Mattel Case

07 Teaching Case oeuvre Hazardous Toy Rec tout ensemble(prenominal)s at Mattel, Inc. Key words Chinese manufacturing, outsourcing, crop rec altogethers, global supply chain risk Type of submission precept case study Hazardous Toy Recalls at Mattel, Inc. ? Abstract In 2006 and 2007 Mattel, Inc. was faced with massive recalls of Chinese-made wagers due to potentially dangerous levels of over bring forth in various run model bug out creates and small magnets in tinkers which could take position off and be swallowed.This case describes the events take placeing up to the recalls, the response by Mattel, the ratified, wellness, reputation and financial implications of the recalls, and the impacts of the recalls on Mattels global supply chain. Readers argon asked to assess the situation and to decide what should hire been d peerless variantly, if everything. The case is curb for undergraduate and graduate ancestry students analyzing various purchasing, risk, and supply c hain visualise issues. The 2006/2007 Mattel Toy RecallsIn some respects, the period from abut 2006 to October 2007 was a very difficult time for Mattel and their Chinese toy suppliers. On a number of make during this period, Mattel recalled a total of astir(predicate) 14 million Chinese-made toys in the U. S. and Canada for the equal deuce serious problems. Millions more were recalled in another(prenominal) foreign markets. These two problems were indeed significant not only for Mattel, but for their distributors, retailers, Chinese suppliers and in the revoke the families around the world buying their toys.Over 2 million of the recalled toys had either been sprayed with withdraw-tainted blushing mushroom or contained potentially hazardous levels of mince within the materials, while the remain toys contained small magnets which could come off and be swallowed. put off I summarizes these recalls. Table IMattels Chinese-Made Toy Recalls in the US and Canada, 2006 2007* Date Toy and production line Description No.Units Recalled 03/30/2006 American Girl jewellery containing high levels of lead 180,000 11/21/2006 Polly Pocket toys with small loose magnets 2,400,000 08/02/2007 Various pekan Price toys with lead in surface paint 1,000,000 08/14/2007 Batman, one Piece, Barbie, Tanner, Doggie Day C are, and Polly Pocket toy 9,350,000 sets with small loose magnets 08/14/2007 Sarge toy cars with lead in surface paint 250,000 09/04/2007 Geo Trax, Barbie, and fisher-Price Bongo banding toys with lead in surface 750,000 paint 10/25/2007 Fisher Price Go Diego Go toy with lead in surface paint 40,000 Total 13,970,000 *Source U. S. Consumer Product Safety fit out, www. cpsc. gov On March 30, 2006 approximately 180,000 of Mattels American Girl jewelry pieces in the U. S. were recalled beca social function the Chinese-made jewelry contained high levels of lead. On November 21, 2006, following 170 reports of loose magnets on Polly Poc ketTM fiddle sets, Mattel recalled over 2. 4 million Polly Pocket duck soup sets in the U. S. and Canada and other 2 million worldwide.In at least three of the cases, children who had swallowed magnets suffered serious intestinal perforations requiring surgery and hospitalization. Then nine months later on sniffy 2, 2007, Mattel recalled intimately 1 million Fisher-Price toys for using paint exceeding the lead bailiwick limit set by the U. S. Consumer Product Safety Commission (CPSC). both weeks later, the CPSC proclaimed five separate recalls of hundreds of thousands of Mattel die cast toy cars for potentially hazardous levels of lead paint and over 9 million play sets in the U. S. and Canada, following hundreds of reports of small magnets falling out of the toys. In ahead of time family line, Mattel announced another major recallover 700,000 units of 11 different toy models for having paint containing excess lead.Finally, on October 25, 2007, another recall was announce d by the CPSC for yet more Chinese-manufactured toys containing paint with lead. In late August 2007, Mattel announced that some of the lead-tainted toys had been painted by a third-party subcontractor working(a) for one of Mattels primary Asian toy suppliers, Hong Kong-based Early Light industrial Co. , a toy maker for m both of the worlds biggest toy companies. Hong Li Da, the Chinese subcontractor engaged by Early Light, was supposed to utilisation Mattel-approved paint, however it instead utilise less costly paint from an unapproved supplier. Today, Mattel continues to use the Early Light Co. , a trusted supplier of theirs for more than 15 years.Another Chinese subcontractor, Lee Der Industrial Co. , similarly used an unauthorized paint supplier when making many of the toys included in the August 2 recall. ? Mattel