CEO, Ynon Kreiz. And a lot of the focus was to really restructure our system in ways that [would allow us to] be more profitable. Kreiz is a great boss. He really allows you to make decisions and push the boundaries. So very quickly we were able to reconcile the system and redesign the way we were working.
The biggest changes we made were on the planning side. I call it “synchronizing the supply chain.” For example, we had an algorithm that used inventory turns to calculate production levels at the plant. So we were having a very “nervous” system, where we were making a lot of [production] changes that were really hitting our profitability. But frankly, when you do that in China, it doesn’t make any sense. Because after you turn that fast, you put it on a boat for eight to 10 weeks. So why were you in a hurry? Why don’t you try to keep your productivity?
What we did is say, “Look, we should not be running our manufacturing lines for two or three or four hours, as you do in other businesses like consumer goods. What we need to do is to run our manufacturing lines for days.” That will increase our inventories probably by a day and a half. But frankly, it doesn’t really matter; we’re going to put that on the boat for 10 weeks. If [running our manufacturing lines longer] is going to give us much more productivity, we probably want to do that. So we changed the pattern of how we plan. And that algorithm alone probably gave us 30% more productivity.
The second thing we did is resize our capacity. When every single line is 30% more productive, then your costs also go down, and you don’t need as many factories. As a result, we decided to close some of our factories, particularly in North America. But even with fewer plants, we were [still] able to produce the same amount of product, so a lot of our fixed costs were reduced.
And the third [thing we did] was to make a lot of changes in the way we select an end-of-life for a product. By now, we have reduced probably close to 40% of our SKUs. We used to have a line that was very broad. And as we reduced that, we actually increased our productivity again, reduced our complexity, and sped up inventory turns in the plant. All of that really helped us to work in much better ways. From 2019 to 2023, we have saved about $380 million.
Q: Mattel faced some significant challenges during the pandemic. Could you talk about those challenges and how the work that you had done previously helped you handle them?
A: The pandemic was a crazy time. I think that the work we did systematizing the way we did the production planning in the plants really helped us. Before the pandemic, we pulled production planning out of the plants, so that the production planner was here in the U.S. We have a team that is in a central location, and we have created visibility to all the raw materials and all the components in our [manufacturing resource planning] tool and to our suppliers’ materials.
When we saw the pandemic beginning, there were three things that we did really well. First, we increased our safety inventories in the plants from 30 days to 120 days. We immediately put in orders for electronics, paint, plastic, and pellets. We went to the CFO and said, “Look, this is going to be about $200 million of more inventory. But if we don’t order now and the cost goes up, then we will not be able to survive.”
Our CEO and our CFO were key. They were open [to the recommendation], and they said, “Look, most of it you will use anyway. Of course, it will be a time and a cash flow challenge for the next few months. But after that, if we get it right, we will be able to grow.” It was really lucky that we saw that [trend], and we were really supported by our management team.
The second thing that we did is [ensure] we had that centrality that allows us to make production decisions and react really fast. Sometimes we were changing the production on a daily basis.
And third, our planning person—who has worked in our plants in mainland China and Asia—and myself—who has been here for a long time—we were able to understand the trade dynamics. We knew that if we produce enough and the demand was still high, our customers would take the inventory sooner or later. So [in the summer], they were pausing [orders with us]. But we knew that after that, [our products] would go because they need to sell toys in the winter. So we took the risk of continuing to produce and build our inventory up in China to 300 containers. We took those containers and placed them in basketball courts and football fields we had rented. As soon as our customers’ summer items were gone, they immediately started taking our product, and we were able to grow 20% that year. We hadn’t grown that much in many years.
But again, the CFO, the chief commercial officer, our CEO, and everyone was aligned on how much risk we wanted to take. And it played out well. In our plan, we were supposed to grow 4%, and we ended up growing 20%.
Probably the key pieces were what we did before [the pandemic] to really be prepared and really have a consistent system with enough visibility, and then some smart choices on how to operate. Compared to our peers that produce in China, we were probably the best ones in service and growth.
Q: Did that basis also help you respond to the increase in sales you saw as a result of the Barbie movie?
A: This is incredibly exciting! The Barbie movie has been one of the great events during my career at Mattel. I don’t know if you know, but Mattel was actually the first company that advertised toys on TV. It was during “The Mickey Mouse Club” in the 1950s. That’s what drove the early success of Barbie and Hot Wheels, and the explosion of Mattel as a global company. Now with the Barbie movie, our team and some of the visionaries that we have here really were able to put together a great story with a great director and with great talent.
With this movie, we had two challenges. First, the launch was really tight. Normally we have a lot of time to go see the movie and have the [toy] designers draw their ideas with the movie in place. In this case, we were not able to do that. So our designers and some design developers were on the set. As they were filming the movie, the designers were drawing ideas and creating products. That was completely different from what we did in the past.
We also started with some direct-to-plant development ideas. We took a lot of the product development ideas and sent them to the plant to continue the development process not in the U.S. but in Indonesia. And that really accelerated the development.
Third, we started working around the clock on the production. And once we reached the volume that we were planning to have, we kept producing. This allowed us to hold some of the inventory and then have production capacity later in the year in case demand [exceeded our initial expectations], which actually happened. We were glad that we created some of that inventory early in the year.
Our plants are not completely full the entire year, as we have a very seasonal business. They are completely heavy-loaded from April to September. But they are probably [at] 50% [capacity] the rest of the year. So what we do when we really need to drive volume is we fully pull forward the production. Instead of starting in March or April, when we’re supposed to start, we produce in December, January, February, and that allows us to have some free capacity. Of course, it creates more inventory and more risk. But it allows you to have more of what we call “chasing capacity”—that allows us to really adapt and produce more of what is in demand in the later months of the year. So what we did is we created spare capacity or chasing capacity for that summer, and we’re really happy that we did that. That is the way we actually managed those changes in production. And that’s how we were able to chase the higher-than-expected demand for the movie items.
Q: How did you work with your customers in handling the demand?
A: Our customers were so eager to have the product. We would say, “Well, yeah, I can ship you that. But I will only have [the products] on Sunday, the 7th,” and our customers would say, “Yes! How many trucks do you have?” Or we would say, “We can send it to the store, but people will not get it until June. Is that OK?” And our customers would respond, “Yes. I’ll send a note. Tell me the date; I’ll make it happen.”
The eagerness and the excitement around the movie was great, and our customers were great partners. Our customers have their own schedules; they have a lot of stores and a lot of suppliers they are trying to manage. They have a very hard business to run. I was surprised how flexible, how nice, and how excited they were about the movie. Everyone wanted the product, and everyone wanted the material associated with the movie, and everybody was asking for tickets to the premiere, which were extremely limited!
I would say part of the fun of the story is how flexible our customers were. They were just willing to open their doors and help us drive this on a compressed schedule. Part of the success is not only what we did, it was also that they were extremely helpful. And it was one of the biggest successes that Mattel has had in its history. And now we have a lot of other movies in the pipeline. And that is super exciting!
