- UNSAFE FOR CHILDREN - MATTEL’S TOY RECALLS AND SUPPLY CHAIN MANAGEMENT

DUE TO LEAD PAINT ISSUE…!!! Elmo characters from Sesame Street ON AUGUST 2007 !!! RECALLED 83 PRODUCTS DUE TO LEAD PAINT ISSUE…!!! Dora The Explorer Big Bird Elmo characters from Sesame Street etc

RECALLED SMALL MAGNETS…!!! DUE TO DESIGN PROBLEMS…!!! ON SEPTEMBER 2007 !!! 6 MORE RECALLS…!!! SAME REASON…!!! + RECALLED SMALL MAGNETS…!!! DUE TO DESIGN PROBLEMS…!!!

ON OCTOBER 2007 !!! ANOTHER RECALL DUE TO LEAD PAINT…!!!

??? ALL HAVE BEEN MANUFACTURED IN CHINA OWNER OF THE FACTORY THAT HAVE USED LEAD PAINT COMMITTED SUICIDE ………………

Brand has been Hammered ………………

ONLY 15 % OF THE RECALLED TOYS (mostly carried outside of China) BUT… ONLY 15 % OF THE RECALLED TOYS DUE TO MANUFACTURING ERRORS MAIN REASON DEFECTIVE DESIGNS (mostly carried outside of China)

SO… MATTEL & MANUFACTURING FACTORY GOVERNMENTAL AGENCIES OF CHINA TOY IMPORTING COUNTRIES

MATTEL 1945…began as a manufacturer of dollhouse furniture 1955…first toy company to sponsor a TV program 1959…introduced Barbie 1960…went public 2007…largest toy maker at the time for RECALLS sales $ 6 billion After tax income $ 600 million

TOY PRODUCTION IN CHINA 2000…world’s leading toy producer 2007…80% of world’s toy production …80% of toy coming to US were made in China …Toy Distribution was evolving towards Mass Market Companies like WalMart

MATTEL SUPPLY CHAIN Core Products Non Core Products First experience with manufaturing in Asia Japan, 1959, Barbie Dolls… 2 types of Products: Core Products Non Core Products

MATTEL SUPPLY CHAIN STRATEGY: Produce Core Products in Owned Factories Use Local Vendors to Produce Non Core Products

MATTEL SUPPLY CHAIN Inspect Materials coming in Monitor Supplier closely (esp. for Lead Based Paint) Terminate some Vendors for violation Produce New Toys in Small Batches before approval Inspect Toys off the production line periodically, when full scale production began Contract Manufacturers

MATTEL SUPPLY CHAIN Required Factories to work with Certified Suppliers Allowed its most Reliable Suppliers to do their own Routine Testing (Mattel’ll do quarterly Spot Tests) BUT, Vendors subcontracted… Prohibited Subcontractors from using multiple layers of Additional Suppliers

AT THE TIME OF RECALL … !!! NOT CLEAR HOW WELL THESE RULES HAVE BEEN FOLLOWED…… MATTEL’S 200 EMPLOYEES RESPONSIBLE FOR TRAINING AND SUPERVISING CHINESE CONTRACTORS WERE BASED IN HONG KONG, NOT AT TOY PRODUCTION FACILITIES……

PRESSURES ON CHINESE TOY MANUFACTURERS WAL-MART-EFFECT…!!! Pressure on Suppliers to Cut their Costs Down

MATTEL’S 2007 RECALL CRISIS PRIOR TO AUGUST 2007 Some Other Recalls for Chinese Made Products May 2007, 1.5 million Toys recalled by RC2 Corp. due to lead paint Contaminated Pet Food, Toothpaste, Cough Syrups, Defective Tires..etc REASONS Manufacturing Problems Design Problems Product Misuse

MATTEL’S 2007 RECALL CRISIS AUGUST 2007 Mattel Recalled 83 Fisher Price Products sold between May 1st-Aug 1st Due to Non Approved Paint Pigment containing Lead Supplier was a Long Term Contract Manufacturer

MATTEL’S 2007 RECALL CRISIS AUGUST 2007 Lee Der Industrial : Mattel’s Supplier of 1st Recalled Toys Early Light Industrial : Mattel’s Supplier of 2nd Recalled Toys More Other Recalls…

