Wednesday, August 29, 2007

Inside the toy recalls: Mattel's sins

It's been a few weeks since the Mattel toy recalls first started. Since then millions of toys have been taken off the shelves all over the world, a Chinese factory owner hung himself and the "Made in China" name is being dragged through the dirt in the US media.

Just about everyone in the US has jumped on the hating. There have been countless examiniations into the saftey of everything China makes and an unseen fervor has developed. Democrats and Republicans alike are attacking China as the now "irresponsible" global production machine.

While I can not make any statements regarding food recalls or underware, as a person who has worked in the toy industry (my job was to liason between the factory and the US design staff), I see this situation really clearly:

It isnt really the Chinese company's fault!

During the design process, there are a lot of considerations for safety. Only certain materials could be used for certain aged kids and the spacing between motorized parts had to be a certain width. Above these basic restraints, all of our toys had to pass a RoHS standard. This applied to the entire packaging, the paint, the materials used, the parts, everything. Before being able to ship any toys, we had to submit them for testing at a hong kong third party. Only with certification from this third party could we ship to Walmart, Target, ect.

In order to pass these tests, we had to control our supply chain. Every shipment of materials were individually checked by our on-site Quality Control team. If anything was wrong with the shipment, the QA team would not accept the entire stock and demand the sourced company to redo it.

In essance, there were atleast 4 different levels of quality assurance: During design, supply chain, manufacturing and third party testing before shipment. Of course not all shipments were perfect and things did slip through the cracks, but no products were recalled when I worked there. None.

So with my own first hand experience, I was terribly shocked when I heard of Mattel's recall. How could the biggest toy company in the US allow so many millions of toys be shipped? What happened to all of the different layers of testing and retesting. Also, why didnt the US media find the real reasons for the problems instead of making China the scapegoat?

Well finally, someone did. Only in today's NY Times has there been any mention of the innate problems within Mattel's business.

Mattel has been manufacturing in Asia far longer than many companies (the first Barbie was made there in 1959). That led to long-term relationships with certain Chinese contractors, many spanning decades. Paradoxically, that appears to have contributed to Mattel’s problems: the longer it outsourced to a factory supplier with good results, the looser the leash became.

During Mr. Eckert’s tenure, the company has scaled back the number of companies it uses and the fraction of Mattel toys that they make, but it allowed its more reliable suppliers to do their own regular toy testing — with spot tests by Mattel only every three months.

The two contractors that caused this month’s recalls were among the most trusted. Lee Der Industrial, the supplier involved in the first recall, had worked with Mattel for 15 years. The Early Light Industrial Company, the contractor that made the Sarge cars in the second recall, has supplied toys for 20 years.


Mattel became so confident in their China production that it basically gave all control to their subcontractors. Instead of making sure they had final say of what toys were being shipped, the left it up to their Chinese counterparts. What responsible company would decide to do that? No smart company would ever think of giving all control for their products to someone else.

Still Mattel execs want to refocus the blame on the Chinese:

“I think it’s the fault of the vendor who didn’t follow the procedures that we’ve been living with for a long time,” Mr. Debrowski said.

I guess Mr. Debrowski has never worked in a Chinese factory (like I have). Maybe if he worked there for 2 weeks, he would see that Chinese employees need constant attention. Only micromanagers with attention to detail can actually confirm that any processes are used. Without this oversight, any "procedures" are just random words on paper.

All in all, the real issue is money. The real reason why Mattel gave so much autonomy to their contractors was because they wanted higher profits. In order to have their own staff oversee and manager the production, QA and other processes, it would cost Mattel much more money. Instead, they calculate the cost and overhead of the Chinese manufacturer, add 15% for the Chinese company's margin and not worry about anything else. For a toy that costs the Chinese company $1.20, Mattel sell it for $4.50 to Walmart. That's quite a profit.

Whey they're making that much money, who cares about a little lead in the paint?

Ultimately, no one is really blaming Mattel for this. If you read the NY Times article, you can see that the underlying tone of it is pro-Mattel. Even the title, After Stumbling, Mattel Cracks Down on China, shows the bias.

The US (and world) media will continue to attack China while the real culprits enjoy their high profit margins. I guess it's just another symptom of globalization.

13 comments:

Jeremy said...

Hi Mike,

That was a great analysis of Mattel's own mistakes. There are certain hidden costs to doing business in China, including the extra quality control and hand-holding of your Chinese suppliers.

It is necessary to do so, and still much cheaper than pretty much anywhere in the world, all costs considered.

Clement Wan said...

I gotta say that I only partially agree. I agree absolutely that many chinese factories require micromanagement simply due to the lack of education and that it is idiotic to think that in the eyes of consumers, Mattel shouldn't bear some responsibility here... but let's be realistic about this as well - if you were in Mattel's position with lawsuits already pending from legal vultures, who wouldn't attempt to deflect responsibility?

That said, it is the company's fault for not testing - we're not talking about some dinky little company either here. If I'm not mistaken, Lee Der Industrial also has HK ownership so we presumably aren't talking about country bumpkins here who were running the facility either.

