- UNSAFE FOR CHILDREN MATTELS TOY RECALLS AND SUPPLY CHAIN MANAGEMENT

ON AUGUST 2007 !!!

RECALLED 83 PRODUCTS DUE TO LEAD PAINT ISSUE!!!

Dora The Explorer Big Bird Elmo characters from Sesame Street etc

ON SEPTEMBER 2007 !!!

6 MORE RECALLS!!! SAME REASON!!!

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

ON OCTOBER 2007 !!!

ANOTHER RECALL DUE 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 TOYS DUE TO MANUFACTURING ERRORS MAIN REASON DEFECTIVE DESIGNS (mostly carried outside of China)

SO
MATTEL & MANUFACTURING FACTORY & GOVERNMENTAL AGENCIES OF CHINA & TOY IMPORTING COUNTRIES

MATTEL
1945began as a manufacturer of dollhouse furniture 1955first toy company to sponsor a TV program 1959introduced Barbie 1960went public 2007largest toy maker at the time for RECALLS sales $ 6 billion
After tax income $ 600 million

TOY PRODUCTION IN CHINA

2000worlds leading toy producer
200780% of worlds 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 Products Non 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 (Mattelll 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 MATTELS 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

MATTELS 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

REASONS
Manufacturing Problems Design Problems Product Misuse

MATTELS 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

MATTELS 2007 RECALL CRISIS

AUGUST 2007 Lee Der Industrial : Mattels Supplier of 1st Recalled Toys Early Light Industrial : Mattels Supplier of 2nd Recalled Toys More Other Recalls

MATTELS 2007 RECALL CRISIS

MATTELS RESPONSE
3 POINT CHECK SYSTEM REVIEWED COMPLIANCE WITH ITS RULES PLANNED TO PURCHASE PORTABLE LEAD DETECTORS CEO APOLOGIZED EMPHASIZED DESIGN PROBLEMS AS WELL

MATTELS 2007 RECALL CRISIS

CHINAS RESPONSE
CHINA CHAMBER OF COMMERCES 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

MATTELS 2007 RECALL CRISIS

CHINAS 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

MATTELS 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

MATTELS 2007 RECALL CRISIS

CONSUMER REACTION
EMOTIONAL RESPONSE MADE IN CHINA BRAND LOOSE CUSTOMER CONFIDENCE FOUND US GOVERNMENT AND CHINESE MANUFACTURING FAULTY

MATTELS 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

MATTELS 2007 RECALL CRISIS

MATTELS 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

MATTELS 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 Suppliers (Wal-Mart-Effect)

MATTELS 2007 RECALL CRISIS

CONCLUSION

UNDERSTAND INTEGRATED GLOBAL SOURCING REQUIREMENTS & SUCCESS FACTORS

MATTELS 2007 RECALL CRISIS

CONCLUSION

BE AWARE OF

INTEGRATED GLOBAL SOURCING RISKS