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A Sad Toy Story
Ir. Dr. Vincent W.M. Tam DBA, MBA, MAS, MSc, BSc
MHKIE, MASQ
November 9, 2007
Toy and Toy Industry
3
Team Discussion & Report Back
Brainstorm the reasons why toys are important
to children / family in your team and report
your reasons to the class.
4
Toys
Promote children’s well-being.
A central role in children’s play with one
another and help them develop socially.
Support the right to play in childhood which
is essential to healthy child development.
Spanish Toy Association
5
Toys
Restriction of the right to play and the time to
play has serious consequences on children’s
development and their later behavior as
adults.
Help foster the mental, physical, emotional
and social development of boys and girls.
Spanish Toy Association
6
Toys
Support the right to education through
encouraging play and learning.
Basic instruments for the development of
children’s fantasy, imagination and creativity.
Enrich family life by fostering fun, amusement
and communication between all family
members, regardless of ages.
Spanish Toy Association
7
Traditional Toy Market
US $ 67 billion in 2006.
Market Share of Toy Purchase in 2006 by Region
36%
29%
24%
7%2% 2% North America
Europe
Asia
Latin America / Caribbean
Oceania
Africa
Source: NPD Group
NPD Group
8
$ Spent on Toys per Child (2003)
0
50
100
150
200
250
300
350
US$
Japa
n
Uni
ted
Kin
gdom
Fra
nce
US
A
Eur
ope
(ave
rage
)
Asi
a an
d
Oce
ania
Afr
ica
Country $
Japan 305
United Kingdom 280
France 255
USA 242
Europe (average) 121
Asia and Oceania 13
Africa 1
U.S. Department of Commerce
Toy Manufacturing in China
10
Toy Manufacturing in China
China is the world's largest toy manufacturer.
It is estimated that about 10,000 factories in
China manufacture toys for export.
China exports 22 billion toys (US$ 7.5 billion
worth) in 2006, about 60 percent of the
world's total.
11
Toy Manufacturing in China
China Toy Association
12
Toy Manufacturing in China
Toy Factory Distribution
60%
8%
12%
8%6% 6%
Guangdong
Jiangsu
Zhejiang
Shanghai
Shandong
Fujian
China Toy Association
13
Toy Manufacturing in China
Toy Export Value [US$] (2006)
2%2%4%6%
6%
80%
Guangdong
Jiangsu
Zhejiang
Shanghai
Shandong
Fujian
China Toy Association
14
Toy Manufacturing in China
Toy Export Destination (2006)
6
2
9
9
12
55
USA
Germany
Holand
England
Japan
France
China Toy Association
Challenges of China Toy Manufacturing
16
The Challenges – Cost Increases
Material Cost: 07 Verses 06 Material % increase
Plastic – ABS ~5-10%
Plastic - PP ~3-5%
Plastic - PVC ~15%
Metal Parts ~10%
Electronic (PCB) ~15-20%
Motor ~10%
Packaging material ~8-10%
Fabrics ~3-8%
Stuffing ~8-12%
The Hong Kong Toys Council
17
The Challenges – Cost Increases
Percentage Increase
Basic wages in 2008 (estimated) ~15-20%
Enforcement of New Labor Contract Law ~15-20%
Overheads (Electricity, water, etc.) ~10%
Logistics & Warehouse ~10%
Appreciation of Chinese Yuan ~8-9%
Property & Rental Prices ~15-20%
Outside Laboratory Testing Fee ~10-15%
Deposit to Customs ~1-2% interest rate
Reduction in VAT Rebate ~6%
Contracting Fees ~4-5%
Labor, Overhead & Others : 07/08 Verses 06
The Hong Kong Toys Council
18
The Challenges
Constant downward pressure on ex-factory
price.
No significant proportional price adjustment
in the past few years.
Insufficient energy supplies.
Shortage of labor and recruitment problems.
The Hong Kong Toys Council
19
The Challenges
More stringent Code of Conduct [ COC ]
requirements.
Different quality requirements / standards
imposed by retailers.
