INDIVIDUAL CASE STUDY PRESENTATION ON MATTEL

This is an ‘open-book’ presentation that is designed to assess your ability to apply the essential theories, principles and techniques of supply chain and operations management to a realistic business situation.

The questions will draw on material from the other modules in the MSc Supply Chain Management programme. You will be expected to demonstrate your knowledge and understanding of relevant theoretical principles, concepts and techniques; to apply these appropriately to the particular situation described in the case study and; above all, to make sound decisions. You will not gain marks by presenting a general essay on the topic.

Please note that all work should be your own. Copying or plagiarism will not be tolerated and could result in no marks being awarded. If quotes or short extracts are used they should be attributed or the source of the information identified.

Play Fair

The core values of Mattel, the world’s largest, branded toy manufacturer, appeared on its company website, and on its literature, under the heading ‘Play Fair’:

“Act with unwavering integrity on all occasions.
Treat each other with respect and dignity.
Trust each other to make the right decisions.
Be accountable for all that passes in front of us.”

In 2007 these values would be put to the test as never before, when it was discovered that substantial numbers of Mattel branded toys had been contaminated with lead paint with global signature brands such as Barbie™ and Fisher Price™ affected. This followed hard on the heels of a much larger recall of toys containing small magnets, when it was discovered that a serious health hazard was posed to children if the magnets became loose. In fact, more than 19 million toys were to be recalled by Mattel worldwide, including a warning issued on 4th September 2007 covering 675,000 Barbie™ accessories. This resulted in the largest recall in the history of Mattel. The cause of this crisis was twofold. Firstly was the use of non-approved paint by contract manufacturers in China; secondly there was what turned out to be a design fault in toys containing small magnetic parts. As a result of the publicity surrounding the recall, two Chinese companies had their export licences revoked by the Chinese government and the owner of one committed suicide. Other branded manufacturers such as RC2 Corp. (which produces Thomas the Tank Engine™) and large retail chains such as Toys R “Us” were also affected by the use of banned lead paint, with some of their retailer own-brand toys and children’s jewellery sourced from Chinese manufacturers having to be recalled.

The United States National Safety Council had this to say about the health effects of elevated blood lead levels in children:

“There are many different health effects associated with elevated blood lead levels. Young children under the age of six are especially vulnerable to lead's harmful health effects, because their brains and central nervous system are still being formed. For them, even very low levels of exposure can result in reduced IQ, learning disabilities, attention deficit disorders, behavioural problems, stunted growth, impaired hearing, and kidney damage. At high levels of exposure, a child may become mentally retarded, fall into a coma, and even die from lead poisoning. Within the last ten years, children have died from lead poisoning in New Hampshire and in Alabama. Lead poisoning has also been associated with juvenile delinquency and criminal behaviour.”

In fact, the most common cause of high levels of lead in children is not due to ingesting chips of lead paint, but through lead dust being swallowed when it is dislodged from old paint or lead dust created when old buildings are modernised or repainted. Paint containing more than 0.06% (600 ppm) lead was banned for residential use in the United States in 1978 by the U.S. Consumer Product Safety Commission (16 Code of Federal Regulations CFR 1303). Although there are some authorities that say there is no safe level of lead where children are concerned because the young child’s central nervous system is developing so rapidly. In the EU lead paint can now only be used for restoring works of art or historical buildings.

80% of the world’s toys are manufactured in China, by more than 10,500 toy manufacturers, with Mattel alone using around 3000, to manufacture 65% of its children’s products there. The chairman and CEO of Mattel, Robert Eckert, assured a US Senate Appropriations Subcommittee that wherever Mattel toys are manufactured its standards are enforced. The problem was also not necessarily connected to the toys in question being manufactured in China but, rather, to the subcontractors not being monitored or checked rigorously enough. At the same senate hearing the chairman, Dick Durbin, stated that more than 25 million Chinese manufactured toys had been recalled this summer alone [ibid]; he also called for all toys imported from China into the United States to be inspected. A visit to the U.S. Consumer Product Safety Commission (CPSC) website (www.cpsc.gov) provided details of the millions of products recalled bearing the ‘Made in China’ designation. An alarming number of these products were aimed at children and involved the use of lead, either as paint or in children’s jewellery, or in small magnetic parts that could become detached and pose intestinal problems to children if swallowed.

On the Mattel company website (http://www.mattel.com/safety/en/), worried consumers were able to discover exactly what products were affected and what action they needed to take, in other words, how to return the product and get their money back. Given the global nature of Mattel’s business, it is not surprising to see that this facility was available in many different languages. A short video of Robert Eckhart (CEO Mattel) was also posted on the web page, in which he informed viewers about the size and nature of the recall and where to find details of the products. He also told of the action taken by Mattel to increase and make more rigorous its quality assurance and inspection processes. Apparently, as a result of the implementation of this more stringent testing and checking regime, further products, with some lead paint contamination, were discovered. A voluntary notification and recall was communicated to the relevant agencies and stakeholders, while affected products were also being removed from retailers’ shelves. Robert Eckhart assured parents that the safety of children who play with Mattel toys was his personal primary concern; he reaffirmed Mattel’s absolute commitment to product safety and the safety of children. He also clearly identified the steps taken to ensure no repetition of this quality crisis by assuring the viewer that all Mattel products would be tested.

The following message was posted on the company website:

“We Take Our Promises Seriously. As promised, in recent weeks, we have been busy testing and re-testing toys before they leave factories. Our recent voluntary recalls are part of our ongoing promise to ensure the safety of your children. We have strengthened our testing worldwide with a mandatory 3-stage safety check of paint used on our toys.

