Summary This case is about the recalls of 2007 by Mattel Toys produced in China due to lead found in paint used to produce the toys and due to loose magnets that could cause serious injury to children if ingested. Mattel blamed the lead paint problem on its Chinese suppliers who had subcontracted with other suppliers. The media storm around the recalls caused a loss of consumer confidence in the “Made in China” brand. Chinese officials felt that Mattel unfairly blamed Chinese suppliers for all the recall problems when in fact, the lead issue was relatively small and the remainder of the recalls was due to design problems over which the Chinese suppliers had no control. They were merely producing the products Mattel had designed in the U.S. and had no control over the design process.

Evaluate Alternatives Mattel seems to have lost touch with some of the links in its supply chain for the lead paint related toys and there was a lack of enforcement if the suppliers didn’t follow Mattel’s rules. Some Chinese suppliers also subcontracted to other suppliers who also did not comply with Mattel requirements and Mattel wasn’t aware of the subcontracting. For example, Lee Der was a high quality, trusted manufacturing company which had worked exclusively for Mattel since its founding. Lee Der’s paint supplier was Dongxing New Energy, owned by a best friend of Lee Der’s deputy chair, Chueng. Dongxing was not on the approved supplier list for Mattel and Mattel had not noticed this fact or overlooked it because there had not been any quality problems. However, Dongxing ran out of yellow pigment so they bought some over the internet with a fake lead free certificate which was not detected by Dongxing. Lee Der didn’t test the paint for lead even though they had equipment in the factory to do so. The paint was supposed to be tested five times from the supplier to Mattel, but it wasn’t tested at all. When the recall was announced by Mattel, the Chinese government cancelled Lee Der’s export license and the deputy chair of the company Chueng ended up killing himself after selling off factory equipment and paying the workers. A second example of a recall for lead paint involved Early Light Industrial which required its subcontractors to purchase paint from the company. Some employees at Early Light noticed one of the subcontractors didn’t pick up the paint it was supposed to be using. It tested the products from that subcontractor, found lead in the products, notified Mattel who also tested the products and then Mattel issued the recall for these toys. The Chinese government didn’t cancel Early Light’s export license due to its government connections and the company continued to make lots of money throughout the recall period. This company seems to have had tighter controls and inspections processes in place than Lee Der. These events point out the need for consistent and documented inspections and testing needed at all levels of the supply chain and production process, no matter if the companies are subcontractors or direct contractors. All suppliers should be audited to ensure they comply with the testing requirements. Mattel did in fact announce a new three point inspection process to be put in place: only paint from certified suppliers is to be used and every batch is tested before use; tightened production controls and increased random inspections at suppliers; and testing of every production run before the products are released to inventory. Mattel also made sure all suppliers understood their supplier rules and they updated rules on subcontracting notifications and excessive contracting levels. As an additional measure, Mattel could also require it suppliers, contractors and subcontractors to be ISO 9000 certified to ensure they have in place systems for quality products and processes which are recognized around the world. Mattel has put in place more testing at every step of the process and they should be able to determine if there is an issue before value is added. An example of this is when they test the paint even before it’s used and if it fails, they don’t use the paint. It’s better to test up front than wait until the product is produced and put into inventory. And it’s also better to prevent issues from occurring at all rather than inspecting and correcting the issues. An example of this is that all subcontractors and contractors are required to use company certified paint. By taking this step, quality is built into the product, not inspected into the product. Mattel is also testing all products before they are put into inventory as a last check to ensure they don’t have these lead paint issues again. This is a good step to take as an insurance policy against the bad publicity, loss of shareholder value and loss of consumer confidence caused by the recalls. The other recall mentioned in the case was caused by the loose magnets in some toys. As mentioned in the introduction, this flaw was not due to Chinese suppliers errors in using bad materials. It was due to poor design by the American company. Mattel should not have announced this recall at the same time as the lead paint recall because doing this linked the issues together in consumer and press as both being caused by the Chinese suppliers. This bad timing caused bad relations between American and Chinese companies and the Chinese government ended up rejecting some American imports as a result. The Chinese government put in place strict inspection and testing ASQIC policies after these series of recalls which required official inspections of all toys for export. The US and Chinese governments also signed an agreement banning the use of lead paint in toys. Unfortunately, often issues such as these have to occur before measures are put in place to prevent them from happening again to prevent harm from consumers.