Mattel and the Toy Recalls

Its sad to say that the most safe product coming out of China these days is
fireworks Jay Leno
Toy Industry
Global market = $71 Billion in 2007
North American market = $24 Billion (36% of the global market) with an annual
growth of 1% in 2006
European market = 30% of global sales with an annual growth of 5% in 2006
Asian market = annual growth of 12% in 2006, 25% expected in 2007. This huge
growth can be explained by the thriving burgeoning middle classes.
Toy industry in the US = 880 companies in 2002 (1,019 in 1997). 70% of the toy
companies employed less than 20 persons. The industry leaders were: Mattel and
Hasbro (combined sales in 2006 $8.7 billion).
Chinese toy imports accounted for a 86% of toy imports to the US in 2006 (41% in
1992)
Big retailers became major players in the US toy market (Wal-Mart, Target, etc).
These retailers sold Mattel, Hasbro and other companies products but they also
sourced toys from China (under their own toy brand).
Wal-Mart accounted for about 25% of toy sales in the US
While the major markets for toys existed in the US and Europe, production was
concentrated in Asia, primarily China. About 60% of the toys sold in the world were
made in China. More than 10,500 toy makers operated in China. Toy companies in
China formed a complex web of supply chains, with contractors themselves subcontracting production of components and entire products to various companies.
Chinas rising share of US toy imports can be attributed to the lower cost business
environment in China.
Analysts noted the resultant pressure on the physical, technical, and human
resource infrastructures. These pressures have resulted in the Chinese
manufacturers compromising on the product safety.
Toy Safety
The safety of toys in the US falls within the jurisdiction of CPSC (Consumer Product
Safety Commission)
The CPSC identified the top five hidden home hazards: magnets, recalled products,
tip-overs, windows and covering, pool and spa drains.
The majority of recalls in recent years involved toys made in China

Toy manufacturers use paint with a high percentage of lead because it is highly
resistant to corrosion, extremely malleable, has poor electrical conductivity and
makes paint heavy and bright, which makes toys more appealing to consumers.

Mattel
Industry leader not only by its sales but also through its pioneering efforts to be a
good corporate citizen. In 1996, Mattel initiated its Global Manufacturing Principles,
which aimed to ensure responsible management practices used in Mattels factories
as well as by its vendors.
Mattels factories were audited by the International Center for Corporate
Accountability (an independent body) and were made public by Mattel.
About 45% of Mattels sales were accounted for by three major buyers: Wal-Mart,
Toys R Us, and Target.
Over a long period, Mattel had managed the peculiarities of the toy industries well
with a number of innovative and often revolutionary ideas (contracts with ABC
Television, Disney, etc). Mattel entered into licensing agreements to make toys on
the characters owned by some media companies.
Mattel designed and developed toys in the corporate HQ and manufactured
products in its own factories (core brands) and through third-party manufacturers.
Mattels principal manufacturing facilities were located in China, Indonesia,
Thailand, Malaysia, and Mexico.
Outsourcing for the manufacturing of non-core brand toys followed a strict multistep process. The design teams created a bid package containing the new products
blueprint and engineering specifications. After the selection of a vendor, the
company established the vendors production infrastructure (Mattel assumed
responsibility for the cost of tooling). Then, a few testing batches would come up
until the Production Start phase began only when the new toy met design
compliance.
In China, Mattel had contracts with approximately 37 principal vendors. These
further used smaller companies for the full or partial production of toys. The supply
chains in China were long and complex. About 3,000 Chinese companies made
Mattel products. However, Mattel had direct contact only with the principal vendors.
Recall (2007)
Auchan (French retailer) performed pre-shipment tests which revealed that Mattels
toys, made by vendor Lee Der Industrial Company, contained lead levels above

permissible limits. Mattel employees contacted Lee Der instructing it to correct the
problem and provide another sample (this time it passed).
A US consumer informed Mattel that a home test kit found excessive lead in a
Mattel toy (also manufactured by Lee Der).
Mattel started testing samples of Lee Der toys and found that 3 out of 5 samples
had lead problems.
After additional toys/samples with a high lead level appeared, Mattel ordered an
immediate suspension of all shipments of products made by Lee Der. Further
investigations revealed that the nonconforming lead levels were because of a yellow
pigment in paint used on portions of toys manufactured by Lee Der (Lee Der
employed 2,500 people and made toys almost exlusively for Mattel).
Lee Der purchased its paint from Dongxing New Energy Co. Dongxing run out of
yellow pigment in April 2007. It sourced about 330 pounds of pigment from
Dongguan Zhongxin Toner Powder Factory (apparently a fake company).
An essential component of Mattels contracts with its vendors is that the products
made by vendors comply with applicable safety standards. Mattel had systems
which required the vendors to either purchase paint from a list of eight certified
vendors in China or test for compliance each batch of the paint purchased from a
non-certified vendor. Mattel also conducted audits of certified paint suppliers and
vendors to ensure that Mattels requirements were being followed. The frequency of
audits depended on Mattels prior experience with the suppliers and vendors.