Sustainability Success Story 

Denchfield Jeffrey Denchfield, Senior Director, Global Sustainability, Mattel

Jay Whitehead, MOD: Introducing Jeff. His company, Mattel, everybody knows Mattel. We’ve all struggled with the packaging. We’ve all seen the shrieks of joy when our kids open that first Barbie – even our sons when they open that first Barbie. Five point six billion in sales, 26 thousand employees, 43 countries, a supply chain that may be one of the most complex and far flung on earth, and Jeff, who is the guy who’s in charge of running the global manufacturing principles for the firm, or for helping to govern them, is one of the guys who has to manage this immense level of complexity. So we thought it was appropriate that as one of our themes today is this operationalizing of sustainability, Jeff is the poster boy for operationalizing of sustainability. He joined Mattel back in 1998 from Fleetwood Enterprises, that makes those mobile homes. I’d like to introduce us all to Jeff Denchfield, Senior Director of Sustainability from Mattel. Come on out, Jeff.

Jeffrey Denchfield: Thanks, Jay. All right, so we’ll get the slides up here, but everybody knows Mattel. I want to go through a little bit of history of Mattel, where we’ve kind of come from, where we’re going, and the path for sustainability at Mattel. A lot of companies started out in their garages. We were at a conference last year, and I remember we were trying to figure out how many companies, like Hewlett Packard and others, started out in a garage. Well, Mattel is no different. It started out in a garage. And the picture on your left there are the founders, Ruth and Elliot Handler, and they started by making picture frames. And they were using – and I would argue that Mattel has been a sustainable company from the start – as they were making these picture frames, they took the scraps from the picture frames they were making and started making dollhouse furniture. That led them into making toys. So they saw an opportunity. They took a hold of it, and here we are today, one of the largest, most innovative toy companies in the world.

Here just we’re a toy company. We like to have fun. Our values are the play values: play fair, play together, play to grow, and one of the ones I really like, play with passion. So there’s a lot of passion up there on these brands, a lot of brand building experience there, over 500 years. One of the things we like to tell people is we are the largest car manufacturer in the world by scale; 1/64th scale Hot Wheels. We have a factory in Malaysia that pumps out 3.8 million of those a week. We’ve made over three billion in our time of making those. So we are, again, the largest car manufacturer on 1/64th scale.

A little bit of our global infrastructure, as Jay said, we’re in 43 countries. We distribute and sell our products in over 150, and you can see we’re all over. Our international business is actually one of the fastest growing parts of our business today. We’re trying to get that 50/50, we’re very close to that. But I’d say pretty soon you’ll see us probably have more sales outside of the US than inside of the US.

A little bit on where we actually manufacture. Of course, the core for us is in China. Seventy-five percent of the world’s toys are made in China; there go 75 percent of our toys are actually made in China. But Mattel is unique in that it actually owns and operates facilities in China, Malaysia, Indonesia, Thailand and Mexico. So 50 percent of our core toy production comes out of owned and operated facilities, and the other 50 percent comes out of what we call our vendor or contract manufacturing facilities, mostly located in China. And you can see kind of where we’re at as far as what we make in the different countries.

So kind of where are we today with sustainability at Mattel? One of the things that’s trend, as Jay had said, and the theme of this is operationalizing it. How are we operationalizing it at Mattel, and really making it meaningful for all of the people that are part of Mattel today? And it’s really how do we add social, environmental and economic value to Mattel by balancing people, planet and profit. And one of the things at our officers meeting earlier this year is our CEO has really taken a hold of that and said what can we do to balance people, planet and profit at Mattel? So at Mattel, it’s starting at the top, as the CEO (for Cummings) said this morning, it really isn’t the CRO officer in the company, but it starts at the top with the CEO. And that’s going on at Mattel today. So these are things that we really try to get in front of the different business units by making them look differently and say how can they add value to the company by either reducing operating costs, reducing their environmental footprint, or increasing their reputation with stakeholders. You know it’s really putting a different frame on issues that we have and have addressed in the past, reducing costs, improving our quality or making our products in a more sustainable manner.