Personally, I think it's good practice to trust but verify for your subcontractors no matter where you buy product from; we've gotten clients because they weren't satisfied with the quality from US/Canadian vendors whose leadtimes were also too long. But let's point fingers at the source of the problem - after all it isn't as if Mattel are the ones that put lead in their toys - it was Lee Der Industrial. And it was Lee Der Industrial that presumably neglected their contractual obligations. It is also quite likely that the paint supplier also neglected the contractual obligations to Lee Der Industrial (though I suspect from experience, that we are sometimes a little guilty of though not always by choice, that the contracts between Lee Der and their suppliers aren't anywhere near as rigorous as that between Lee Der and Mattel).

The generalized China hate does seems a little extreme these days... The Wall Street Journal had an article not too long ago that talked about the US was not only banning from food but just about everywhere and there were places that were banning American food as well - so there's plenty of blemishes to look for everywhere if the media wants to find them.

Anonymous said...

Great post!
At the end of it, you concluded that this US scapegoating China as one of the symptom of globalization. I agree with that. According to Wang Hui, a leading Chinese scholar from Qinghua University, that symptom is a version of “consumer nationalism” or "hypernationalism" that is embedded ironically in this so-called globalization.

Mike said...

Clement,

What is your definition of "contractual obligation." Let's go deeper... what's your definition of "contract?"

In China, a "contract" are just words on a piece of paper. Customer service is non existent and there are basically no regulations from any governing body.

In the US, there are consumer laws, false advertising laws, ect. In China, that stuff doesnt exist.

100% silk? Yea right. real North Face jackets? Don't put your money on it.

By working in a Chinese toy factory, I learned early on that everything needs to be overseen. Absolutely everything. Otherwise things are going to slip through. Creating and writing down "operating procedures" means nothing unless you follow it up with constant oversight.

NY Times said that Mattel only spot checked their factories ever THREE MONTHS! That's crazy. I'll be surprised if there are not more recalls in the immediate future.

Lastly, of course they want to deflect responsibility. However, anyone in the toy industry knows where the "true blame" (or the majority of the blame is...and it isnt with the Chinese factory.

Clement Wan said...

Mike -

I don't disagree that Mattel must bear some responsibility, but contracts are still very much enforceable in China. While I'm no lawyer, there is very much legal precedent for going after Chinese vendors for any number of issues in Chinese courts. Sure the situation isn't great - but it is getting better as far as the legal climate goes (though fortunately I haven't had a first hand encounter).

Given that business had been done for more than 15 years, I did a search, and as suspected, Lee Der Industrial is a HK based company - which makes the contracts far more easily enforceable. I don't think that consumer protection rights have much to do with contractual obligations however - nor does it absolve Lee Der of their responsibilities (or Mattel of theirs to their consumers).

But to blame the buyer entirely for something the seller did, I don't think is reasonable either. In effect, it's blaming the victim of a crime and absolving the Chinese vendor of responsibility. Further, by blaming solely Mattel for something Lee Der did (and I don't doubt that Mattel could have done much to mitigate what are now the costs of the recall and reputation not to mention any subsequent consumer legal suits), seems to be somewhat bigoted in the other direction... ie 'how dare one have basic expectations of those chinese vendors that things are done right and safe'. Alternatively, a more crude version might be - 'we can't trust the Chinese to do anything right' which I don't think is true either. China's a big and very populated country after all, and there are good manufacturers and bad ones. Just like everywhere else in the world, sometimes it's difficult to tell which is which. It would seem to me that 'trust but verify' would be good advice for people who subcontract everywhere - not just China.

Incidentally, having just been a party to a loan agreement and gone through the legal issues (and there were many) in China, I can tell you that contracts in China are more than the pieces of paper that they're written on (although I suppose it might be nice if they weren't :) ).

Bjoern said...

I agree that Mattel is to blame for not taking care of quality control, but saying that "It iasnt really the Chinese company's fault!" seems very odd to me. After all, it's them who made the products. That's like telling the victim of theft he only has to blame himself. Only because I'm giving someone the opportunity to cheat does not remove the cheaters responsibility. What kind of message does this send?

Rene said...

Hey Mike,

Thanks for the nudge. Basically, my leaving China has turned into an unplanned leave of absence of blogging. I've been working a summer job and I haven't had time to stay on top of interesting developments. Soon I'll be heading to my PhD program, and then I should have more time to blog.

Rene

Chris Carr said...

Good post. Well done.

Paul the Barracuda said...

Mike,

Thank you for this thoughtful, analytical post. As an American who has lived in China, my "cringe" reflex is being triggered more and more often by the amount of fear-induced China-bashing that has been going on of late (not to mention the reciprocal America-bashing). China is a developing nation, just as America once was. During the American industrial revolution, dangerous products, polluting industries, and extra-large helpings of corporate negligence and corruption were all par for the course. Of course, it is America's prerogative to regulate its own imports. What the country needs to remember, however, is that China will work through its problems, and it is to the benefit of both countries that America be tolerant of (or at least empathetic towards) China while it does that.

PamMccoy said...

Great post - and blog! I've added a link in a forum related to the recalls on Chinese made toys and other related events in terms of product safety. Hope you don't mind!
http://www.chinalookout.com/
If anything comes up, feel free to post articles or etc there as well. Thanks again!

Richard said...

Good comments. I agree about Mattel and its corporate greed. I think the media likes to jump all over topics that 'sound' more sensationalized. I mean toxic products from China sounds alot more interesting than toxic products from a local US company. We live in a time where money is king, and this is one of the problems that come from that mentality.

Richard said...

madebadinchina.com

Markus said...

Good Job! :)