typically performs monthly audits of manufacturers toys, which some clock includes testing random units and other times involves reviewing manufacturers testing records. Mr. Jim Walter, Mattels senior vice president of worldwide theatrical role assurance explained, They didnt perform the testing they should have, and the audit we performed didnt project it. ? Mattels Response In late August 2007, Mattel CEO Robert Eckert record a video apology to parents which was placed on the companys website and on Yahoos website. I cant form what has happened in the past, but I can change how we work in the future, he said, adding that he had four children of his own. Mattel also pledged to increase the relative frequency of its paint inspections, testing every batch delivered to every supplier. The firm also purchased full-page ads in the New York Times and breakwater Street Journal. ? following(a) the third quarter 2007 recalls, Mattel slowed down the shipments coming out of Asia to mete out convergence testing and asylum reviews. Similarly, Mattels shipments to global markets were curtailed while various regulatory authorities reviewed M attels safety procedures. Ultimately, Mattel was able to prevent more than two-thirds of the recalled toys from range consumers by contacting distribution centers and retailers. ? Most of the export/import issues were resolved by the end of 2007. Today, Mattels first-tier suppliers essential(prenominal)(prenominal) conduct quality tests on all incoming materials as well as finished toys made by subcontractors. Also as a result of the recalls, Mattel created a Corporate indebtedness organization, which has accountability internally and externally for adherence to company safety and conformance procedures. ? On September 5, 2007, Mattel representatives told an American congressional committee that the problem with toys containing serious magnets was the result of a flawed toy design, and not due to unretentive adherence to manufacturing requirements in chinaware.According to Chairman and CEO Robert Ekert, more than 50,000 hours had been spent study the issues surrounding t he toy recalls. We apologise again to everyone affected and promise that we entrust continue to focus on ensuring the safety and quality of our toys, he said. ? Finally, on September 21 in a meeting in capital of Red China with Mr. Li Changjiang, the chief Chinese quality official along with a group of reporters, Mr. Thomas Debrowski, a senior Mattel executive, offered an apology to the Chinese great dealMattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys. ? Li also told reporters that the Chinese government shut down operations and revoked the business license of Lee Der Industrial, one of the subcontractors producing the defective Mattel toys (a co-owner of Lee Der Industrial connected suicide shortly after the August recall announcement). ? With regard to the unprotected magnet problem, Mattel made several manufacturing changes to better retain magnets in their toys, includin g endless cure times for adhesives, the use of additional adhesive, and the use of injection casting to better encapsulate magnets inside toys. The Chinese Manufacturing and Regulatory Environments Companies operating in China are subjected to very few regulations, and have little court-ordered recourse.Foreign firms operating in China try to cover themselves by securing guarantees from their Chinese suppliers that they volition follow specific procedures, but they are almost hopeless to enforce. In September 2007 Mr. Yan Jiangying of the Chinese State Food and Drug acquaintance admitted that supervisory foundations are still very weak. The oversight of nutrition safety for instance, is split between five ministries resulting in unclear responsibilities. thither also tends to be no history of regulatory shape for Chinese businesses, causing many safety and quality shortcuts to be taken when suppliers are pressured by their customers to reduce prices. With regards to lead pai nt use, China has laws banning lead paint from consumer products, but lax regulatory enforcement means these laws are routinely ignored.In a test conducted by the University of Cincinnati from 2004-2007 for example, 38 paint samples from China representing 11 brands were tested and more than 25 percent were found to contain lead levels exceeding the U. S. safe limit of 0. 