1. All paint must be tested before it is used on our toys. No exceptions. 2. We have significantly increased testing and unannounced inspections at every stage of production. 3. We are testing every production run of finished toys to ensure compliance before they reach you.

We encourage you to keep coming back to our website, where you can learn about additional affected toys, what we are doing, and to find answers to your questions.

At Mattel, the safety of your children is our utmost priority. That is our promise.”

In response to the recall of around 1.5 million Thomas and Friends™ railway toys RC2 Corp. instituted a ‘multi-check toy safety system’ to “reduce potential future risks to children and preserve parents' trust.” RC2, like Mattel, re-tested a large number of toys similar to those previously recalled and, as a result, issued a voluntary recall in cooperation with the U.S. CPSC for a further five toys [ibid] found to be contaminated with lead paint.

Corporate Social Responsibility

Companies are coming under public and political scrutiny as never before. Disasters such as the Union Carbide explosion in Bhopal and the collapse of institutions such as Barings Bank, Enron, and the Bank of Credit and Commerce International, paved the way for a raft of legislation and scrutiny from political regulators and consumer organisations. There are few areas of business where this scrutiny is higher than in those areas affecting health and safety and, particularly, the health and safety of children.

Many countries and regions have stringent standards governing the manufacture of toys; a list of these can be found on the website of the International Council of Toy Industries (ICTI). Mattel has stated publicly, as a policy, that its manufacturing standards and specifications for toys exceed all the health and safety standards for toys in every country in the world. This is no mean feat, since there are over 100 different regional or national standards for toys worldwide.

Al Verrechia, CEO of Hasbro, a large global toy manufacturer, also stated that:

“At Hasbro, we are proud that our own safety standards meet or exceed all federal regulations and that we set the highest standards for our own factories, as well as our vendors, wherever they may be located, including China.”

The UK government sees corporate social responsibility (CSR) as the voluntary actions that a business can take, over and above compliance with minimum legal requirements, to address both its own competitive interests and the interests of wider society. CSR, therefore, concerns much more than a company’s legal obligations to its consumers.

In Mattel’s 2007 Global Report Initiative (GRI) report, the company stated that it had a vision to become a ‘role model for global citizenship’. It had also developed, and widely published, a set of core values that would enable it to fulfil this mission:

* “We “play to grow” by seeking continuous improvements in the business and rewarding excellence. * We “play together” through dynamic teamwork and collaboration. * We “play with passion” by infusing unparalleled creativity and innovation into every aspect of work, loving what we do and having the courage to make a difference. * We “play fair” by treating others with dignity and respect and acting with integrity each and every day.”

Mattel’s intention behind developing a set of core principles was to ensure that everyone in the organisation was ‘united to a common purpose’.

In 2003 Mattel implemented, or ‘rolled out’, a code of ethical conduct to all employees covering a comprehensive range of issues such as; conflict of interest situations, corporate opportunities, responsibilities to other employees, consumers, shareholders, business partners, competitors, communities, government and compliance with laws and how to get help and raise concerns.

Mattel also stated that it wished to be a good global citizen, by carefully balancing the needs of people, planet and profit; it had also developed three core strategic initiatives in order to succeed in this goal:

* Sustainable product design and development. * Sustainable manufacturing and procurement processes. * Creating a sustainability culture at Mattel. [ibid]

As part of its core values, Mattel published its intention to maintain an ongoing effort to ensure that its products are manufactured under ‘safe, fair and environmentally safe conditions’. In 1997 it also implemented a set of detailed Global Manufacturing Principles to help achieve these goals and ensure ethical practices.

In order to ensure compliance with these Global Manufacturing Principles and related manufacturing standards, Mattel engages third party assurance (since 1988) by the International Centre for Corporate Accountability (ICCA). This is a not-for-profit, independently incorporated organisation, which performs selected audits and publishes (publicly on mattel.com) reports on all Mattel manufacturing facilities, including all those owned by Mattel and some of its contractors.

Mattel Manufacturing Operations

Mattel has offices in 43 countries and territories and its products are sold to consumers in 150 countries, mainly via retailers but also with some direct sales.

Around half of all Mattel’s products are manufactured in wholly owned or Mattel-managed facilities, located in China, Indonesia, Malaysia, Mexico and Thailand.

The remaining products are produced in approximately 75 contract factories or vendors, with the majority of all products, including those outsourced being manufactured in China. Although some products are manufactured by contractors, the toy designs are owned by Mattel and design work is generally Mattel’s responsibility. Some of these contract manufacturers are heavily dependent on Mattel’s business, with the company estimating that production of Mattel products accounts for between 30% and 90% of its vendor’s annual production.

Around 1000 licensees produce Mattel branded products such as clothing, software, durable goods, and other children’s products. Licensed products are, however, estimated to account for a much smaller percentage of vendor production at around 5%.

Mattel’s purchasing function, Vendor Operations, started outsourcing production for Mattel in 1988, following a report by McKinsey and Company that recommended Mattel keeps all its core products in-house, in wholly owned and controlled manufacturing operations, and outsource all non-core products. Barbie™ was originally one of the products designated as core by Mattel with Hot Wheels™; some Disney™ and Fisher Price™ lines were also being added to the list at a later stage.

