Mattel’s Chinese Sourcing Crisis

10 October 2016

Mattel had discovered on July 30 that a number of its toys manufactured in China contained lead paint The following month had seen a series of recalls, rising political tensions between the United States and Chinese governments, and a suicide But no company had been in China longer than Mattel; the original Barbie had been created there in 1959 Mattel had a depth of experience and a longevity of relationships which should have prevented it. In the end it was those relationships and that longevity which may have contributed to the product safety failures. Global Supply Chains and Risk

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Toys were based on a global supply chain which was highly sensitive to petrochemical (plastics) and labor input costs, environmental and human rights sensitivities to socially responsible and sustainable business practices, transportation and logistic disruptions, border crossings, cost and time to market – all of which added to risk. Mattel had established its Global Manufacturing Principles in 1997, in which it established principles and practices for all companies and sites which manufactured Mattel products, either company owned or licensed manufacturing First Chinese Signal

The crisis had actually begun in June when U. S. toy maker RC2 recalled 1. 5 million Thomas the Tank Engine products made in Guangdong, the Chinese province adjacent to Hong Kong and long the center for contract manufacturing by Western firms. Mattel followed with a series of three recalls in less than one month The first recall of 1. 5 million toys of 83 different models was on August 2, most of which were produced by Lee Der Industrial, a Mattel supplier for 15 years.

The toys contained high levels of lead paint, a chemical banned many years ago, but still secretly used by manufacturers around the globe to reduce costs The second recall, amounting to more than 18 million toys worldwide, was announced on August 14. Products recalled were primarily made by The Early Light Industrial company in China, a Mattel partner for 20 years. The third recall, announced on September 4, was for 800,000 toys, most of which were accessories for Barbie dolls.

Mattel explained that product further testing had indicated they possessed “impermissible levels” of lead paint. The products originated from seven different Chinese factories. This third announcement had prompted the European Union to announce a two-month review of toy product safety for toys sold within the EU, regardless of the source of their manufacture. Exhibit 1 China-Manufactured Products Recalled by the U. S. Consumer Products Safety Commission Between August 3 and September 6, 2007 Mattel’s Sourcing Chinese manufacturers were the source of 65% of Mattel’s toys.

Of those 65% , about one-half were owned by Mattel, and one-half manufactured product for the company under a variety of licensed manufacturing agreements. Mattel still owns the 12 factories which make the majority of its core products like Barbie and Hot Wheels. But for the other roughly 50% of its product lines it relies on a set of vendors, which had included Lee Der Industrial and First Light. For long-standing relationships like those with Lee Der and First Light, Mattel allowed the companies to do most of their own product testing as a result of the long-term relationship and growth in trust between the two parties.

Regardless of who owned the actual manufacturing facility, many of the non-Mattel vendors had in-turn out-sourced many components and parts to other businesses. All of the businesses in the complex supply chain were facing the same competitive cost pressures in China – rising wage rates, a shortage of skilled labor in coastal provinces, escalating material and commodity prices – some of which may have been the motivation for suppliers to cut corners and costs Chinese Industrial Development

The rapid growth of the Chinese economy was already well-known and well-documented: approximately 5% of all manufactured goods in the world were now Chinese; 25% of all products sold in the United States had significant Chinese content; global commodity prices of oil, copper, molybdenum, steel, and others, were seeing record levels as the rate of nfrastructure and business development in China caused global shortages and market pressures. But the costs of such rapid economic development were only now starting to become painfully apparent. The rate of manufacturing growth had far surpassed the ability of the Chinese government on all levels to manage the growth.

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