- UNSAFE FOR CHILDREN -

MATTEL’S TOY RECALLSAND

SUPPLY CHAIN MANAGEMENT

ON AUGUST 2007 !!!

RECALLED 83 PRODUCTSDUE TO LEAD PAINT ISSUE…!!!

Dora The ExplorerBig Bird

Elmo characters from Sesame Streetetc

ON SEPTEMBER 2007 !!!

6 MORE RECALLS…!!!SAME REASON…!!!

+RECALLED SMALL MAGNETS…!!!DUE TO DESIGN PROBLEMS…!!!

ON OCTOBER 2007 !!!

ANOTHER RECALLDUE TO LEAD PAINT…!!!

???

ALL HAVE BEEN MANUFACTURED IN CHINA

OWNER OF THE FACTORY THAT HAVE USED LEAD PAINT

COMMITTED SUICIDE………………

………………

Brand has been Hammered

………………

BUT…

ONLY 15 % OF THE RECALLED TOYSDUE TO

MANUFACTURING ERRORS

MAIN REASONDEFECTIVE DESIGNS

(mostly carried outside of China)

SO…

MATTEL&

MANUFACTURING FACTORY&

GOVERNMENTAL AGENCIES OF CHINA

&TOY IMPORTING COUNTRIES

MATTEL

• 1945…began as a manufacturer of dollhouse furniture

• 1955…first toy company to sponsor a TV program

• 1959…introduced Barbie• 1960…went public• 2007…largest toy maker at the time

for RECALLS sales $ 6 billionAfter tax income $ 600 million

TOY PRODUCTION IN CHINA

• 2000…world’s leading toy producer

• 2007…80% of world’s toy production

…80% of toy coming to US were made in China …Toy Distribution was

evolving towards Mass Market Companies like WalMart

MATTEL SUPPLY CHAIN

First experience with manufaturing in Asia

Japan, 1959, Barbie Dolls…

2 types of Products:Core ProductsNon Core Products

MATTEL SUPPLY CHAIN

STRATEGY:

Produce Core Products in Owned Factories

Use Local Vendors to Produce Non Core Products

MATTEL SUPPLY CHAIN

• Inspect Materials coming in• Monitor Supplier closely (esp. for

Lead Based Paint)• Terminate some Vendors for

violation• Produce New Toys in Small

Batches before approval• Inspect Toys off the production

line periodically, when full scale production began

• Contract Manufacturers

MATTEL SUPPLY CHAIN

• Required Factories to work with Certified Suppliers

• Allowed its most Reliable Suppliers to do their own Routine Testing (Mattel’ll do quarterly Spot Tests)

• BUT, Vendors subcontracted…• Prohibited Subcontractors from

using multiple layers of Additional Suppliers

AT THE TIME OF RECALL … !!!

• NOT CLEAR HOW WELL THESE RULES HAVE BEEN FOLLOWED……

• MATTEL’S 200 EMPLOYEES RESPONSIBLE FOR TRAINING AND SUPERVISING CHINESE CONTRACTORS WERE BASED IN HONG KONG, NOT AT TOY PRODUCTION FACILITIES……

PRESSURES ON CHINESE TOY MANUFACTURERS

WAL-MART-EFFECT…!!!