In those early days, vendors were selected based upon their lead time for new toys, manufacturing competence, unique process capabilities and price. One of the main benefits to Mattel of this approach to manufacturing was that it enabled the company to produce toys with relatively short product life-cycles, more cost effectively. This was because it did not need to make an expensive capital investment in new plant. The ability to respond rapidly to changes in demand, by producing and supplying new products quickly, is a core competence in the toy market. There is a very profitable market related to non-core toys, such as those associated with television series or movie characters. Time-to-market for products associated with a new movie, for example, is critical, because the demand may be high initially; but this is often relatively short-lived. Having a combination of wholly owned manufacturing, outsourced contractors, and licensees provides Mattel with a degree of flexibility and agility in this volatile marketplace.

With so many manufacturing facilities located in so many different countries, and such a large network of contractors and licensees, Mattel has a formidable task in ensuring compliance with its Global Manufacturing Principles. There is also adherence to every national and regional toy product standard around the world to be considered. Monitoring and reporting on factories does take place and detailed reports are published on Mattel’s website. Follow-up action in the form of further reports from the independent auditors and management response are also published. The tone of these reports reflects a desire on the part of Mattel to encourage and help manufacturers located in developing countries to improve, rather than to punish or withdraw business.

One of the reports published by Mattel concerned the audit of a vendor identified only as ‘Vendor Plant 18’. This plant had received an ’informal consultation visit’ by ICCA in 2000, with a first formal audit in 2005. The 2005 audit was, however, terminated by ICCA when the auditors discovered that, in the words of the report, ‘certain actions on the part of Plant 18’s management, immediately prior to the day of the audit, had compromised the integrity of the audit process’. The second formal audit took place in 2006 with some serious concerns identified regarding environmental health and safety standards. The Mattel response report, which was also published on the company website, detailed a robust response requiring the vendor to adequately address the compliance issues; also to sustain this compliance, at a satisfactory level, before any new business was issued. From the report it was clear that Mattel was also involved with the ICTI, which had also placed the factory ‘on probation’. Both organisations had been working with the plant management team to help it to try to meet the required standards for compliance.

The Toy Business

According to United Nations Industrial Development data, it was estimated that the global market for toys would reach $150 billion by 2005. Although Indian manufacturing in this sector is growing rapidly, China accounts for the bulk of global manufacturing, producing nearly 80% of the total.

Toys can be roughly categorised as either video games (computer games, video games, internet games and so on) or traditional toys (dolls, soft toys, action figures, building bricks, vehicles, puzzles and others) and the market is characterised by its volatility and seasonality. The bulk of toy sales occur during the final quarter of the year, with up to 70% of sales in the three month run up to Christmas. Because of this highly seasonal demand pattern, it has been estimated that manufacturers need substantially increased capacity if they wish production to keep pace with actual customer demand. The problem with that approach, of course, is that much of the capacity would be unused earlier in the year when demand is much lower.

The sector is highly competitive with many innovative new product introductions every year. These can take the form of well-known branded products such as Barbie™ or Fisher Price™ or toys that are associated with television series, movies or books such as Batman™ action figures or Thomas the Tank Engine™ train sets, for example. It is almost impossible for a manufacturer to be able accurately to predict the level of demand for a new product or the longevity of this demand because of the seasonality of trade, but also because most new products fail and the actual lifecycle of new toy products has been experiencing a steady decline. Success for new toys is mainly driven by fashion and even those toys related to movies have seen a decline in the period of demand from up to six months down to two months or less.

Competition tends to be intense and to centre on innovation and falling retail prices, with many toy manufacturers relying on older toys that may have a higher level of brand awareness in the market place.

Uncertainty in the market place is compounded by all the above factors and also by the changing nature of consumer preferences and a high degree of impulse buying. These uncertainties make it very difficult for manufacturers to predict demand with any degree of accuracy. The long ordering and supply lead times coupled with these factors and the different ways in which retailers and other distributors place orders in this market result in low supply reliability.

One of the factors contributing to the intense price competition is the growing power and concentration of retailers and their ability to integrate backwards up the supply chain. Many Chinese manufacturers can produce whole toys and large retailers are increasingly seeking to source own-retailer branded products, rather than purchase branded products from toy suppliers. Retailers’ own brands are usually sold at lower prices and this further fuels the price competition in the market.

Difficulties in forecasting demand with any degree of accuracy, particularly for new and innovative products, together with the highly seasonal nature of the business, results in very high levels of obsolescence, and high costs incurred in the form of discounts used to liquidate inventory. Sales of toys fall very sharply after the Christmas peak and it is often difficult for manufacturers to introduce new toys at this time.

Well-known branded toys such as Barbie™ that are market leaders, and have been around for a very long time (50 years or more), create a very strong market pull and are, therefore, more resistant to some of these pressures.

Recent research (Wong C Y et al., 2005) has found that most retailers of toys also sell a wide variety of other merchandise. They tend to order toys infrequently, and in batches, and usually expand the space allocated to toys for the fourth quarter in the run up to Christmas. These retailers, unlike some of the toy specialists, tend not to be involved in sharing point of sales (POS) information or, in collaborative SCM practices, such as just in time, (JIT), quick response (QR) or collaborative, production, forecasting and replenishment (CPFR). However, some are starting to consider initiatives, such as vendor managed inventory (VMI), cross-docking, CPFR and radio frequency identification (RFID). Many of these retailers have deliveries directly from the manufacturer to their own regional distribution centres (RDCs). Because they tend to have 60-80% of their orders pushed by the manufacturer, they often commit to early orders if the supplier gives them a discount.