So us at Mattel, it’s been an evolution, and we’ve really been more on the social side of it, and we’re more taking that path of the environmental side over the last couple of years. So this year marks ten years for Mattel in what we call our global manufacturing principles. And you see the issues that we kind of cover in the areas of social responsibility and environmental health and safety. And for these, for us, ten years ago, we took a bold step and we started this program and had worked with an independent auditor, a gentlemen by the name of Dr. S. Prakash Sethi. And went and developed these standards and principles, and said we’re going to audit our factories to this. We’re going to audit our vendor’s factories to these principles. And we’re going to publish the reports from these audits, this independent auditor, Dr. Sethi, and put them on our website for everybody to see, all the issues that are up there, the good things and the bad things. And we still do that today. One of the first, let’s say, consumer goods companies to do it. One of the only ones – the only one in the toy industry that’s doing it. And it really was a bold step and a lot of discussion that went on inside in the corporation of whether this was the right thing to do. And for us, it has really engaged our stakeholders and made us learn a lot more about sustainability and what we can do to improve not only people’s lives, but our processes in the factories as well.

So, we go back to our plan. We’ve said we’ve done this on the social side. What are we doing to successfully balance people, planet and profit internally in the company, in a way that we want to represent it and had been taking this strategic plan through the corporation and educating different parts of the business on, kind of what we call our spheres, and the next slide will kind of play to that. But it’s generally what are our products, how are our processes, and then who are stakeholders. So what – it could be packaging, it could be alternative materials, different product designs. What can we do to make our products more sustainable? Then it’s how do we do it in our processes? With our global manufacturing principles, through energy conservation, water conservation, waste reduction. And I think one of the key ones that we’re really learning more about over the next couple of years, and I’ve just started is this LEEN. We really think that the LEEN initiatives of eliminating waste, taking the Japanese word of (kaisen) and looking at the Toyota Way principle, they are really tied to sustainability at Mattel and reducing our environmental impacts and footprints. And then of course, the who is just your stakeholders, both internally and externally.

This is a busy slide, but this is kind of how we discuss our department at Mattel, Global Sustainability. And it’s our vision, mission, and what we call strategic imperatives. And then down at the bottom, projects and individual annual track goals. But we call this the house. This is the Global Sustainability House and how we are integrating sustainability in the organization. So people can really see in our organization, they’re a part of a team. Here’s the vision for this organization. Here’s our mission. And then the strategic imperatives are things that we’ve developed over the last – they last for about 3 to 5 years, and they’ll change. But a couple of them on there that we’ve heard others talk about today are develop business model for sustainable products and processes. Really trying to bring the business case to light to different parts of the business. And then one that’s really critical in the company is communicate effectively: how are you doing it, what is the successes, what are some of the challenges that you have. And so we have projects that lined up under each of those strategic imperatives, and then everybody has their performance goals that are related to projects that they’re doing and are measured on annually. So this roles up through our whole supply chain. I’m part of the operations group that rolls up then and reports directly to the CEO.

So, some success stories. A real busy map here, but this is a map of South China where the majority of our manufacturing goes on. And they’re called (drage), so it’s the truck miles from the vendor and Mattel locations to the port. And prior to 2006, we were taking all of our cargo and containers to one port. Well, that was over 20,000 containers that were being shipped out of the one port. So a strategy that we looked at and implemented last year was to take our cargo to other ports that were just being developed in China. And you can see that we reduced our truck miles associated with what they call (drage) from the vendor location, so we’re more geographically close to the ports, and we reduced truck miles by approximately 2.6 miles, along with the added benefits of greenhouse gases that go along with that and less traffic congestion on the highways.

One of the other things that we’ve done is really we took a program which we call max payload. And it allowed us to put more products in our containers. So we were able to put two percent more products in each container, which then translated into shipping 500 less containers from China around the world globally. So we’ve reduced our costs. We’ve had some environmental benefits and it’s really been a success story within our logistics organization.