MATTEL’S 2007 RECALL CRISIS MATTEL’S RESPONSE 3 POINT CHECK SYSTEM REVIEWED COMPLIANCE WITH ITS RULES PLANNED TO PURCHASE PORTABLE LEAD DETECTORS CEO APOLOGIZED EMPHASIZED DESIGN PROBLEMS AS WELL

MATTEL’S 2007 RECALL CRISIS CHINA’S RESPONSE CHINA CHAMBER OF COMMERCE’S ACTIONS AQSIC WITHDRAWED LEE DER INDUSTRIAL TOY MAKERS HAVE BEEN ASKED FOR APPLIANCE FOR QUALITY LICENCING CHINA OFFICIALS LAUNCHED A PUBLIC RELATIONS OFFENSIVE CHINA BLAMED MATTEL, NOT LOCAL MANUFACTURERS AGREEMENT BETWEEN US (CPSC) AND CHINA (AQSIC) OFFICIALS

MATTEL’S 2007 RECALL CRISIS CHINA’S RESPONSE AQSIC ASKED EXPORTERS TO PROVIDE TEST RESULTS WITH EACH EXPORT SHIPMENT AQSIC LAUNCHED A DATABASE SUMMARIZING THE INSPECTION AND QUARANTINE STANDARDS OF IMPORTING COUNTRIES SUPPORTED A HIGH LEVEL TEAM RESPONSIBLE FOR FOOD, DRUG, PRODUCT SAFETY GOVERNMENT HAS INITIATED A TRAINING PROGRAM

MATTEL’S 2007 RECALL CRISIS POLITICAL AND REGULATORY RESPONSES US COMMITEES MADE HARD CRITISIZM FOR BOTH MATTEL AND CHINA “MADE IN CHINA” LABEL STARTED TO BE A WARNING LABEL HILLARY CLINTON CRITISIZED CHINA MANUFACTURERS BARRACK OBAMA PROMISED TO BAN CHINA TOYS UNLESS THEIR SAFETY COULD NOT BE UNSURED EUROPE ALSO THRETENED TO BAN TOY IMPORTS

MATTEL’S 2007 RECALL CRISIS CONSUMER REACTION EMOTIONAL RESPONSE “MADE IN CHINA” BRAND LOOSE CUSTOMER CONFIDENCE FOUND US GOVERNMENT AND CHINESE MANUFACTURING FAULTY

MATTEL’S 2007 RECALL CRISIS FINANCIAL COST TO MATTEL TOOK A CHARGE ON EARNINGS $110 million in 2007 DESPITE THESE COSTS, REPORTED NET INCOME AFTER TAX OF $600million for 2007 MANY LAWSUITS PRODUCT TESTING IN CHINA HAS BEEN INCREASED

MATTEL’S 2007 RECALL CRISIS

MATTEL’S 2007 RECALL CRISIS CONCLUSION Mattel should Control its Supply Chain better, to cope with design problems, product misuse, lead paint issues and usage of Unapproved Suppliers Mattel should inspect its subcontractors well Direct Site Visits to Suppliers to be able to make evaluations on their performances Integrated Global Sourcing requires horizontal links with other functional groups (esp engineering, operations, design, demand planning and marketing) Integration is also required with Tier 1, Tier 2 and also Tier 3 Suppliers Increase expenditures on quality controls and tests Strictly follow up Tests to be held through the Supply Chain and Increase Check Points (3 check point system) Total Cost of Ownership

MATTEL’S 2007 RECALL CRISIS CONCLUSION Awareness on commitment, scope of operations, resources and capabilities that integrated global sourcing requires Transaction Cost Analysis Theory (Core & Non-Core) Outdated Accuracy and Validity of the documentations should be ensured Personnel with knowledge, skills and abilities to recognize the falsified documents Determine critical raw materials or processess. Strictly follow up, all the operations related to those parts, well Improve information flow through the chain Geographical Proximity of the Employess responsible for Training and Supervising Chinese Contractors is an Issue Understand the Capability of the Supplier’s (Wal-Mart-Effect)

MATTEL’S 2007 RECALL CRISIS CONCLUSION UNDERSTAND INTEGRATED GLOBAL SOURCING REQUIREMENTS & SUCCESS FACTORS

MATTEL’S 2007 RECALL CRISIS CONCLUSION BE AWARE OF INTEGRATED GLOBAL SOURCING RISKS