Dive Brief:
- Mattel will reduce total SKU-count by 30% by the end of the 2020 after a two-year supply chain simplification process that drove $797 million in 2019 cost savings with an additional $92 million expected in 2020, executives reported an earnings call Thursday.
- In addition to SKU reduction, an automated online wholesale ordering system and predictive algorithms to improve supply and demand forecasting were significant parts of the supply chain streamlining work, said CEO Ynon Kreiz. Factory closures and simplifying the products also contributed to the savings.
- The company's simplification plan yielded a 710 basis point jump in gross margins in 2019 and executives expect to gain another 150 to 200 basis points in 2020 as cost savings from the supply chain simplification stack up.
Dive Insight:
Mattel never quite recovered from the fall of Toys R Us, as roughly 15% of the toy market reorganized, and a cumbersome, complex supply chain heavy with production assets didn't help. Sales are coming back slowly, but executives credit the supply chain simplification with bringing the company back to profitability.
"Mattel exceeded its 2019 guidance significantly improving profitability and stabilizing the top line, a major accomplishment after five years of revenue decline," said Kreiz.
Sales were flat in 2019, but margins were up on the back of a 29% workforce reduction and 60% cutbacks on capital expenditures.
The company closed factories last year in China, Indonesia and Mexico, and is in the process of closing one in Canada, said Kreiz. Before the simplification, the company owned and operated 13 factories around the world, according to The Wall Street Journal. And more closures are on the way, said CFO Joe Euteneuer on the call.
On top of culling unproductive SKUs, the company is also simplifying its supply chain at a more granular level, reportedly cutting down the options toy designers have to choose from when it comes to colors in Barbie dolls and Hot Wheels cars. The Wall Street Journal reported the menu at Mattel previously featured more than 150 colors of red, for example.
SKU-count reduction is a favorite move of struggling businesses who wish to lighten their supply chain load to cut cost and increase agility. Kraft Heinz and Avon, dealing with different shades of crisis, are taking similar action and hoping for results as positive.