Lead time and ship window imposed by
retailers are getting tighter.
The Hong Kong Toys Council
20
The Challenges
Increasing international and domestic quality
assurance requirements.
China customs imposed stricter product
verification process.
Manufacturers are squeezed between low
prices, shortage of labor, increase material
costs and more stringent regulatory
requirements.
The Hong Kong Toys Council
21
Team Discussion & Report Back
Assuming you are a Quality Manager in
a China Toy Factory, what would you
do proactively to face the challenges.
Discuss in the team and report to the
class.
Quality Issues - Toy
23
Team Discussion & Report Back
What are some of the quality issues of toys.
Discuss in your team and report to the
class.
24
Quality Issues - Toy
Aesthetics
Function
Reliability
Safety
25
Toy Safety Issue
Lead in Surface Coating
Dr. Rosen. 2:56 minutes Lead in Paint. 1:04 minutes
26
Toy Safety Issue
Lead in Paint
Lead is toxic if ingested by young children
and can cause adverse health effects.
27
Toy Safety Issue
Small Magnets
Consumer Product Safety Council. 0.23 minute
28
Toy Safety Issue
Small Magnets
Magnets can be swallowed or aspirated by
young children. If more than one magnet is
swallowed, the magnets can attract each
other and cause intestinal perforation or
blockage, which can be fatal.
29
Toy Safety Issue
Small Magnets
In the US, the first “toy with magnet” recall
occurred in March 2, 1998 by Fisher-Price,
a subsidiary of Mattel, Inc.
Toy Recalls in the US
31
Consumer Product Safety Council
The U.S. Consumer Product Safety
Commission (CPSC) is charged with
protecting the public from unreasonable risks
of serious injury or death from more than
15,000 types of consumer products under
the agency's jurisdiction. Deaths, injuries and
property damage from consumer product
incidents cost the nation more than $700
billion annually.
32
Consumer Product Safety Council
The CPSC is committed to protecting
consumers and families from products that
pose a fire, electrical, chemical, or
mechanical hazard or can injure children.
The CPSC's work to ensure the safety of
consumer products - such as toys, cribs,
power tools, cigarette lighters, and
household chemicals.
34
Toy Recalls Over Time
0
10
20
30
40
50
60
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Year
Num
ber
Total
China
Professor Hari Bapuji University of Manitoba Professor Paul W. Beamish University of Western Ontario
Recent Recalls from RC2 & Mattel
36
RC2
A 18-year-old company, which is based in
Oak Brook, Ill.
A leading designer, producer and marketer of
innovative, high-quality toys, collectibles, and
infant products.
Revenues have risen from $213 million in
2002 to $519 million in 2006.
37
RC2
RC2 works with third-party suppliers in China
and Hong Kong to manufacture its products.
In 2006, 91.8 percent of RC2’s products
came from China.
38
Mattel
Worldwide leader in the design, manufacture
and marketing of toys and family products.
Currently the largest toy company in the
world.
Employs 30,000 employees in 43 countries.
39
Mattel
Mattel is recognized as one of the 100 Most
Trustworthy U.S. Companies by Forbes
Magazine and is ranked among the 100 Best
Corporate Citizens by CRO Magazine.
40
Mattel
Manufactures almost 800 million products a
year.
Approximately 50 percent of all the toys are
manufactured at Mattel own plants.
Has contracts with ~ 37 principal vendors in
China.
41
RC2 – First Recall
Various Thomas & Friends™ Toys sold from
January 2005 through June 2007.
About 1.5 million pieces.
Hazard: Excessive lead on Surface paints.
Manufactured in: China
June 13, 2007
42
RC2 – First Recall June 13, 2007
43
Mattel - First Recall
Sesame Street, Dora the Explorer, and other
children's toys sold from May 2007 through
August 2007.
About 967,000 units.
Hazard: Excessive lead on Surface paints.
Manufactured in: China.
August 2, 2007
44
Mattel First Recall August 2, 2007
45
Mattel First Recall
August 2, 2007. 4:28 minutes
August 2, 2007
46
Mattel - Second Recall
Batman action figure sets sold from June 2006
through June 2007.
