Mattel Corporation

Team 4
Introduction

Mattel is the largest toy manufacturer in the world. The company began in 1944, and

went public in 1960. The company sells products under three different business groups:

Mattel Boys and Girls, Fisher-Price, and American Girl Brands. It makes toys like Barbie,

Hot Wheels, Matchbox, Batman, Superman, Power Wheels, and Bitty Baby. It also has

licensing agreements to make toys like Winnie the Pooh, Disney Princesses, Elmo, and other

character toys. Mattel made its first Barbie doll in Asia in 1959, and closed its last U.S. toy

factory in 2002. Its main manufacturing locations are China, Indonesia, Thailand, Malaysia,

and Mexico. Mattel makes core bands in company owned facilities, and used third parties for

non-core brands. In 2007, tests showed that the paint on toys sold by Mattel had too much

lead in the paint. After investigation, Mattel determined the source of the defect and recalled

toys. As the company was preparing to make a recall for this toy, it found that paint on other

toys also had high levels of lead. Mattel was receiving reports of loose magnets in some of its

toys as well. The company was faced with difficult decisions about what toys to recall, how

to best engineer any recalls, and how to keep recalls from occurring in the future.

Question 1

The case says that two characteristics make the toy industry unique. “First, toy sales

are seasonal. … Second, there is a lot of uncertainty about new product success” (Bartlett

173). These characteristics mean that toy companies need to make sure they get product to

stores at the right time of year to make sales, and that they need to do market research to try

to develop toys that children will want and that adults will be willing to purchase.

An industry organization, the Toy Industry Association, asks more of members than to

be profitable. Its website says “TIA seeks to educate, inspire and encourage members of the

toy industry to consider, adopt or strengthen responsible social and environmental initiatives

in areas as diverse as: Toy Safety, Ethical Manufacturing, Environmental Sustainability,

Responsible Marketing to Children, and Philanthropy - Toy Industry Foundation.” The toy

industry is a growing industry. “According to leading market research company, The NPD

Group, U.S. retail sales of toys generated $21.87 billion in 2010 compared to $21.46 billion

in 2009, an increase of 2 percent.” Another noteworthy aspect is the importance of licensed

toys to the industry. “Licensed toys represented 25 percent of total industry sales in 2010.” In

the United States, nearly all toys are imported. In the 2009 Toy Report by the International

Trade Administration, imports showed a steady increase from 85.34% of apparent

consumption in 2003 to 94.73% in 2007. Imports from China were 84.62% of apparent

consumption in 2007.

Question 2

Managing off shoring for Toy Companies can be a daunting task. The case over

Mattel and the Toy Recalls covers production issues and supply chain management mishaps

in Mattel’s foreign operations. The main issue as discussed in the August 3rd, 2007 edition of

The Wall Street Journal states that, “Public-health experts say Chinese manufacturers

repeatedly revert to lead paint regardless of the rules because it is cheap and readily available,

and also helps factories meet relentless pressure to contain costs” (Spencer and Casey, 2007).

This poses serious risks to Mattel and other toy companies. As referred to in the text, factor

costs provide the incentive to find new resources at the best possible prices such as the

manufacturers seeking inexpensive ways to paint the toys. Although this creates higher profit

margins, the only way to cut-down on paint expense is to use paint with harmful levels of

lead. The Wall Street Journal quotes a study conducted in 2004 by Beijing University as

saying, “34% of young children in China had blood-lead levels that exceed the safe limit set

by the World Health Organization” (Spencer and Casey, 2007). Thus, proving that the

Chinese are not regulating their own production processes and creating hazardous products

for consumers.
 According to Supply Chain Digest’s web based article, “it now seems clear that the

supplier’s own testing of the paint, which came from another supplier was inadequate, and it

also appears Mattel did not adhere to its own auditing process of the suppliers QA

procedures” (scdigest.com, 2007). Mattel has a very thorough procedure for testing and

implementing production process in their off-shoring efforts. Thus, the Chinese

manufacturers are breaking policies that Mattel is making. So, a main challenge for Mattel is

to successfully and completely audit the production processes in foreign countries.