06 percent. McDonalds, one of the worlds largest toy buyers, says the problem of lead paint in China is so far-flung that their company essential monitor paint quality all the mood back to the original paint suppliers. Their toy makers must agree to use only McDonalds approved paint. ? Ironically, Chinese cultural norms are frequently at odds with the way companies are managed, as described forward with regards to the suicide of Lee Der Industrials co-owner.For a number of years, Mattel has used the International Center for Corporate Accountability (ICCA), a non-profit research organization, to conduct audits of its company-managed and third-party Chinese manufacturers to insure contour with Mattels Global Manufacturing Principles (GMP). Mattels GMP is shown in Table II. Chinese plant managers are required to complete conformity reports prior to actual field audits. Audits consist of the firms accounting practices, confidential one-on-one interviews with employees, an examination of the plants policies, procedures and practices with regard to environment, health and safety issues, and inspections of the general maintenance of the manufacturing facilities, storage, treatment and disposal of hazardous raging materials, hygiene issues, and dormitories and recreational facilities.The ICCA provides the audit reports to Mattel, whereby corrective actions are determined in response to the findings. ? Mattels Ethical and Legal Considerations The Consumer Product Safety Commission (CPSC) can exclude from the U. S. market, products failing to comply with applicable regulations or that other wise create a substantial risk of injury, including articles containing excessive amounts of hazardous substances. The CPSC may also require the recall, repurchase, replacement, or repair of articles. ? Additionally, U. S. Customs & Border defense (CBP) ensures that goods entering the U. S. are safe for consumers. The CBP has authority detain and exclude any products based on instructions from the CPSC.On August 20, 2007, a class-action lawsuit was filed in Los Angeles County Superior Court against Mattel with regards to the toys with excessive lead paint. This lawsuit sought to have Mattel establish a fund so that parents could be reimbursed for testing their children for lead poisoning (the cost to test for lead poisoning is about $50 per person). A second class-action lawsuit was filed against Mattel on September 27, 2007 in calcium seeking damages for injuries suffered from swallowing magnets improperly attached to Mattel toy sets. On September 4, 2007, the CPSC began investi gating whether Mattel knowingly withheld information regarding any safety risks posed by the millions of toys recalled in August.Mattel could be substantially fined if they are found in misdemeanor of the Consumer Product Safety Act of 1972, which stipulates that companies must inform the CPSC within 24 hours when they obtain product defect information which could create a health hazard. ? The Chinese Toy Industry Today By the end of 2007, the Chinese toy industry was struggling. In Foshan, a major Chinese toy manufacturing hub in Guangdong province, some companies were tightening standards and increasing testing to reassure westward buyers. Others were closing down or looking for less regulated markets. Its very difficult to do business now, says Ms. Deng Xiling, sales manager at a factory making plastic components for toys.Her company closed its painted-toy particle following the Mattel toy recalls and laid-off almost one-third of its workforce, because they couldnt bear with the types of product testing Western buyers started requiring. Table IIMattels Global Manufacturing Principles? Mattels Global Manufacturing Principles (GMP) generate to all parties that manufacture, assemble, license or parcel out any product or package bearing any of the Mattel logos. GMP provides guidance and stripped standards for all manufacturing plants, assembly operations and distribution centers that manufacture or promise Mattel products. GMP requires safe and fair treatment of employees and that facilities protect the environment while respecting the cultural, social and philosophical differences of the countries where Mattel operates.GMP also requires internal and periodic independent monitoring of our surgical operation and our partners performance to the standards. Mattel is committed to executing GMP in all areas of its business and will only engage business partners who share our commitment to GMP. Mattel expects all its business partners to adhere to GMP, a nd will assist them in meeting GMP requirements. However, Mattel is prepared to end partnerships with those who do not comply. Mattel and its partners will operate their facilities in compliance with applicable laws and regulations. Mattel has defined the following overarching principles to which all facilities and partners are required to comply.These principles are combat-ready and evolving to continually improve our efforts to ensure on-going protection of employees and the environment. In addition, Mattel has developed a comprehensive and detailed set of underlying procedures and standards that enable us to apply and administer our GMP in the countries where we operate. The procedures and standards are updated and refined on an ongoing basis. 