Case 5 - Mattel's China Experience

Reputation Effects

"China Price" and Competitors Eroding Consumer Confidence Loss of Trust The average consumer may not have known that Mattel understood the issues of child labor and product safety, and put in tremendous amount of effort to protect brand image. Size of Mattel Puts it Under Extra Scrutiny - 86% of all toys imported to the U.S. were from China in 2006. Are competitors having the same problem, but facing less scrutiny and taking market share away from Mattel?

Quality and safety commitment in new millennium

Independent auditors inspections Contract manufacturers must accomplish quality and safety operating procedures "Children´s health, safety, and well-being are our primary concern"

Crisis at Hand/Safety Impact

Lead: Because children are growing, substances bioaccumulate in stronger concentrations. Developmental Issues Lower IQs Brain Nervous System Slower Growth Learning/Behavior Problems Lawsuits

Before Mattel's new millenium

Leadership changes since founders left company in 1973. Strategy: maximize value of core brands, offshore manufacturing in company owned facilities. Creation of GMPs and Independent Monitoring Council due to critics of sweatshops and underage workers. Jill Barad management: loss of $82,3 million (previous year $206 profit), executive departures.

How Mattel's new millennium cut costs

Lean manufacturing practices Optimizing distributions Other cost-saving initiatives Streamline the procure-to-pay process (reduce cycle time)

Conclusion

Mattel must improve design process Hire Mattel inspectors to supervise the supply chain Stronger oversight and more communication with suppliers Have quality be the ultimate priority

Mattel's New Millennium

May 2000 new CEO: Robert Eckert (anti-Barad) New vision: "One Mattel" "Play Fair, Play Together, Play with passion and Play to Grow" build brands, cut cost, develop people -->shareholder value increase

Restoring the Brand

Reinforce GMPs Accept responsibility for all costs Focus on transparency Work with CPSC to improve industry safety standards

New millennium hybrid approach

65 % of Mattel´s toys are made in China using hybrid approach Company-run plants (most popular core products) Network of contract manufacturers for the rest Higher cost than low-bid local manufacturers for whole production

Cost

If production is halted, what will the loss in revenue be? Altering or clearing house in the supply chain will lead to extensive costs Finished products in transit or in store Stock abandonment by shareholders

Control of Supply Chain

Importer is responsible to make sure that manufacturers must understand importing country's standards and the importer takes responsibility for inspection. Mattel's Over 3,000 Suppliers Auditing and Oversight Most effective way to determine where to begin with ensuring that all products are safe?

The Toy Industry

In 2007 the global toy market was valued at $71 billion. The U.S has about 2% of the worlds children, but makes up about half of the worlds toy purchases. 900 companies manufacture toys, 50 companies control 75% of the market. Mattel and Hasbro control more than 33% of the market just between the two. The five largest retailers for toys are Wal-mart, Target, Toys "R" Us, Kmart and KB Toys. These 5 companies sold more than half of all toys sold in the United States.

Balancing Public Relations

2007 - China agreed to ban lead in toys. - More Inspections - Meet more frequently to discuss export-related issues Chinese officials estimated that 50% of exports did not obey this law. - Was seen as a ploy since there was pressure on physical, technical and HR infrastructure China Took Notice - China saw Mattel's public relations strategy as a blame on Chinese manufacturers Saw it as a "design problem" - Led to unfavorable publicity for China - Mattel responded by issuing a public apology

Toy production in China

30 to 50 percent cheaper than what it would cost a company to make the equivalent product in the U.S. The North American toy industry was $24 billion dollar industry, and 80 percent of these toys are manufactured in China By moving their manufacturing overseas, most companies shifted their focus to R&D, product design, marketing and other business activities

Mattel's new millennium market overview

51% of global sales revenue from United States Same products for international market except some limited product localization (i.e Barbie in China) Successful extension of existing brands (Barbie movies, shows...) Leader toy manufacturer for children < 8 years old BUT... lost of share to other competitors with children over 10 Non-toy activities: failed internal development ventures and very limited presence in electronic entertainment.

Potential Solutions

Consolidate supply chain - Very expensive - Will lead to greater control Hire Mattel inspectors to supervise the supply chain - Not as invasive or costly - Less operations control Overhaul design process - 88% of recalls were due to faulty design - Expensive Work with suppliers to ensure quality despite recently imposed cost-cutting measures Move to South Asia? Change in Management

Recalls

Of the 550 toy recalls by the Consumer Products Safety Commission since 1988, only about ten percent (or 54) of recalls were attributable to manufacturing defects such as poor craftsmanship, overheating of batteries, toxic paint and inappropriate raw materials Environmental and occupational health experts found that India, China, and Malaysia still produced and sold paints with levels of lead that exceeded U.S. safety levels

Supply Chain

Supply Networks, company-owned plants and extensive contractors surrounding Guangzhou and outside of Shanghai or Hong Kong (Ports, Highways and Airports) Mattel is a pioneer in taking the manufacture of toys offshore with more than 3,000 partners in China alone

Mattel's Keys to Success

To build on their brand image they advertised on the popular daily Mickey Mouse Club television program. Began offshoring to cut manufacturing costs and used corporate resources to build their brand up even more.

Mattel Overview

Toy company Founded in 1944 by Elliot and Ruth Handler Headquartered in El Segundo, CA Barbie, Hot Wheels, American Girl Fisher-Price subsidiary. (Wholly owned in 1993) Early pioneer in setting toy safety standards in the industry.