According to the text, there are some “3,000 companies as part of the supply chain in

China and Mattel has connections with only the primary vendors” (Bartlett). This poses a

serious issue to Mattel concerning the audit process. How can Mattel audit all the vendors in

the supply chain process? Well, they can’t and most companies cannot. Although, they can

work on eliminating some of the intermediary suppliers to reduce the risk involved with the

materials used in their toys and be able to audit more of the suppliers. This is the greatest

challenge for Mattel because they don’t know who all the primary suppliers are receiving

their materials from. Another challenge is what mix of manufacturing facilities provides the

least amount of risk for Mattel. According to the textbook, “Mattel minimizes risk of off-

shoring by employing a mix of company-owned and vendor-owned manufacturing facilities

all over Asia” (Bartlett). This helps Mattel control some of their own production processes

while letting some vendors control their own production under the scope of their control.

Overall, Mattel needs to decrease the amount of suppliers in the foreign supply chain.

Eliminating many of these members can help make business more manageable. Also, a

suggestion for Mattel would be to increase the Audit and Quality Assurance staff. Completing

the above two suggestions can help mitigate regulation and scrutiny from Government

agencies. Although, there seems to be a fairly large amount of inherent risk associated with

conducting business in foreign countries. .

Question 3

Mattel does a lot of things well. First of all, they are very well diversified within the

toy industry. Mattel has many different brands that reach a wide variety of children. They

own brands such as Fisher-Price, Hot Wheels, Barbie, and Power Wheels just to name a few.

Having such popular brand recognition has allowed Mattel to diversify overseas. Michael

Santoli explains that “nearly half of company revenue now comes from outside the United

States” (28). These brands afford the company the ability to market their products to many

different age groups all across the world.

This leads to another major strength of the company, their ability to market their

products. Mattel was a pioneer when it comes to marketing toys. The text explains that in

1955, “Mattel sponsored a 15 minute segment of ‘The Mickey Mouse Club’ for an entire

year” (Bartlett, 173). This agreement made it possible for Mattel to have many other

partnerships with other entertainment companies and allowed them to produce character toys

(Bartlett, 173). Mattel has become the preferred creator of Disney and Pixar character toys,

giving them exposure to the hit movies and television shows without the risks of having to

create the movies or shows themselves (Santoli, 28).

Obviously, the problem Mattel faces with the toys is severe enough to issue a recall.

Certain toys made in Asia surpassed the United States’ limit of lead in paint, meaning that the

toys had too much lead in the paint (Bartlett 175). Mattel also felt that the problem was

severe enough to stop accepting products from Lee Der, the company who manufactured the

defective toys (Bartlett 175). Judy Warner makes clear that after the initial recall in August

2007, Mattel made 10 more recalls before the holiday shopping season (31). Mattel began

inspecting every toy imported from the Far East, which is where most of their toy production

has been outsourced to (Warner 31). Although the problem did require a recall, Mattel

executives should be credited with a proactive, rather than a reactive, approach. Executives
proposed that only paint from certified suppliers can be used and that each batch of toys is

tested (Warner 34).

The fact that Mattel has off-shored most of their production contributed heavily to the

fact that there was lead found in the paint on the toys. When Lee Der’s paint supplier ran out

of pigment, the company went through a local vendor to obtain more pigment (Bartlett 175).

Mattel did not have any control of the situation because they went through a third-party

manufacturer. If Mattel had used its own manufacturing plants to manufacture the toys, it is

unlikely that they would have had such a huge recall of nearly 967,000 toys (Bartlett 176).

Question 4

Mattel lately had problems with product quality which has lead to a lot of recalls in

the market. For long term solutions to these entire problems, Mattel should concentrate on the

product quality. Product quality starts from the product development and design stages of an

industry. Mattel has research and development where it designs and develops products, is

done in its headquarters in California, USA. Most of the recalls of Mattel products in 2007

are due to the design fault, excessive lead in the products surface paint, and loose magnets on

some of its products. One study show that around 76% of Mattel’s product recalls is due to its

design faults (Mary Jane Credeur and Heather Burke, September 2007). So it is of paramount

importance to address this issue in order to enhance its product quality. To counter these

quality issues, Mattel needs to concentrate on several problems. It needs to have a better

research and development where its product is developed. Although Mattel spends around

$174 millions in its design facility, they seem to have design flaws and issues.

Since 65% of Mattel’s global production is made in China, they should have a strong

quality force to control the quality problems. They should have periodical checkups, rigorous

batch inspection, and a special quality team to arrest the issues. They should also reduce the

complex nature of contractor networks. It is not easy for Mattel to control around 3000
companies which directly and indirectly supplies for Mattel. These complex network issues

indirectly took Mattel to deal with a fake company which supplied yellow paint with

excessive lead to one of its contractors on its products. Inspection of raw materials would also

enhance the product quality. Mattel should inspect all of the raw materials before it is

produced. This would help them to arrest another big issue of loose magnets in some of its

products.

