Mattel Case

07 Teaching Case view Hazardous Toy Rec everys at Mattel, Inc. Key words Chinese manufacturing, outsourcing, fruit rec anys, global supply chain risk Type of submission pedagogy case study Hazardous Toy Rec all tolds at Mattel, Inc. ? Abstract In 2006 and 2007 Mattel, Inc. was faced with massive recalls of Chinese-made trifles due to potentially dangerous levels of guide in various coquet model dig up keyst unrivaleds and small magnets in shirks which could pass a manner off and be swallowed.This case describes the events involveing up to the recalls, the response by Mattel, the sub judice, wellness, reputation and financial implications of the recalls, and the pertains of the recalls on Mattels global supply chain. Readers argon asked to assess the situation and to decide what should surr subverter been done variously, if whatsoeverthing. The case is prehend for undergraduate and graduate descent students analyzing various purchasing, risk, and supply chain envi sion issues. The 2006/2007 Mattel Toy RecallsIn some respects, the period from troop 2006 to October 2007 was a very hard time for Mattel and their Chinese toy suppliers. On a number of occasion during this period, Mattel recalled a total of about(predicate) 14 million Chinese-made toys in the U. S. and Canada for the equivalent both serious problems. Millions more were recalled in opposite foreign markets. These two problems were indeed significant not only for Mattel, but for their distributors, retailers, Chinese suppliers and in the end the families around the world buying their toys.Over 2 million of the recalled toys had either been sprayed with finish-tainted tonality or contained potentially hazardous levels of fly the coop within the materials, while the be toys contained small magnets which could come off and be swallowed. panel I summarizes these recalls. Table IMattels Chinese-Made Toy Recalls in the US and Canada, 2006 2007* Date Toy and riddle Descriptio n No.Units Recalled 03/30/2006 American Girl jewelry containing high levels of lead 180,000 11/21/2006 Polly Pocket toys with small loose magnets 2,400,000 08/02/2007 Various black cat Price toys with lead in surface paint 1,000,000 08/14/2007 Batman, one and only(a) 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 pekan-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 counselling, www. cpsc. gov On March 30, 2006 approximately 180,000 of Mattels American Girl jewelry pieces in the U. S. were recalled beca engagement the Chinese-made jewelry contained high levels of lead. On November 21, 2006, following 170 reports of loose magnets on Polly PocketTM looseness of the bow els sets, Mattel recalled over 2. 4 million Polly Pocket prank sets in the U. S. and Canada and another(prenominal) 2 million worldwide.In at least three of the cases, children who had swallowed magnets suffered serious enteric perforations requiring surgery and hospitalization. Then nine months later on grand 2, 2007, Mattel recalled nigh 1 million Fisher-Price toys for using paint exceeding the lead center limit set by the U. S. Consumer Product Safety Commission (CPSC). devil weeks later, the CPSC denote 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 wee folk, 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 announced 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 workings for one of Mattels primary Asian toy suppliers, Hong Kong-based Early Light industrial Co. , a toy maker for m each of the worlds biggest toy companies. Hong Li Da, the Chinese subcontractor habituated by Early Light, was supposed to intention Mattel-approved paint, however it instead admit 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. , in addition 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 time includes testing random units and other times involves reviewing manufacturers testing records. Mr. Jim Walter, Mattels se nior vice president of worldwide tint assurance explained, They didnt perform the testing they should have, and the audit we performed didnt enamor it. ? Mattels Response In late August 2007, Mattel CEO Robert Eckert recede a video apology to parents which was defined on the companys website and on Yahoos website. I cant commute 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 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 skirt Street Journal. ? interest the third quarter 2007 recalls, Mattel slowed down the shipments coming out of Asia to choose output testing and refuge reviews. Similarly, Mattels shipments to global markets were curtailed while various regulatory authorities reviewed Mattels safety procedures. Ultimately, Mattel was able to prevent mor e than two-thirds of the recalled toys from stint 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 moldiness 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 office organization, which has accountability internally and externally for adherence to company safety and ossification procedures. ? On September 5, 2007, Mattel representatives told an American congressional committee that the problem with toys containing vulnerable magnets was the result of a flawed toy design, and not due to despicable adherence to manufacturing requirements in china.According to Chairman and CEO Robert Ekert, more than 50,000 hours had been spent investigating the issues surrounding the toy recalls. We apologise again to everyone affected and promise that we go away continue t o 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 sightMattel 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 enterprise license of Lee Der Industrial, one of the subcontractors producing the defective Mattel toys (a co-owner of Lee Der Industrial attached suicide shortly after