The second most common form of retailer of toys includes discounters, hypermarkets and supermarkets and some department stores selling a wider variety of merchandise product categories in addition to toys. These retailers in general receive deliveries into their RDCs from their toy supplier’s RDCs on a weekly or monthly basis and order early in response to discount incentives from the suppliers. A number of these retailers deploy collaborative SCM practices with suppliers in other categories of fast-moving consumer goods (FMCG) but very few have attempted such practices with toy suppliers, although some have initiated discussion with toy suppliers with regard to accurate response, CFPR, cross-docking and RFID.

More advanced discounters and toy specialists do attempt to adopt more of a ‘pull’ approach to SCM and collaborative information sharing practices are more common with this type of retailer.

This research and an earlier study concluded that:

“Use of technology and information sharing (for example, bar-coded merchandise, product data information sharing, POS (point of sale) data sharing, EDI (electronic data interchange), sales captured at item levels etc.) by the toy sector is relatively lower than other sectors.”

Because of these factors identified, and in particular, the unpredictability of demand, the use of JIT type approaches is very rare. Manufacturers tend to rely on retailers ordering large quantities in advance, and then taking a discount, if necessary, to clear slow-moving or obsolete inventory. It is quite common for manufacturers to offer retailers large discounts to place bulk orders ahead of the season.

Toy manufacturers tend to adopt one of three types of approach in managing their supply chain strategy.

The first of these focuses on lean production and supply, producing large quantities in low labour cost locations on long lead times at very low cost. This type of manufacturer tends to rely on a push type approach because it is not so responsive and it uses marketing and discounting to encourage demand. Clearly those with the most popular brands will be in the best position. Mattel and RC2 Corp. would be considered as this type of manufacturer, since most of their products are made in the Far East and especially in China.

The second SCM approach is similar to the first, but the manufacturers are located closer to their customer markets. They have a problem because they are theoretically better able to respond more quickly to changes in demand, while they are still attempting to adopt a mass-production strategy, even though they have higher costs.

The third type of approach is really a chase demand, or a more responsive SCM strategy, with some orders produced ahead of the season. The remainder of the capacity is used to adjust to actual demand and to supply on a ‘quick response’ basis. This approach requires innovation in product design and a high degree of collaboration and information sharing. Published research found relatively few successful examples of this, although there were signs of manufacturers moving towards this system, with low labour-cost production in Eastern Europe, particularly well placed to supply the EU. There is also some evidence that a mixed model is being employed by some manufacturers with more innovative (risky) product development manufacturing in local short lead-time markets, and the mass volume of more traditional product being manufactured in low cost but longer lead time markets.

Agile and adaptive supply chains in the toy industry would appear to be rather elusive. However, this is not surprising given that most of the toys for European and American consumers are manufactured many thousands of miles away.

Doing Business in China

On the 11th September 2007, in response to public concern, and pressure regarding the recall of toys made in China, a joint statement was issued by the U.S. CPSC and the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ) of the People’s Republic of China. This was entitled ‘Enhancing Consumer Product Safety’. The statement affirmed the desire of both parties to protect consumers in both countries from unreasonable risks of serious injuries or deaths arising from products originating within their respective jurisdictions. The statement further sought to enhance bilateral cooperation between the two countries in consumer product safety, and the effectiveness of regulatory oversight for consumer products. Fireworks, toys, lighters, and electrical products, were singled out for particular attention with regard to safety standards. GAQSIQ proposed, in the statement, to create and implement a plan to eliminate the use of lead paint on Chinese manufactured toys exported to the United States. The U.S. CPSC for its part agreed to offer training to Chinese government and industry representatives in regulatory and compliance training and undertake ‘outreach efforts’ to U.S. importers, stressing their role in quality and safety assurance.

The acting chairperson of the U.S. CPSC, Nancy Nord, stated; “This is an important signal from the Chinese government that it is serious about working with CPSC to keep dangerous products out of American homes. We will be looking for meaningful cooperation on the ground – that means not just with the Chinese government but also with industry, at both ends of the supply chain.”

Shortly after this statement, Mattel made an apology to China stating that most of the Mattel products recalled were faulty because of a problem with Mattel’s own design.

“It’s important for everyone to understand that the vast majority of those products that we recalled were the result of a flaw in Mattel’s design, not through a manufacturing flaw in Chinese manufacturers. Mattel takes full responsibility for these recalls, and apologises personally to you, the Chinese people, and all of our customers who received the toys.”

It now appeared that the majority of the Mattel and Fisher Price™ recalls concerned toys with small magnetic parts which could become detached and then swallowed by a child. A smaller proportion, nevertheless quite substantial in volume, concerned Mattel and Fisher Price™ branded toys that had been finished with lead paint – which is banned in the USA and also in the EU. Other manufacturers and retailers also had to recall substantial volumes of toys contaminated with lead paint that had been produced in China, including RC2 Corp, recalling about 1.5 million Thomas and Friends™ wooden railway toys contaminated with lead paint. The Chinese government had, in fact, already taken steps to eliminate or reduce the use of lead and had banned leaded petrol in 2000. Wu Yi, the Chinese Vice-premier and the most senior female official in the country, was also appointed to head a new cabinet panel on product safety, in an attempt to address the country's problems with product safety.

China is one of the world’s fastest growing economies, with an economic growth rate of almost 10% a year on average since 1978. The country has a population of more than 1.3 billion people. This economy with a GDP of US$2,765.4 billion has been opened up to foreign investors since China’s accession to the World Trade Organisation (WTO) in 2001. The government is expected to pursue further policies aimed at the liberalisation of trade. This is an incredible achievement considering that the People’s Republic of China is only around 50 years old and that most business laws have only been enacted during the last 20 years. A plentiful supply of low-cost skilled and semiskilled labour, together with a very favourable foreign exchange rate, and liberal tax rates, help to make this market extremely attractive to foreign investors. The economist ‘Big Mac’ Index suggests that the Chinese yuan may be undervalued against the US dollar by as much as 56%. The yuan is the most undervalued currency, which makes this market even more attractive for foreign manufacturers with global or international customers.