1. focusing Systems Facilities must have systems in place to address dig up, social, environmental, health and safety issues. 2. compensation and Working Hours Employees must be paid for all hours worked. Wages for regular and overtim e work must be compensated at the legally mandated rates. Wages must be paid in legal tender and at least monthly.Working hours must be in compliance with country and Mattel requirements. Regular and overtime working hours must be documented, falsifiable and accurately reflect all hours worked by employees. Overtime work must be voluntary. Employees must be provided with rest days in compliance with country and Mattel Requirements. Payroll deductions must comply with applicable country and Mattel requirements. 3. mount up Requirements All employees must meet the minimum age for employment as specified by country and Mattel requirements. 4. Forced Labor Employees must be employed of their own free will. Forced or prison labor must not be used to manufacture, assemble or distribute any Mattel products. 5.Discrimination The facility must have policies on hiring, promotion, employee rights and disciplinary practices that address discrimination. 6. Freedom of Expression and Associati on The facility must recognize all employees rights to choose to engage in, or refrain from, lawful union occupation and lawful collective bargaining through representatives selected according to applicable law. charge must create formal channels to encourage communications among all levels of management and employees on issues that impact their working and living conditions. 7. Living Conditions Dormitories must be separated from production and warehouse edifices.Dormitories and canteens must be safe, salubrious and meet the basic needs of employees. 8. Workplace Safety The facility must have programs in place to address health and safety issues that equal in the workplace. 9. Health First aid and medical treatment must be available to all employees. Monitoring programs must be in place to ensure employees are not exposed to harmful working conditions. 10. Emergency Planning The facility must have programs and systems in place for dealing with emergencies such as fires, sp ills and natural disasters. Emergency exit doors must be kept unlocked at all times when the building is occupied. Emergency exits must be clearly marked and free of obstructions. 11.Environmental apology Facilities must have environmental programs in place to minimize their impact on the environment. Discussion Questions 1. Was Mattels response to the toy recalls appropriate? wherefore or why not? How could the company have responded differently? 2. What should Mattels responsibility be to their Chinese supplier-partners? 3. Read Mattels Global Manufacturing Principles (GMP) shown in Table II. Should anything else be added to their GMP? 4. What are the ethical, legal and reputation issues that need to be addressed by Mattel? Was Mattel acting correctly to publicly apologize and take responsibility for the design errors and lack of oversight? 1 This case was prepared simply to provide material for student discussion and does not intend to lucubrate either effective or ineffecti ve handling of a managerial situation. The author may have disguised certain names and other information to protect confidentiality. i Zamiska, N. and N. Casey, Toy Makers Face Dilemma Over Supplier, fence in Street Journal, August 17, 2007, p. A10. ii Spencer, J. and N. Casey, Toy Recall Shows Challenge China Poses to Partners, groyne Street Journal, August 3, 2007, p. A1. iii Casey, N. and N. Zamiska, Mattel Does Damage Control After New Recall, Wall Street Journal, August 15, 2007, p. B1. iv Schuman, J. , The Morning Brief Lead Paint + Elmo = self-aggrandizing News for China, Wall Street Journal Online, August 3, 2007. v 2007 Mattel, Inc. Annual Report. vi Steverman, B. Mattel more than Tribulations in Toyland, Business Week Online, September 6, 2007, p. 12. vii Business Plenty of charge up to Go Around Chinese Manufacturing, The Economist, V. 382, No. 8548, 2007, pp. 78. viii Lindner, M. , Mattel Takes Its Lumps for toxic Toys, Forbes. com, September 21, 2007. ix Spencer, J . and N. Casey. x 2007 Mattel, Inc. website www. mattel. com/about us/corporate responsibility. xi 2007 Mattel, Inc. Annual Report. xii Luk, S. and E. Wong, Risks Faced by China-based Toy Manufacturers, China Law & Practice, November 2007, p. 1. xiii 2007 Mattel, Inc. website www. mattel. com/about us/corporate responsibility.