So some other success stories that we have here with our logistics organization, in the US, we used to have distribution centers where one distribution center would only distribute girl’s products. Another one would only distribute boy’s products. We changed that to what we call the full mix, so all of the different products that we distribute now go into the different distribution centers. And you can see that we’ve reduced the traffic. So essentially anything east of the Rockies goes from our distribution center in Dallas. Anything west of the Rockies goes out of distribution center in Los Angeles. And we’ve saved over four million truck miles per year and reduced our logistics cost, reduced highway traffic and associated greenhouse gases with those truck miles.

One of the other things that we do is bring our cargo in through what they call Peer Pass at the ports of LA and Long Beach. That means you bring the cargo in during the night from 6PM to 3AM in the morning. So we’re taking the cargo off the dock at that time of night, reducing the traffic congestion on the freeways of Southern California and making it an easier place to drive sometimes. The program has eliminated, in the two years that this has gone out, the program has eliminated five million truck trips during the daytime on the freeways of Southern California. For us, we’re dipping over 90 percent, or pulling 90 percent of our cargo off the docks during this off peak hours. The other cargo that makes it to our distribution center in Dallas all goes rail. So 100 percent cargo from the port of LA Long Beach going – destined for Dallas is via rail.

So another issue or story that we worked on is packaging, and we’re going to see a little bit more about some of the things we’ve done in the area of packaging here, but this is just an example of looking at it a little bit differently, displaying the package a little bit differently, and saving approximately 20 percent on material input to the cost by just shaping it a little bit differently. You get a better actual display on the shelf, as well, of the product.

Our American Girl brand. They took on an initiative in 2006 to reduce the amount of paper they were using in their catalog. They also took on an initiative to really target their audience and send catalogs to the right people. I know we all get a lot of catalogs in the mail, but they’ve done a very good job at really targeting their audience for their products. By doing that, they’ve saved over 1200 tons of paper, as well as they took on an initiative to use more of the FS certified, FSC certified paper, and have increased their consumer, post-consumer recycled content in their catalog to over 10 percent.

And the last one, and we’ve heard a lot of people talk about it today, is just volunteering. And at Mattel, we have a global partner in our volunteer efforts, Special Olympics, Save the Children, and the National Association of Children’s Hospitals. And we really make an effort. Everybody at Mattel is required to do some community service once a year. It’s part of your annual goal. And it’s something that really has moved on and people are very passionate about their –

So for us, we’re on this path. We’ve been there for about 10 years. We’re making improvements. We have a ways to go, but our focus is really on balancing people, planet and profit, and how that adds value to the business. So with that.

MOD: Jeff, we’ve got a news clip from a story that was done on Mattel, a sustainability story. Jeanie, can you roll that clip? It’s from CNBC.

NEWS CLIP: Corporate America can’t stop talking about their green initiatives. Even the maker of the famous plastic doll, Barbie, wants to be kind to the planet. But can Mattel go green without hurting profits? CNBC’s Jane Wells has the story. Hey, Jane.

JW: Hey, Joe, looking forward to the big Earth Day barbeque at your house this weekend.

JOE: Did that get lost in the mail again, that invite?

JW: Yeah, I’m waiting. But as to corporate America, we’re talking about what makes sense. No, Mattel is not buying carbon offsets, so it can keep using as much fossil fuels but make itself feel better. Instead the company is doing something that will actually make your life easier when trying to get the toy out of the darn box.

F: Kids are tough on toys, and so toys have to be tougher. Toys also come with lots of twist ties and plastic and cardboard to help them survive shipping, even before they get to the sandbox. But kids, and increasingly their parents, want a world filled with companies that are environmentally friendly. Well, Barbie’s done everything else. But can a girl made of petroleum and plastic save the planet?

M: If you asked me when I was in school 30 years ago about this kind of thing, I’d have said hey, I’m a capitalist. We’re here to make money. We’re here to build a business, and that will be good for society.