There are many rewards, but also many dangers, for western business people wishing to start doing business in China. Quite apart from the long distance to market and the inherently long lead times, there are very sharp cultural differences between China and the EU and North America, for example. These differences can have a major impact upon how business is conducted in China.

In his book Cross-Cultural Business Behaviour (1999), Richard Gesteland makes the point that ‘face’ is very important in negotiating with Chinese business people; also that you can cause serious loss of face by “expressing sharp disagreement, embarrassing them, criticising them in public or by showing disrespect” (p155). He further goes on to say that causing loss of face can disrupt promising business negotiations. A mistake may be repaired by saving your face with a ‘humble apology’ and allowing the other party to save face, by allowing a ‘graceful exit from a difficult negotiating position’. In contrast, Americans tend to be more verbally direct and to ‘tell it like it is’. This places more emphasis on frank and straightforward exchanges which can often be “suspicious of negotiators who prefer indirect, oblique, ambiguous communication.”[ibid]

Social and cultural differences such as these can make it very difficult for foreign businesses wishing to enter a foreign market. One effective way of doing so is to form a partnership, such as a joint venture, or strategic alliance, with a local organisation. In fact, until relatively recently the only way a foreign owned company could invest directly in China was by forming a joint venture with a Chinese partner. This, of course, can be very beneficial to a foreign organisation, especially if the partner, or collaborator, or agent, has good ‘guangxi’ or connections and relationships, with important and powerful people who are in positions to help businesses cut through bureaucracy and to obtain favourable business deals. Taking time to establish a good relationship with the right partner is essential for businesses wishing to establish themselves successfully in this market.

Foreign multinationals, in particular, need to understand how the political system works in a country that is moving rapidly from a planned, socialist economy to an entrepreneurial market economy, while maintaining stable one-party rule. Performance evaluations for officials are based mainly upon GDP growth in areas, or regions, under their jurisdiction. They also gain by benefiting financially from that growth through investment in, or holding positions for themselves, or family members in key firms. Such incentives:

“…encourage local officials to protect their enterprises from meaningful implementation of environmental laws and regulations that might constrain economic expansion. Indeed, officials often require that enterprises in their jurisdiction ignore such laws and regulations in their quest for GDP growth.”

It can therefore be a challenging process for multinationals to ensure that their supply chains meet international or even Chinese standards [ibid] without closely monitoring their contractors and subcontractors. The risks of not doing so, however, should be fairly obvious.

Regulating and Controlling the Toy Industry

The British Toy and Hobby Association (BTHA) has been operating to improve safety standards in children’s toys since it was founded in 1944. Members of the BTHA are responsible for over 95% of the British market for toys and games and currently hold the position of chair and secretary of the International Council of Toy Industries (ICTI). In 1961, in collaboration with the British Standards Institute (BSI), the BTHA published the world’s first toy safety standards and launched its own ‘Lion Mark’ in 1989. This mark indicates that toys are made to the current British and European Standards and that they are following the BTHA code of practice. Toys with the Lion Mark are manufactured to BS EN 71, the highest British and European safety standard. The Lion Mark is in two parts; the first is the graphic symbol and the second is a message telling the buyer that the toys conform to BS EN 71.

European Standard BS EN 71 consists of six parts, including mechanical and physical properties of toys and specifications for the migration of certain elements (toxicity).

Toys for sale within the European Union must also bear, or be accompanied by, the CE marking in a visible, easily legible and indelible form. It may be on the toys themselves or their packaging (regulation 10(1)). Affixing the CE marking represents a declaration, which only the manufacturer or his authorised representative in the Community can make, and results in a presumption – which is rebuttable – that the requirements of the regulations have been complied with.

The Toy Safety Regulations 1995 (SI 1995 No.204) require, among other things, that toys or their packaging must bear the CE mark as a positive declaration by the manufacturer, or his authorised representative, that the toys satisfy the essential safety requirements of the Toys Safety Directive (regulations 10(2) (a) and 10(2) (b)) also that compliance has been verified by the use of the appropriate test/assessment procedures and that these have been correctly applied by the person entitled to do so.

Guidance from the BTHA to members concerning the chemical-based legislation affecting toy safety standards is that demonstrating compliance by product testing is complicated, time-consuming and costly and is, in any case, not the most effective way of showing compliance. Supplier’s self-declaration/certification supported by appropriate documents is embodied within EN 71-9 Annex B and is recognised by the regulatory authorities as the principle of “verification and assurance of conformity”. The BTHA argues this principle is a reasonable approach to apply to toys with regard to restricted chemicals such as lead, for example.

In order to obtain the CE mark, a toy manufacturer will have to make a ‘declaration of conformity’ which is a recognised legal document. The BTHA recommends that in order “to maintain continuous compliance and ensure that restricted chemicals do not end up in finished products, the manufacturer needs to have in place systems and processes to manage the purchase of raw materials. A chemical management system would ensure that raw materials and components do not fail the requirements at source.”

The BTHA goes on to say that “a chemical management system may include detailed purchase specifications, material supplier management systems, raw material and due diligence testing. Such systems may require an audit to validate them”. [ibid]

Conclusion

Criticisms have been levelled at some multinational organisations for choosing to relocate their manufacturing operations from domestic markets in developed countries, to developing countries many thousands of miles away. Suspicion is sometimes focussed on cheap labour and, possibly, lower or less enforced health, safety and environmental legislation, all of which contribute to lower production costs. Pressure groups concerned by the loss of manufacturing jobs and expertise, and politicians subject to pressure from lobby groups, are often ready to make sweeping criticisms of an entire country, rather than focus on the specific issues.