About 345,000 units.
Hazard: Magnets can fall out and be swallowed
or aspirated by young children.
Manufactured in: China.
August 14, 2007
47
Mattel - Second Recall August 14, 2007
48
Mattel - Second Recall
Barbie and Tanner™ play sets sold from May
2006 to August 2007.
About 683,000 units.
Hazard: Magnets can fall out and be swallowed
or aspirated by young children.
Manufactured in: China.
August 14, 2007
49
Mattel - Second Recall August 14, 2007
50
Mattel - Second Recall
Doggie Day Care™ play sets sold from July
2004 to August 2007.
About 1 million units.
Hazard: Magnets can fall out and be swallowed
or aspirated by young children.
Manufactured in: China.
August 14, 2007
51
Mattel - Second Recall August 14, 2007
52
Mattel - Second Recall
Various Polly Pocket dolls and accessories sold
from May 2003 through November 2006.
About 7.3 million play sets units.
Hazard: Magnets can fall out and be swallowed
or aspirated by young children.
Manufactured in: China.
August 14, 2007
53
Mattel - Second Recall August 14, 2007
54
Mattel - Second Recall
Sarge die cast toy cars sold from May 2007
through August 2007 .
About 253,000 units.
Hazard: Excessive lead on Surface paints.
Manufactured in: China.
August 14, 2007
55
Mattel - Second Recall August 14, 2007
56
Mattel - Second Recall
August 15, 2007. 2: 15 minutes
August 14, 2007
57
Mattel - Third Recall
Geo Trax Locomotive Toys manufactured
between July 31, 2006 and August 20, 2007.
About 90,000 units.
Hazard: Excessive lead on Surface paints.
Manufactured in: China.
September 4, 2007
58
Mattel - Third Recall September 4, 2007
59
Mattel - Third Recall
Various Barbie Accessory toys manufactured
between September 30, 2006 & August 20,
2007.
About 675,000 units.
Hazard: Excessive lead on Surface paints.
Manufactured in: China.
September 4, 2007
60
Mattel - Third Recall September 4, 2007
61
Mattel - Third Recall
Big Big World 6-in-1 Bongo Band toys sold
from July 2007 through August 2007.
About 8,900 units.
Hazard: Excessive lead on Surface paints.
Manufactured in: China.
September 4, 2007
62
Mattel - Third Recall September 4, 2007
63
Mattel - Third Recall
September 5, 2007. 6:57 minutes
September 4, 2007
64
RC2 - Second Recall
Various Thomas and Friends Toys sold from
March 2003 through September 2007.
About 200,000 units.
Hazard: Excessive lead on Surface paints.
Manufactured in: China.
September 26, 2007
65
RC2 - Second Recall September 26, 2007
66
RC2 - Second Recall
Britain’s Knights of the Sword Toys sold from
April 2004 through March 2006.
About 800 units.
Hazard: Excessive lead on Surface paints.
Manufactured in: China.
September 26, 2007
67
RC2 - Second Recall September 26, 2007
68
More Recalls
September 26, 2007. 1:50 minutes.
Consumer Reaction
70
Consumer Reaction
Art Funnell Report. 9:16 minutes.
71
Consumer Reaction
Inside Story Part 1. 13:59 minutes Inside Story Part 2. 8:59 minutes
Explanation & Analysis
73
Explanation
Bryan Stockton. 4:08 minutes Press Conference. 30:55 minutes
74
Analysis
Bauji Interview: 2:09 minutes Lawrence Interview: 4.46 minutes
75
Toy Recalls by Flaw Type
0
5
10
15
20
25
30
35
40
45
Num
ber
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Year
Manufacturing
Flaw
Design Flaw
Professor Hari Bapuji University of Manitoba Professor Paul W. Beamish University of Western Ontario
Corrective Actions Plan
77
RC2 - Corrective Actions Plan
The Multi-Check Toy Safety System
1. Increased scope and frequency of testing of both
incoming materials and finished products,
including testing of finished products from every
production run.
