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Mattel Case Study

financial realignment
by

Raed Figueroa

on 3 October 2014

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Transcript of Mattel Case Study

Mattel's
timeline

STATEMENT OF FACTS
SUMMARY
financial realignment plan
primary features :
FINANCIAL CRISIS
1997-2000
HISTORY
Harold " MATT" Matson
ELliot Handler
1944
1955
1959
1960's
publicly owned
company was loosing
$1 million/day
drop of share
from $46 in 1998
to only $10
short product life cycle:
STOCKOUTS

* lost sales oppportunity

*higher production and
distribution cost
LOW DEMAND

*excess on the inventory
leads to
more marketing cost and
forces retailers to markdown on
the prices
bad mergers
:
* merger with the learning company
was costing Mattel $1 million/day
capital investment budget:
*exceed $200M/ year
peaking at $276M in 1998
*spending too much
in
bad mergers
TO free Mattel from the
"worst deal mergers and acquisition in history"
Reduce excess manufacturing capacity
- eliminate product lines that
don't meet required levers of
profitability
- consolidated production
and management facilities and staff
TO improve Gross Margin,
selling general and Administrative expenses,
operating profit and cash flow
- reduce capital investment
from $276 M (1998)
to $212 M (1999)
to $161 M (2000)
RESULTS:
- Selling and administrative

<$41M
- Sales and Profit recovered
- Dividend was reinstated
($0.40 in 2003
*eliminated approx 350 positions
through
combination of lay-off's
retirements
no more open requisition
top sales up to $100M
1980's
1990's
- ARCO industries Hong Kong 1986
- Corolle SA in France 1988
-Corgi toys Ltd in U.K 1989
Jill Barad became
the CEO in 1997
loss almost 42% of share price
Jill Barad was forced out
year 2000
Bob Eckert joined Mattel and
became the new CEO to present
Mattel’s Operation
Vendor Operations Asia Division (VOA) manages outsourced production for Mattel.
Mattel is manufacturing its core products in-house and outsourcing all non-core products.
Non-core products tended to be promotional items, or toys with short life cycles that were often introduced together with a children’s television series. Non-core toys experienced the fashion-like demand typical in the toy industry.
In 1997, 25% of Mattel’s total revenue was produced by third party vendor.
In 2007, Fisher-Price toys were recalled due to lead paint – manufactured by Lee Der Industrial – Third Party.
Also in 2007, die-cast were recalled due to excessive lead found in yellow pigment on the olive-green top of Sarge. Produced by Early Light – Third Party.
Early Light did not disclose Ho Lim Da as subcontractor, in violation to its agreement with Mattel.
Mattel also had an unreleased recall for toys with strong magnets that posed a choking hazard.
Product Recall
RECOMMENDATION
Our recommendation is to improve Mattel’s relationship with its third party vendors and continue outsourcing production of non-core products. This strategy will keep Mattel focus in their core products while providing the fashion-like demand for toys.

But revisit the following aspects in producing non-core products.

1. Review all product design. A design problem will result in an unsafe toy irrespective of where it is manufactured.
A design problem may involve sharp edges on a toy which could cut a child. Other common design problems involve small detachable parts such as balls and beads, which a child could swallow, risking choking.

2. build on its progress made on operating margins
- sustaining the gross margins
- delivering another round of cost savings
3. Improve Third Party Vendors’ SLAs and KPIs.

a. Service Level Agreement (SLA) – to include that Suppliers should ensure the highest quality goods at a competitive price. Any product recall due to manufacturing defects should be borne by them.
Disclosure of all subcontractors and an agreement that they will comply with Mattel’s quality standards.

b. Key performance indicator – create a KPI for quality at least 98% and monitor all product recall and prepare root cause analysis to address the source of the problem.


THE TOY INDUSTRY
MATTEL'S RECONSTRUCTION
REFOCUS ON BRANDS
FINANCIAL REALIGNMENT
REALIGNMENT AND
BUSINESS REVOLUTION
IN 2000-2003
FUTURE FINANCIAL STRATEGY
Harold "matt" & Elliot Handler


1945,1959


Barbara- Barbie


The Learning Company


Bob Eckert
Core Brands

Channels

Costs

Cash
Barbie

Hot Wheels

Fisher Price Brands

American Girl Brands
Reduce

Terminate

Eliminate

Improve

Close
Closed Manufacturing

Open Mexico
Problem Statements
Objectives
Statements of Case Facts
Alternative Courses of Action
Recommendation
Conclusions

Case Analysis
Company Background
a record high of
$45 in march of 1998 from $27.75
Flow of Discussion
Mattel Inc.: The Lead Paint Recall
GROUP 6
> ALA, AIKO
> FIGUEROA, RAED
> RONGAVILLA, REIZY
Problem Statement
Mattel is experiencing product recall due to poor quality and produces products that contain lead-based paint which is hazardous for children's health. Most of the recalled products are manufactured in a third party facility in China.

What should Mattel do in order to improve quality control of products manufactures in China
Objectives

Decrease and/or eliminate the number of toys recalled.

Enhance Mattel’s quality control measure.

Establish quality standards of the products produced by third party.
Conclusion
Recall of the products could have been avoided with better product design of Mattel. The cause of recurring product recall should have been analyzed and necessary procedures should have been done in order to minimize their recurrence.

Conclusion
Product recall can also be attributed to the error or negligence in the part of the manufacturing companies that can be avoided with efficient quality control and inspection mechanisms.

ALTERNATIVE COURSES OF ACTION
ALTERNATIVE COURSE OF ACTION
A. Produce all Mattel’s product (including non-core) in their own manufacturing facility. Currently, Mattel’s plant in Asia is operating in full capacity for their core products and adding the production may trigger an expansion.
Advantage: This can help Mattel ensure that each country receives products made with the same safety standards set by Mattel.

Disadvantage:
1. Expansion may be costly
2. With shift of sourcing location, additional freight may incur.
3. Focus in production will shift in adding non-core products

B. Improve Mattel’s relationship with its third party vendors and continue outsourcing production for non-core products.

Advantage:
1. Outsourcing production doesn’t require capital commitments.
2. Mattel can push certain risks onto its suppliers. These risks included demand variability and product diversity.
3. Competitive price, and speed to market.

Disadvantage:
1. Risks in quality of products produced.
2. Non-disclosure of subcontractors, changes in materials, etc.

C. Create Quality Assurance team both in Mattel and in third party providers.

Advantage:
1. Quality of the output will be reviewed twice thus, chances of error will be minimized.
2. Output will be more accurate and compliant with the standards set by Mattel.

Disadvantage:
1. Additional cost will be incurred for both companies.
2. Additional time will be spent during the inspection of the output.

4. Robust Quality Control Management
a. Provide in-house training for plant employees of the outsourcing production facilities to ensure everyone is aware of Mattel’s quality standards.
b. Inspections should be tighter. Mattel should inspect the materials used, machineries and facilities at least four times a year using independent parties. And quality inspections should happen on every production batch internally.
c. Review and comply with all toy-safety standards and regulations for the use of lead and chemicals in products produced.

5. Setting of Global Standards
Mattel should create standards that the third party manufacturing companies should follow.
Chinese government and industry groups need to ensure Mattel that they adhere to their standards.


Conclusion
Product recall can also be avoided by providing proper education and training of employees both of Mattel and the third party manufacturing companies regarding with the required quality standards.
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