At the end of the day, who has the responsibility to ensure that products are produced to the highest safety standards, that workers are not exploited; also that health and safety, and environmental standards, are not compromised in the search for lower prices?

BIBLIOGRAPHY

The following is a list of source materials that were used or consulted in the preparation of the case study. Candidates may wish to consult the source materials; however this is not a mandatory reading list.

The source details were correct at the date stated; however these may have changed or been deleted subsequently.

CPSC WEB PAGES

AQSIQ AGREEMENT COPY 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07305.pdf Fisher Price Recall CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07303.html FISHER PRICE LICENSED CHARACTERS LEAD CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07257.html JEWELLERY LEAD CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07202.html JEWELLERY LEAD CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07157.html JEWELLERY LEAD CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07144.html MAGNETIX BUILDING SETS CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07164.html MAGNETIX BUILDING SETS CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml06/06127.html MATTEL BATMAN MAGNETS CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07269.html MATTEL MAGNETS CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07272.html MATTEL BARBIE MAGNETS CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07271.html MATTEL MAGNETS POLY POCKET CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07273.html MATTEL SARGE LEAD CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07270.html TOYS R US CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07299.html THOMAS THE TANK ENGINE LEAD CPSC 15.09.07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07212.html U.S. CONSUMER PRODUCT SAFETY COMMISSION (CPSC) 15 SEP 07; http://www.cpsc.gov/cpscpub/prerel/prhtml07/07305.html Newspapers and Journals

Barboza D. August 14 2007, World Business, Owner of Chinese Toy Factory Commits Suicide, NY Times, 15.09.07; http://www.nytimes.com/2007/08/14/business/worldbusiness/14toy.html?ex=1190001600&en=565118ce0f95f14f&ei=5070 ‘Brand China’ at risk after toy recall, BBC News 15 August 2007, 18:10 GMT 19:10 UK, downloaded 15.09.07; http://news.bbc.co.uk/1/hi/business/6948274.stm

BBC News 24, Wednesday, 15 August 2007, 09:41 GMT 10:41 UK, Toy woes prompt China checks call, downloaded on 17.09.07 from: http://news.bbc.co.uk/1/hi/business/6947420.stm

BBC News 24, Chinese toy boss ‘kills himself’ Monday, 13 August 2007, 14:54 GMT 15:54 UK, downloaded on 17.09.07 from: http://news.bbc.co.uk/1/hi/world/asia-pacific/6943689.stm

BBC News 24, Toys recalled over safety fears, Thursday, 2 August 2007, 18:00 GMT 19:00 UK, downloaded on 17.09.07 from: http://news.bbc.co.uk/1/hi/world/asia-pacific/6927156.stm

China’s economy, how fit is the panda? Sep 27th 2007 | BEIJING. From: The Economist print edition.

Dart B., Mattel CEO Defends Toy Manufacturing Operations in China, Cox News Service, Thursday September 134 2007, downloaded on 16.09.07 from: www.coxwashington.com/hp/content/reporters/stories/2007/09/13/BC_CHINA... Dunham Will, Tue Aug 14 2007 11.04 PM BST, Toy Recall Puts Attention on Lead Poisoning, Reuters, downloaded 16.09.07 from: http://today.reuters.co.uk/news/articlenews.aspx?type=healthNews&storyid=2007-08-14T220428Z_01_N14458947_RTRIDST_0_HEALTH-LEAD-RECALL-DC.XML Geoff Dyer in Shanghai, Richard McGregor in Beijing and Jonathan Birchall in New York, FT Asia pacific china, Beijing blames new rules for toy recall, Published: August 23 2007 17:58 | Last updated: August 24 2007 01:24, 1 downloaded 15.09.07; http://www.ft.com/cms/s/0/ec291468-5198-11dc-8779-0000779fd2ac.html The Economist Big Mac Index 2007, downloaded on 02.10.07 from: http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005 The Economic Times, India, downloaded, 15.09.07; http://economictimes.indiatimes.com/News/News_By_Industry/Cons_Products/Durables/Its_fun_and_game_time_for_Indian_toy_makers/articleshow/2367266.cms Mattel takes blame in China toy recall apology, Daily Telegraph September 22nd 2007

Jane Macartney in Beijing, Times Online, Analysis: how toy recall affects Brand China, August 14, 2007, downloaded 15.07.09; http://www.timesonline.co.uk/tol/news/world/article2259492.ece

Mattel sees $30 million charge from toy recall, Thu Aug 2, 2007 2:16 PM BST Reuters, downloaded 15.09.07; http://investing.reuters.co.uk/news/articleinvesting.aspx?type=tnBusinessNews&storyID=2007-08-02T131635Z_01_WEN0046_RTRIDST_0_BUSINESS-MATTEL-CHARGE-DC.XML Toys recalled over safety fears, BBC News, 2 August 2007, 18:00 GMT 19:00 UK 15.09.07; http://news.bbc.co.uk/1/hi/world/asia-pacific/6927156.stm Toys recalled in lead paint scare, Matthew Weaver and agencies, Thursday August 2, 2007, Guardian Unlimited, downloaded 15.09.07; http://business.guardian.co.uk/print/0,,330319320-108725,00.html