Pressure on Suppliers to Cut their Costs Down

MATTEL’S 2007 RECALL CRISIS

PRIOR TO AUGUST 2007• Some Other Recalls for Chinese Made

Products• May 2007, 1.5 million Toys recalled by RC2

Corp. due to lead paint• Contaminated Pet Food, Toothpaste, Cough

Syrups, Defective Tires..etc

REASONSManufacturing Problems

Design ProblemsProduct Misuse

MATTEL’S 2007 RECALL CRISIS

AUGUST 2007

• Mattel Recalled 83 Fisher Price Products sold between May 1st-Aug 1st

• Due to Non Approved Paint Pigment containing Lead

• Supplier was a Long Term Contract Manufacturer

MATTEL’S 2007 RECALL CRISIS

AUGUST 2007

• Lee Der Industrial : Mattel’s Supplier of 1st Recalled Toys

• Early Light Industrial : Mattel’s Supplier of 2nd Recalled Toys

• More Other Recalls…

MATTEL’S 2007 RECALL CRISIS

MATTEL’S RESPONSE

• 3 POINT CHECK SYSTEM• REVIEWED COMPLIANCE WITH ITS RULES• PLANNED TO PURCHASE PORTABLE LEAD

DETECTORS• CEO APOLOGIZED• EMPHASIZED DESIGN PROBLEMS AS WELL

MATTEL’S 2007 RECALL CRISIS

CHINA’S RESPONSE

• CHINA CHAMBER OF COMMERCE’S ACTIONS• AQSIC WITHDRAWED LEE DER INDUSTRIAL• TOY MAKERS HAVE BEEN ASKED FOR APPLIANCE

FOR QUALITY LICENCING• CHINA OFFICIALS LAUNCHED A PUBLIC RELATIONS

OFFENSIVE• CHINA BLAMED MATTEL, NOT LOCAL

MANUFACTURERS• AGREEMENT BETWEEN US (CPSC) AND CHINA

(AQSIC) OFFICIALS

MATTEL’S 2007 RECALL CRISIS

CHINA’S RESPONSE

• AQSIC ASKED EXPORTERS TO PROVIDE TEST RESULTS WITH EACH EXPORT SHIPMENT

• AQSIC LAUNCHED A DATABASE SUMMARIZING THE INSPECTION AND QUARANTINE STANDARDS OF IMPORTING COUNTRIES

• SUPPORTED A HIGH LEVEL TEAM RESPONSIBLE FOR FOOD, DRUG, PRODUCT SAFETY

• GOVERNMENT HAS INITIATED A TRAINING PROGRAM

MATTEL’S 2007 RECALL CRISIS

POLITICAL AND REGULATORY RESPONSES

• US COMMITEES MADE HARD CRITISIZM FOR BOTH MATTEL AND CHINA

• “MADE IN CHINA” LABEL STARTED TO BE A WARNING LABEL

• HILLARY CLINTON CRITISIZED CHINA MANUFACTURERS

• BARRACK OBAMA PROMISED TO BAN CHINA TOYS UNLESS THEIR SAFETY COULD NOT BE UNSURED

• EUROPE ALSO THRETENED TO BAN TOY IMPORTS

MATTEL’S 2007 RECALL CRISIS

CONSUMER REACTION

• EMOTIONAL RESPONSE• “MADE IN CHINA” BRAND LOOSE CUSTOMER

CONFIDENCE• FOUND US GOVERNMENT AND CHINESE

MANUFACTURING FAULTY

MATTEL’S 2007 RECALL CRISIS

FINANCIAL COST TO MATTEL

• TOOK A CHARGE ON EARNINGS– $110 million in 2007

• DESPITE THESE COSTS, REPORTED NET INCOME AFTER TAX OF $600million for 2007

• MANY LAWSUITS• PRODUCT TESTING IN CHINA HAS BEEN INCREASED

MATTEL’S 2007 RECALL CRISIS

MATTEL’S 2007 RECALL CRISIS

CONCLUSION• Mattel should Control its Supply Chain better, to

cope with design problems, product misuse, lead paint issues and usage of Unapproved Suppliers– Mattel should inspect its subcontractors well– Direct Site Visits to Suppliers to be able to make

evaluations on their performances– Integrated Global Sourcing requires horizontal links

with other functional groups (esp engineering, operations, design, demand planning and marketing)

– Integration is also required with Tier 1, Tier 2 and also Tier 3 Suppliers

– Increase expenditures on quality controls and tests– Strictly follow up Tests to be held through the Supply

Chain and Increase Check Points (3 check point system)

– Total Cost of Ownership

MATTEL’S 2007 RECALL CRISIS

CONCLUSION• Awareness on commitment, scope of operations,

resources and capabilities that integrated global sourcing requires

• Transaction Cost Analysis Theory (Core & Non-Core) Outdated

• Accuracy and Validity of the documentations should be ensured– Personnel with knowledge, skills and abilities to

recognize the falsified documents• Determine critical raw materials or processess.

Strictly follow up, all the operations related to those parts, well

• Improve information flow through the chain– Geographical Proximity of the Employess responsible

for Training and Supervising Chinese Contractors is an Issue

• Understand the Capability of the Supplier’s (Wal-Mart-Effect)

MATTEL’S 2007 RECALL CRISIS

CONCLUSION

UNDERSTANDINTEGRATED GLOBAL

SOURCINGREQUIREMENTS

&SUCCESS FACTORS

MATTEL’S 2007 RECALL CRISIS

CONCLUSION

BE AWARE OF

INTEGRATED GLOBAL SOURCING

RISKS