F: Mattel CEO Bob Eckert says times have changed, and so has he. The company is now in the process of trying to balance planet and profits. And one way to do that: cut the packaging.

M: Everybody knows that it is very difficult to get the toy out of the package. We bolt those toys on there so they are – they are bullet proof.

F: Yeah, what’s up with that.

M: Nothing’s going to move one of those.

F: But reduced packaging achieves two goals. Less waste, and less consumer frustration.

M: This is the old package.

F: Jeff Denchfield heads Mattel’s Global Sustainability initiative. Barbie used to be secured with a myriad of plastic twist ties. Now there’s hardly anything holding her in. And boxes now give easy, three step instructions to get her out.

M: Push it up, and then you take the doll right out here. There you go – that’s it.

F: That’s it.

F: Currently up to a third of the paper products, the cardboard and the packaging in Mattel products comes from recycled materials. But the company is exploring just how high it can push that percentage before it’s no longer cost effective.

Mattel is also trucking cargo from LA ports only at night, when there’s less traffic and therefore better gas mileage. And by day, it’s cavernous warehouse here is lit only by skylights. Do you know off the top of your head how much you’re saving on that?

M: No. But it’s real money.

F: What are you not doing because there’s just too much hype and it doesn’t make business sense?

M: Well, as an example, one could say we should make a Barbie doll that is recyclable. Well, there’s a couple of problems with that. Number one, that’s not how dolls are used. As parents know, dolls can moved from sibling to sibling, and they continue to be used. Or a doll might get left outside in the sandbox or exposed to the elements. And if it were biodegradable, while you could get a headline that says Barbie’s Biodegradable, it really wouldn’t make a good toy. We’re in the toy business.

F: Eckert says to make toys themselves more environmentally friendly, the process really has to start at the design phase, at the very beginning and the company is doing that. But not at the expense of making a fun, durable product. And guys, the thing that I hate is the plastic package that you have to use like a knife or scissors to open. They’ve now made many of those perforated on the back, so you can just rip it off. Helping me, and helping the earth.

M: Christmas, I’ve hurt myself. It can take hours.
F: I have, too.

M2: It’s like trying to cut into a car.

M: It can take hours and some have the screws on the other side, that you really can’t get to the screws. I’ve given up on a few of them. Why?

F: Yeah. To get the batteries in, you have to get a Phillips screwdriver and the whole thing.

M: I know. Not that I’m not handy or anything.

M2: You’re not handy.

M: I’m not handy. Anyway – I love Jane. Thanks Jane, our Barbie doll from LA. You’re better looking than a Barbie doll.

F: Oh, I love you.

MOD: Turn that thing off. But you tell the story well, and they tell the story well. Do the one, two, three thing again. Very good, very good. Very nice. So we’re all a big fan of this, of your global citizenship report. Kathleen Shaver from your staff has shared copies of your global sustainability report, a great example if any companies are actually looking, of how to do this, a sustainability report, or a global citizenship report, a great example of how to do it. Tabs that say Play Fair, Play with Passion, Play to Grow, Play Together. Now once you find someone, Jeff, you’re in the business of sort of policing the supply chain. Once you find somebody who doesn’t play fair, what do you do?

JD: Well, it’s about working with them, and especially as we see vendors in China, we’re kind of – we have both sides of the issue. You find issues and you say well, I don’t want to work with you; then you’re criticized for putting people out of work. And then you’re working with people, but there are still issues and you’re criticized for not taking enough action. So it’s kind of you can’t win. But our philosophy has always been let’s work with them. Let’s make sure they understand what is required in our principles and then move forward. Let’s see some improvement. And if we don’t see improvement, then we have to take a serious look and say what is our option here. But our first and foremost thing is to really work with them and help them understand what we mean by compliance with our global manufacturing principles.

MOD: So of all the sustainability issues and programs you’ve got going right now, Jeff, what’s the one or two that most often keep you up at night?