Thottham J, This Christmas a Lump of Lead, Thursday, Sep. 06, 2007, downloaded on 16.09.07 from: http://www.time.com/time/printout/0,8816,1659711,00.html

TOYS, Rediff.com Business, downloaded on 19.09.07 from: http://www.rediff.com/money/2004/jul/20quiz.htm Graeme Wearden, Mattel in third global toy recall, Guardian Wednesday September 5, 2007, 15.09.07; http://www.guardian.co.uk/china/story/0,,2162718,00.html

Graeme Wearden, Mattel recalls toys over magnet fears, Guardian Tuesday August 14, 2007, downloaded 15.09.07; http://business.guardian.co.uk/story/0,,2148595,00.html

Academic Sources

Economy E & Lieberthal K. (2007), Scorched Earth; will environmental risks in China overwhelm its opportunities?, Harvard Business Review, June 2007

Johnson M.E. & Clock T, (2000), Mattel Inc: Vendor Operations in Asia, Indiana University
CIBER Case Collection

Gesteland Richard R., (1999), Cross-Cultural Business Behaviour, 2nd Edition, Copenhagen
Business School Press

Mintel, Toy Retailing UK – October 2006

Wong Chee Yew, Jan Stentoft Arlbjørn, John Johansen (2005) ,Supply chain management practices in toy supply chains, Supply Chain Management, Volume: 10 Issue: 5 Pages: 367 – 378, available on the internet from: http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/1770100504.html Government and Official Sources

British Toy and Hobby Association, Chemical Compliance the Bill of Material Approach, The British Toy and Hobbies Association, Toy Safety, downloaded on 16.09.07 from: http://www.btha.co.uk

The British Toy and Hobbies Association, Toy Safety, downloaded on 16.09.07 from: http://www.btha.co.uk/about_us/toy_safety.php DTI, Toy Safety Quick Facts, downloaded on 16.09.07 from: http://www.dti.gov.uk/consumers/fact-sheets/page38560.html EPA (USA), downloaded on 16.09.07 from: http://www.epa.gov/lead/

Lead Poisoning, National Safety Council (USA), downloaded on 02.10.07 from: http://www.nsc.org/library/facts/lead.htm Playsafe, downloaded on 03.10.07 from: http://www.btha.co.uk/pdfs/PlaysafeToySafety.pdf?PHPSESSID=6b33f8aa1209146c9f3d07168b1fa99d Royal Society of Chemistry, downloaded on 02.10.07 from: http://www.rsc.org/chemistryworld/News/2007/August/21080701.asp US Senate, downloaded on 16.09.07 from: http://durbin.senate.gov/record.cfm?id=282707&&

Commercial Sources

Chematix, chemical management and tracking software, downloaded on 16.09.07 from: http://www.chematix.com/ Letter from Al Verrecchia, Statement on Toy Safety From Hasbro’s Chief Executive Officer, downloaded on 30.09.07 from: http://www.hasbro.com/default.cfm?page=letter

International Council of Toy Industries, Toy Safety Standards Around the World as of March 14th 2005, downloaded on 17.09.07 from: http://www.toy-icti.org/info/toysafetystandards.html

Mattel Code of Conduct, downloaded on 30.09.07 from: http://www.mattel.com/about_us/Corp_Governance/ethics.asp Mattel 2007 GRI (Global reporting Initiative) Report (PDF), downloaded on 19.09.07 from: http://www.mattel.com/about_us/Corp_Responsibility/cr_csreport.asp Mattel voluntary safety recall facts, 04.09.2007, downloaded on 16.09.07 from: http://www.mattel.com/safety/us/ Mattel, we take our promises seriously, downloaded on 18.09.07 from: http://www.mattel.com/safety/en/ Mattel Global Citizenship Report 2007, downloaded on 17.09.07 from: http://www.mattel.com/about_us/Corp_Responsibility/Mattel_07GCReport.pdf Mattel Independent Monitoring and Transparency Asia reports, downloaded on 18.09.07 from: http://www.mattel.com/about_us/Corp_Responsibility/cr_mimco.asp Mattel consumer relations ‘contact us’ website, downloaded on 18.09.07 from: http://service.mattel.com/us/ Mattel consumer relations ‘contact us’ website, Barbie™ accessory sets lead paint hazard recall, downloaded on 19.09.07 from: http://service.mattel.com/us/recall/default.asp?recall_id=52434

Principles For Chemical Management Systems, downloaded on 16.09.07 from: http://www.dow.com/commitments/goals/principles.htm UK Government Update, downloaded on 18.10.07 from: http://www.csr.gov.uk/pdf/dti_csr_final.pdf