Mattel needs to find the root cause of all its quality problems in order to enhance

product quality. Mattel is a fully globalised toy industry which should understand its

opportunities and risks in foreign markets. They only have around five factories which they

own in China and others are all contracted. So they must have a quality team which should

inspect at the export point. This will enhance the product quality before being exported all

around the world. Also Mattel outsources their product testing to their contractors and also

help them to build inspection facilities. This would not be the right decision for their product

testing. They might have to control this aspect of testing, so that they can make sure of

defects right in the production stages. This would help them to enhance the product quality.

Question 5

The safety of toys and other children’s products is managed by the U.S. Consumer

Product Safety Commission (CPSC). According to CPSC, 22 toy-related deaths and

estimated 220,500 toy-related injuries occurred in 2006. The majority of recalls in recent

years involved toys made in China. The major hazard of toys is a result of excess lead in the

surface paint of the toys. The exposure to lead can affect every organ and system in the

human body. According to Consumer Safety Product Act 1972, 600 parts per million (ppm) is

a permissible maximum amount of lead in products accessible to children (Bartlett &

Beamish, 2011). Therefore, Mattel should recall the toys on which lead-based paint is used

with excessive amounts of lead. Actually, Mattel had recalled several millions of toys used
hazardous levels of lead paint made in China during 2007 such as Sesame street characters,

Dora the explorer lines, Sarge toy cars, Barbie accessories and so on (Merle, 2007). Another

major hazard of toys is a danger associated with small magnets in toys. The problems are the

magnets can come loose easily and children are able to swallow it. It can cause intestinal

perforations and blockage, which can be fatal (Bartlett & Beamish, 2011). Thus, Mattel

should recall the toys with magnets that may loose and be harmful if swallowed. Mattel had

recalled several millions of Polly Pocket play set, Batman and One Piece action figures,

Barbie and Tanner play sets, and Doggie Day Care play sets made in China with magnet

problems during 2006 (Bush, 2007). Also, Mattel should recall the toys with design defects

such as sharp edge which may injure children, or toys which can cause choking hazard based

on the standard of the Consumer Product Safety Commission. Recently, Mattel recalled five

Fisher Price Trikes toddler tricycles, the Ocean Wonders Kick & Crawl Aquarium, Baby

Gymnastics Tetherball and a High Chair. The tricycles include plastic keys with sharp edges

on which a child may strike, sit or fall and result in injury. The "valve of the inflatable ball"

on the aquarium and tetherball "can come off and pose a potential choking hazard to young

children. On the high chair, children can fall on or against the pegs on the rear legs of the

High Chair resulting in injuries or lacerations (Kasturi, 2010).

Mattel should have proactive recall strategies to avoid a loss in consumer loyalty

during a recall crisis. Voluntary recalls or improvement campaigns have a significant positive

impact on the manufacturer’s image, as well as consumers’ loyalty and purchase intentions

(Souiden & Pons, 2009). Actually, when the major recall crisis occurred in 2007, Mattel took

a more proactive approach and used more communications vehicles to reach parents across

the globe. They bought advertising space in major news papers and interviewed on global

broadcasting company across the country to address parents. Also they made its consumer

website more interactive with a videotaped message from a CEO of Mattel to further clarify
the situation. They set up toll-free number to answer about consumer inquiry. Mattel's first

priority was to convey the facts and issues to parents that would allow them to determine if

they owned the toys in question (Bush, 2007). In aspect of logistics of recall, first, Mattel

should identify which products are involved and which are not. In many cases, companies do

not have access to actual item-level information about what is being shipped. It’s quite

possible Mattel recalled a lot of Barbie dolls that did not have any lead paint on them

(Hoffman, 2007). Mattel should try to create as much visibility as they can. Tainted products

must be traced not only to the consumer but to their particular manufacturer or supplier.

Shippers must map their materials to raw components, suppliers and manufacturing processes

involved in assembly, as well as through distribution channels and service providers. For

current recall, Mattel is providing pre-paid mailing labels that should help predict the timing

and volume of toys it's receiving from consumers (Kator, 2007).

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