JD: Well, I’d have to say it’s again, we are in China. And there are so many issues that are there. And I would say it’s the environmental issues that we continue to face that are there. Those aren’t going away any time soon. And it’s really something that takes a lot of work, a lot of infrastructure that isn’t there today necessarily, and a lot of education and people understanding what the issues really are.

MOD: So now, Jeff, our audience, we’re going to turn to our audience and give them some advice here on how to do their jobs better. So if you were sitting in the audience today, what advice would you give to a member of our audience as to the next big trend in sustainability management, this operationalization concept you talked about?

JD: I don’t know. I think there’s a part of it that’s what we call the intangible asset of what we do. So this global manufacturing principles, what was the payback of that? And so how can we bring value to that? There certainly is an evaluation of the intangible asset, and it’s bringing that valuation of that to the management, senior management of the company and really saying these are the business benefits, the business case for the intangible assets.

MOD: When you did this packaging initiative, was that one of the exercises that was gone through, is these are the business tangible benefits?

JD: Part of it was. Part of it was also something that was really kind of born out of what they were talking there, consumer frustration of trying to get into the package. So we took a consumer issue and then also worked on putting sustainability initiatives in with that. With old wire ties – we’ve eliminated, literally, 60 percent of the wire ties that go in products, especially on Barbies, and we use what they call a plastic stapler now around it. And it’s made the product much easier to get out of the package. We’ve reduced the amount of ties that are in there. And they stay bolted to the backing in the package itself and look good when they’re on the shelf.

MOD: We’re be the judges on the holiday mornings, when we’re opening those presents, to see if you really did a good job of making it easier to open. So on the 2007 Hundred Best Corporate Citizens List, Mattel –congratulations for making the list once again.

JD: Thank you.

MOD: Mattel got its highest scores on corporate governance and diversity. So in your opinion, what’s the most successful corporate responsibility related program that Mattel has run, including everything from governance to community to diversity to environment to product. What’s the most successful one in your mind?

JD: I think there’s two, and the one that I’m most familiar with is our global manufacturing principles. And it’s really getting more transparent about our supply chain. And I think that challenges people in the company to do better. The other is just really the philanthropy and what we do, our philanthropy mission, is to make a meaningful difference, one child at a time. And that’s part of our business. So part of our global partnerships with Special Olympics and Save the Children have been very successful. This y ear we’re going to be sending about 50 to 60 global employees to Shanghai to take part in the Special Olympics Summer Games in Shanghai. So we’ll have – we’ll be the largest corporate contingent of volunteers in Shanghai at the Special Olympics.

MOD: Wow, that’s extraordinary. Final question, Jeff. Everyone here who plays the stock market has noticed that Mattel’s stock has been on a tear recently; it’s up almost double since a year ago. And many of the pundits with whom I speak, including Jim Kramer, who shoots his show, CNBC Mad Money, in the same study as where I do the CNBC’s On the Money Show every week, they say that the company’s responsible reputation, the corporate responsibility, the quotient, if you will, for Mattel, is behind a significant portion of that stock run up. Now can you tell us how you and your sustainability team view the stock price fluctuations up or down? Is stock price relevant to your work?

JD: Well, it’s not part of my portfolio at Mattel. But I think it is relevant. It’s where the company puts an emphasis. And when the stock was at 15 to 18, we still did those things. And we’re still doing them today and taking on more. So I believe that there is a portion of that, that is responsible. People want to know that they’re buying products from a responsible company.

MOD: So you think it’s relevant. But now if the stock price goes down, do you think it impacts you in the same way as when it goes up?

JD: I’m not an analyst on that, so I wouldn’t know. But I think that as long as the company is doing well, that there are always challenges, that there’s more to the stock price than just the sustainability initiatives at the company.

MOD: We’ve had a – you’ve taught us a whole lot here today, Jeff. Again, ladies and gentlemen, Jeff Denchfield, Senior Director of Sustainability from Mattel. Thank you very much.