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[ 1 ]. Mattel 2007 Global Citizenship Report, downloaded on 17.09.07 from: www.mattel.com/about_us/Corp_Responsibility/Mattel_07GCReport.pdf
[ 2 ]. Thottam J, Sep 06 2007 Time.
[ 3 ]. Jane Macartney in Beijing, Times Online, Analysis: how toy recall affects Brand China, August 14, 2007, downloaded 15.07.09.
[ 4 ]. See US Consumer Product Safety Commission June 13 2007, a recall affecting 1.5 million various Thomas and Friends’ wooden railway toys sourced in China which was issued because, ‘Surface paints on the recalled products contain lead. Lead is toxic if ingested by young children and can cause adverse health effects.’
[ 5 ]. The Toys R “Us” issued a recall notice on the USCPC website on August 30th 2007, which covered 27,000 wooden colouring cases sourced in China. ‘The printed ink on the outer packaging of the wood case contains lead. Also, some of the black watercolour paint contains excessive levels of lead, which violates the Federal lead paint standard.’
[ 6 ]. Lead Poisoning, National Safety Council (USA), downloaded on 02.10.07 from: http://www.nsc.org/library/facts/lead.htm [ 7 ]. Royal Society of Chemistry, downloaded on 02.10.07 from: http://www.rsc.org/chemistryworld/News/2007/August/21080701.asp [ 8 ]. Jane Macartney in Beijing, Times Online, Analysis: how toy recall affects Brand China, August 14, 2007, downloaded 15.07.09.
[ 9 ]. Dart B., Mattel CEO Defends Toy Manufacturing Operations in China, Cox News Service,
Thursday September 13 2007, downloaded on 16.09.07 from: www.coxwashington.com/hp/content/reporters/stories/2007/09/13/BC_CHINA... [ 10 ]. BBC News 24, Wednesday, 15 August 2007, 09:41 GMT 10:41 UK, Toy woes prompt China checks call, downloaded on 17.09.07 from: http://news.bbc.co.uk/1/hi/business/6947420.stm
[ 11 ]. Mattel, we take our promises seriously, downloaded on 18.09.07 from: http://www.mattel.com/safety/en/
[ 12 ]. Downloaded on 30.09.07 from: http://recalls.rc2.com/
[ 13 ]. http://www.toy-icti.org/info/toysafetystandards.html
[ 14 ]. Downloaded on 30.09.07 from: http://www.hasbro.com/default.cfm?page=letter
[ 15 ]. Downloaded on 18.10.07 from: http://www.csr.gov.uk/pdf/dti_csr_final.pdf
[ 16 ]. Mattel 2007 GRI (Global reporting Initiative) Report (PDF), downloaded on 19.09.07 from: http://www.mattel.com/about_us/Corp_Responsibility/cr_csreport.asp [ 17 ]. Downloaded on 30.09.07 from: http://www.mattel.com/about_us/Corp_Governance/ethics.asp
[ 18 ]. Johnson M.E. & Clock T, (2000), Mattel Inc: Vendor Operations in Asia, Indiana University CIBER Case Collection.
[ 19 ]. Mattel Independent Monitoring and Transparency Asia reports, downloaded on 18.09.07 from http://www.mattel.com/about_us/Corp_Responsibility/cr_mimco.asp
[ 20 ]. TOYS, Rediff.com
[ 21 ]. Wong Chee Yew, Jan Stentoft Arlbjørn, John Johansen (2005) ,Supply chain management practices in toy supply chains, Supply Chain Management, Volume: 10 Issue: 5 Pages: 367 – 378.
[ 22 ]. The term ‘pushed’ in marketing denotes trade promotions used by manufacturers to increase demand from distributors and secure higher volume orders. In this sense the products are pushed down the distribution channel rather than ‘pulled’ down by consumer demand.
[ 23 ]. Wong Chee Yew, Jan Stentoft Arlbjørn, John Johansen (2005) ,Supply chain management practices in toy supply chains, Supply Chain Management, Volume: 10 Issue: 5 Pages: 367 – 378.
[ 24 ]. Although it could be argued that marketing a well-known brand creates a powerful pull from the consumer. The more powerful the pull, the less trade discount and trade promotion or ‘push’ type marketing is needed.
[ 25 ]. Wong Chee Yew, Jan Stentoft Arlbjørn, John Johansen (2005) ,Supply chain management practices in toy supply chains, Supply Chain Management, Volume: 10 Issue: 5 Pages: 367 – 378.
[ 26 ]. Much of the research and information quoted in this section comes from, Wong Chee Yew, Jan Stentoft Arlbjørn, John Johansen (2005) ,Supply chain management practices in toy supply chains, Supply Chain Management, Volume: 10 Issue: 5 Pages: 367 – 378, obtainable from Emerald On Line, the entire article is obtainable on the internet from: http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/1770100504.html [ 27 ]. www.cpsc.gov, Release #07-305, September 11 2007, downloaded on 15.09.07 from: www.cpsc.gov/cpscpub/prerel/prhtml07/07305.html [ 28 ]. Thomas Debrowski, Mattel Exec. Vice President of Worldwide Operations, quoted in Daily Telegraph September 22nd 2007, ‘Mattel takes blame in China toy recall apology’.
[ 29 ]. Downloaded on15.09.07 from: http://www.cpsc.gov/cpscpub/prerel/prhtml07/07212.html
[ 30 ]. Royal Society of Chemistry, downloaded on 02.10.07 from: http://www.rsc.org/chemistryworld/News/2007/August/21080701.asp [ 31 ]. China's economy, How fit is the panda? Sep 27th 2007 | BEIJING. From: The Economist print edition.
[ 32 ]. The Economist Big Mac Index 2007, downloaded on 02.10.07 from: http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005 [ 33 ]. Economy E & Lieberthal K. (2007), Scorched Earth; will environmental risks in China overwhelm its opportunities?, Harvard Business Review, June 2007, p5.
[ 34 ]. Playsafe, downloaded on 03.10.07 from: http://www.btha.co.uk/pdfs/PlaysafeToySafety.pdf?PHPSESSID=6b33f8aa1209146c9f3d07168b1fa99d [ 35 ]. DTI, Toy Safety Quick Facts, downloaded on 16.09.07 from: http://www.dti.gov.uk/consumers/fact-sheets/page38560.html [ 36 ]. British Toy and Hobby Association, Chemical Compliance the Bill of Material Approach, The
British Toy and Hobbies Association, Toy Safety, downloaded on 16.09.07 from: http://www.btha.co.uk