View
212
Download
0
Category
Tags:
Preview:
Citation preview
Mattel’s Chinese Sourcing Crisis of 2007As globalization continues, and supply chains expand acrossthe globe, how does a company like Mattel assess the risksassociated with the way it does business?
Ahu Bosnali & Ugur Saribay
Global financial crisis in 2007• This crisis is considered as the worst financial crisis happened
since the Great Depression in 1930s.
• The lack of liquidity in the United States banking system
triggered this crisis and caused the large financial institutions to
collapse. It also caused bailout of banks by national governments
and downturns in stock markets around the world. The housing
market has also suffered which resulted in evictions,
foreclosures and prolonged vacancies. It contributed to the
failure of key businesses, declines in consumer wealth and
economic activity, which later led to a global economic recession
in 2008.
China and the Global Financial Crisis
• China’s economy had been one of the world’s fastest growing
economies and it contributed a lot to world economic growth.
• However, it faced with the problem of slowing down caused by
the current global financial crisis.
• It was thought that the effects of it to the U.S sub-prime
mortgage securities were limited.
• But, it was also considered that China’s export industries
and sectors, which are dependent on foreign investment,
could be affected in a negative way if the economies of its
major trading partners (ex. United States) experience a
slowdown.
• This possibility concerned the Chinese government, because they
see rapid economic growth necessary to maintain social stability.
• China is a major economic power and holds huge amounts of
foreign exchange reserves. And it could also play a major role in
responding to the current crisis.
• For example, it can help U.S to stabilize its economy by boosting
its holdings of U.S. Treasury securities. It would help funding of
the Federal Government’s purchases of troubled U.S. assets.
Mattel’s Chinese Sourcing Crisis of 2007
Mattel is an industry leader which has a reputation in
corporate responsibility. It was seen that the company was
being affected by the crisis and had affected a variety of
products produced in and exported from China in 2007. These
products include dog food, toothpaste, tires, and seafood.
When the Mattel CEO, Robert Eckert was faced with a crisis
Mattel had recalled 19 million toys made in China. The stock
price of Mattel declined when they took a $40 million charge
for recalls. Their costs increased because of the new
regulation added in China and the United States. Customers
threatened to boycott Mattel and all the toys made in China.
Bob Eckhart, CEO of Mattel (US), had a problem
• On July 30, Mattel had discovered that a number of its toys
which were manufactured in China contained lead paint.
• They recalled lots of the toys during the following month
and the political tensions between the United States and
Chinese governments rose.
• Mattel was the only company that had been in China for
such a long time. The original Barbie had been created
there in 1959.
• Mattel had a deep experience and a long time relationship
which should have prevented this problem. In the end it
was those relationships and that longevity which may have
contributed to the product safety failures.
Global Supply Chains and Risk
• Toys were based on a global supply chain. The global supply
chain was highly sensitive to petrochemical (plastics) and labor
input costs, environmental and human rights in terms of social
responsibility and sustainable business practices, transportation
and logistic disruptions, border crossings, cost and time to
market.
• In 1997, Mattel had established its Global Manufacturing
Principles. These principles and practices were for all companies
and sites which manufactured Mattel products, either company
owned or licensed manufacturing.
First Chinese Signal
• The crisis begun in June when U.S. toy maker RC2 recalled
1.5 million Thomas the Tank Engine products made in
Guangdong, the Chinese province next to Hong Kong, and
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 announced on August 2. Most of the toys were
produced by Lee Der Industrial which has been a Mattel
supplier for 15 years.
• The toys contained high levels of lead paint which is a
chemical banned many years ago. But it was still secretly
used by manufacturers around the globe to reduce costs.
Mattel followed with a series of three recalls in less than one month
• On August 14, the second recall of 18 million toys
worldwide was announced. Products ,which were recalled,
were made by The Early Light Industrial company in China,
a Mattel partner for 20 years
• The third recall of 800,000 toys was announced on
September 4. Most of the toys were accessories for Barbie
dolls. Mattel explained that according to the testing of the
products, the products contained high amount of lead paint.
The products were originated from seven different Chinese
factories.
Mattel followed with a series of three recalls in less than one month
• This third announcement had made the European Union
take an action. They announced a two-month review of
toy product safety for toys sold within the EU
(regardless of the source of their manufacture).
Mattel followed with a series of three recalls in less than one month
• Products Recalled Include:▫ Thomas the Tank▫ Pet food▫ Toothpaste▫ Mattel toys
• These Recalls Have Created Concern Over:▫ Toy safety and product safety▫ Quality control when outsourcing to China▫ Toy safety inspection processes
Mattel followed with a series of three recalls in less than one month
• Recall Effects:
▫ lost sales, damaged reputation, diversion of resources,
increased customer support, threat and expense of
litigation
Mattel’s Recall Tactics
The Good: The Bad:
▫ Worked with the CPSC (is a federal agency that monitors the safety of 5,000 products)
▫ to launch an external media blitz
▫ CEO Eckert apologized to parents in a video posted on website
▫ New Corporate Responsibility organization
▫ New three-point safety check system
▫ Delayed reporting to the CPSC: 1.5 months
▫ Prematurely shifted blame to China
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 50% of its product lines it relies on a set of vendors,
which had included Lee Der Industrial and First Light.
Mattel’s Sourcing
• As a result of the long-standing relationships and the trust
between Mattel and Lee Der and First Light, Mattel allowed
the companies to do most of their own product testing.
• Many of the non-Mattel vendors had sourced many
components and parts to other businesses, regardless of
who owned the actual manufacturing facility.
Mattel’s Sourcing
• All of the businesses in the supply chain were facing the
same competitive cost pressures in China, which were
rising wage rates, a shortage of skilled labor in coastal
provinces, escalating material and commodity prices.
Some of them may have been the motivation for suppliers
to cut corners and costs.
Recommended