1. Mattel’s Chinese Sourcing Crisis of 2007
As globalization continues, and supply chains expand across
the globe, how does a company like Mattel assess the risks
associated with the way it does business?
Ahu Bosnali & Ugur Saribay

2. 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.

3. China and the Global Financial Crisis

4. 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.

5. It was thought that the effects of it to the U
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.

6. 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.

7. 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 These products include dog food, toothpaste, tires, and seafood.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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).

16. 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

17. 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

18. 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

20. 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.

21. 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.

22. 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.