Funko covers higher labor costs due to ERP delays

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diving letter:

  • Funko said delays in transitioning to a new corporate resource program are driving up labor costs as the maker of bobble-head pop culture collectibles is forced to run a key facility without inventory management software.
  • The company paid $5 million in excess warehouse workers in the third quarter to operate a consolidated fulfillment center without the intended software. “We had to line up more bodies to get the goods out the door instead of setting up the systems to do it,” CFO Jennifer Fall Jung said on a Nov. 3 earnings call.
  • According to CEO Andrew Perlmutter, Funko’s ERP transition should be completed next year. The company decided to open the logistics center last quarter without the technology to meet increased demand for its action figures and collectibles.

Dive insight:

Funko has amassed a cult following for its vinyl figures of comic book characters and other pop culture icons, but the company is now encountering difficulties while working to scale operations and meet demand.

The toymaker announced in April that it would consolidate multiple distribution centers in Washington state into a single facility in Buckeye, Arizona. Funko opened the facility in the second quarter without the planned ERP software because the company didn’t want to move to “a platform that we didn’t feel was fully ready to support our business,” according to Fall Jung.

Funko had built the Arizona facility to operate with a warehouse management system. But with the delay in introducing the ERP, the changeover to the new warehouse software was also postponed.

“When the ERP was delayed there was additional work to create manual processes to streamline this warehouse, which would normally have been done in an operating system, but unfortunately we didn’t have that [it]’ said Perlmother.

To run the facility, the toymaker had to pay more for labor and additional machinery. Funko also added third-party logistics and co-packer warehouses to help throughput.

Additionally, as ocean freight rates have fallen, the company plans to aggressively source from Asia to increase inventories and offset some of higher operating costs. Funko also plans to mitigate costs by extending price increases.

“We are doing everything we can to address our operational issues,” Fall Jung said, adding that the company will continue to bear higher costs until the ERP transition is complete.

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