2. Tougher certification program for contract
manufacturers and paint suppliers, including
evidence that toy safety standards and quality
control procedures are in place and operating
effectively.
78
RC2 - Corrective Actions Plan
3. Mandatory paint control procedures for contract
manufacturers, including certified independent
lab test results of every batch of wet paint before
the paint is released for production.
4. Increased random inspections and audits of both manufacturers and their suppliers, including semi-annual audits and quarterly random inspections for key suppliers.
5. Zero tolerance for compromise on RC2 specifications reinforced by mandatory vendor compliance seminars and signed agreements.
79
Team Discussion & Report Back
Critically review & discuss RC2’s corrective
actions plan in your team and report to the
class.
80
Mattel – Corrective Actions Plan
A system of multiple and redundant safety
checks:
1. Every batch of paint must be purchased only
from a certified paint supplier. Even though the
supplier is already certified, samples of the paint
must still be tested before use to ensure
compliance with lead standards.
81
Mattel – Corrective Actions Plan
2. Paint on samples of finished product from every
production run must be tested for lead.
3. Mattel will increase the frequency of random,
unannounced inspections of vendors and
subcontractors for compliance with these new
procedures.
82
Mattel – Corrective Actions Plan
– Further, Mattel’s vendors must disclose to Mattel the identity of all subcontractors, and any such
subcontractor must be open to audit by Mattel.
Those subcontractors are not permitted to further
subcontract the work on Mattel’s products. Vendors must supply all paint to the subcontractors, and the
vendors and subcontractors must segregate all
production for Mattel, including having dedicated
storage for paint used on Mattel products.
83
Mattel – Corrective Actions Plan
– Mattel’s vendors also must test the paints on a
sample of all components produced by any
subcontractor for lead before using the
subcontractor’s components in a Mattel product.
Review of compliance with these additional
requirements will also be part of the unannounced
inspections of vendors and subcontractors.
84
Group Discussion & Report Back
Critically review & discuss Mattel’s corrective
action plan in your team and report to the
class.
Cost of Poor Quality
86
Team Discussion & Report Back
Discuss the elements of cost of poor quality
in your team and report to the class.
87
Cost of Poor Quality – RC2
Expects a charge of US $4 million in the 2nd
quarter of 2007.
Anticipates incremental professional service
fees, air freight, returns and replacement
processing, marketing and promotional costs,
lawsuits defense costs related to the recall
totaling between $3 million and $4 million in
the 2nd half of 2007.
88
Cost of Poor Quality - Mattel
The recalls are expected to result in a charge
of US $30 million.
Mattel’s costs of doing business will go up
with the additional level of testing.
89
Cost of Poor Quality – Lida Toys
It was estimated that the factory would suffer
30 million yuan (about 4 million U.S. dollars)
in economic losses.
Lida's boss Zhang Shuhong, a Hong Kong
businessman in his 50s, hanged himself on
August 11, 2007.
Quality Problem & Politics ?
92
Quality Problem & Politics ?
ABC. 2:17 minutes CBS. 2:06 minutes
93
Quality Problem & Politics ?
PBS. 2:38 minutes Europe Parliament. 3.02 minutes
94
Quality Problem & Politics ?
Mattel Apology. 2:34 minutes
95
Quality Problem & Politics ?
China to sue Mattel?
– Guangdong Fair Trade Bureau Director Chen Lipeng:
"The incident has stained the reputation of Chinese
toy manufacturers and made a large number toy
factories in Guangdong lose a great deal of money,
even though Mattel has apologized to China."
China Daily Nov 6, 2007
96
Quality Problem & Politics ?
China to sue Mattel?
– Guangdong Fair Trade Bureau Director Chen Lipeng:
"If a Guangdong toy company wants to sue Mattel,
the bureau will provide it legal assistance.."
China Daily Nov 6, 2007
97
Team Discussion & Report Back
Discuss the lessons learnt from “A Sad Toy
Story” in your team and report to the class.