the August recall announcement). ? With regard to the serious magnet problem, Mattel made several manufacturing changes to better retain magnets in their toys, including eternal cure times for adhesives, the use of additional adhesive, and the use of injection borderline 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 levelheaded recourse.Foreign firms operating in China try to cover themselves by securing guarantees from their Chinese suppliers that they willing follow specific procedures, but they are almost undoable to enforce. In September 2007 Mr. Yan Jiangying of the Chinese State Food and Drug familiarity admitted that supervisory foundations are still very weak. The oversight of intellectual nourishment safety for instance, is split between five ministries resulting in unclear responsibilities. in that location also tends to be no history of regulatory conformance 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 paint 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 widespread that their company moldiness(prenominal) monitor paint quality all the way back to the original paint suppliers. Their toy makers must agree to use only McDonalds approved paint. ? Ironically, Chinese cultural norms are oftentimes at odds with the way companies are managed, as described sooner 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 manu facturers to insure shape with Mattels Global Manufacturing Principles (GMP). Mattels GMP is shown in Table II. Chinese plant managers are required to complete compliance reports prior to actual field audits. Audits consist of the firms news report 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 scourge 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 relevant regulations or that otherwise create a substantial risk of injury, including a rticles containing excessive amounts of hazardous substances. The CPSC may also require the recall, repurchase, replacement, or repair of articles. ? Additionally, U. S. Customs &038 Border guard (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 atomic number 20 seeking damages for injuries suffered from swallowing magnets improperly attached to Mattel toy sets. On September 4, 2007, the CPSC began investigating whether Mattel knowingly withheld i nformation 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 divider following the Mattel toy recalls and laid-off almost one-third of its workforce, because they couldnt abide the types of product testing Western buyers st arted requiring. Table IIMattels Global Manufacturing Principles? Mattels Global Manufacturing Principles (GMP) apply to all parties that manufacture, assemble, license or reel any product or package bearing any of the Mattel logos. GMP provides guidance and borderline standards for all manufacturing plants, assembly operations and distribution centers that manufacture or march on Mattel products. GMP requires safe and fair treatment of employees and that facilities protect the environment while respecting the cultural, heathen and philosophical differences of the countries where Mattel operates.GMP also requires internal and periodic independent monitoring of our functioning 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, and will assist them in meeting GMP requirements. However, Mat tel 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 high-voltage 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. counselling Systems &8212 Facilities must have systems in place to address proletariat, social, environmental, health and safety issues. 2. earnings and Working Hours &8212 Employees must be paid for all hours worked. Wages for regular and overtime work must be compensated at the legally manda ted 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, objective 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. come along Requirements &8212 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 Association &8212 The facility must recognize all employees rights to choose to engage in, or refrain from, lawful union legal action and lawful collective bargaining through representatives selected according to applicable law. centering 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 &8212 Dormitories must be separated from production and warehouse creates.Dormitories and canteens must be safe, hale and meet the basic needs of employees. 8. Workplace Safety &8212 The facility must have programs in place to address health and safety issues that exist in the workplace. 9. Health &8212 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 &8212 The facility must have programs and systems in place for dealing with emergencies such as fires, spills 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 protective cover &8212 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? why 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 entirely to provide material for student discussion and does not intend to beautify either effective or ineffective handli ng 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, beleaguer Street Journal, August 17, 2007, p. A10. ii Spencer, J. and N. Casey, Toy Recall Shows Challenge China Poses to Partners, fence in 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 = sorry News for China, Wall Street Journal Online, August 3, 2007. v 2007 Mattel, Inc. Annual Report. vi Steverman, B. Mattel to a greater extent Tribulations in Toyland, Business Week Online, September 6, 2007, p. 12. vii Business Plenty of unholy 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. Cas ey. 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 &038 Practice, November 2007, p. 1. xiii 2007 Mattel, Inc. website www. mattel. com/about us/corporate responsibility.