The International Operations Management of Mattel, Inc.

Abstract

This paper considers the problem of product recall as it relates to risk management on an international level. Mattel, Inc. encountered massive recalls of several of their products in the years spanning 2006 to 2007. Specifically, this paper considers the elements of risk management and corporate social responsibility both prior, and post occurrences of this nature. Analysis is provided on the incident at hand and what went wrong specifically with regard to the overseas manufacturers' relaxed safety provisions and reasoning is then applied to that event in order to discuss preventative measures to avert future occurrences of that vast quantity. Two methods are suggested: an overhauling of the risk management protocols and a better and more analyzed way of approaching corporate social responsibility. Furthermore, analysis of both methods is provided with an element of what Mattel, Inc. must do and companies, in general, to avoid product recalls if possible.

Background Information

Companies by and large are continually concerned with the effectiveness and safety of their products. Through the operations management area of a company, the business is managed through a process of converting the various inputs of energy, labor, and materials into goods and/or services that can be distributed to the general public. One of the key elements of operations management is that of safety. When goods and/or services are noted as being unsafe or inefficient, this not only has a short term fall out potential in terms of the company's reputation but in the realm of international operations management, can have long-lasting repercussions on a global scale.

An example of the long-lasting repercussions can be found within the company known as Mattel. Several articles in 2007 stated that Mattel Inc., the largest toymaker in the world had one of its most serious product recalls related to its products. "The recall [was] the latest to rock the toy industry in recent [time] raising not only more safety questions about Chinese-made products but new ones related to design problems created in the U.S. by even the most well-respected toy companies. While much of the current toy safety debate has revolved around Chinese manufacturing and the lack of effective regulation of that country's exploding economy, [the] Mattel recall focused attention on another issue: how quickly manufacturers such as Mattel address problems they have designed into their own products" (Oneal et al., 2007). Articles of that statement’s nature flooded many different magazines and newspapers as the question of proper safety and risk management was now at the forefront of the central aspect of not only Mattel but toymakers worldwide.  

Mattel, Inc. is a toy company that was founded in 1945. With headquarters in El Segundo, California, Mattel, Inc. has become the staple for brands such as American Girl dolls, Barbie dolls, Fisher-Price, and Hot Wheels. It has continued to be noted as one of the best companies to work for and is a Fortune 500 company also. Mattel, Inc.'s corporate responsibility message is centered on positively impacting people with the products that they manufacture. Mattel, Inc. is also concerned with the safety of the toys that are created in their factories. Mattel, Inc. touts that they make some of the world's most beloved toys and brands and their number one concern is the safety of the children whose parents purchase their toys (“Mattel, Inc.,” 2013). 

Problem Description

The paper considers the problem of product recall and how risk management strategies can be implemented at companies such as Mattel, Inc. to prevent incessant future recalls of any magnitude. Moreover, consideration is primarily given to Mattel, Inc. in terms of the 2007 product recalls that took place as it was one of the largest in history. The reasoning is expressed along the lines of Mattel, Inc. not ensuring that their safety and risk management protocols were in place prior to the launching of those particular products that had to be recalled. While manufacturing in other countries is often cheaper for companies, there tend to be fewer restrictions associated with doing that, making it all the more crucial that companies, especially toy companies, have safety measures enforced and reinforced.

The product recall began in March of 2006 when 180,000 American Girl jewelry pieces were recalled due to high levels of lead. Then in November of that same year, Mattel, Inc. recalled 2,400,000 Polly Pocket toys that had loose magnets. In 2007, there were five additional recalls, making the total in the United and Canada, close to 14 million. More than 2 million of the toys that were recalled had either been sprayed with lead paint or contained hazardous levels of lead on the materials. The rest comprised certain materials that were not firmly attached. Companies have recently over the last few decades or so been contracting with companies in less developed or rather relaxed safety standards for manufacturing goods. Like other goods, toys are created internationally because the labor itself is less expensive (Gilbert and Wisner, 2010). So what exactly happened that led Mattel, Inc. to the point of massive recalls?

Gilbert and Wisner (2010) outlined in their article the issue by stating that much of the problem lied in their supply chain complexity. "[While] not unusual in companies using global manufacturing partners such as Hong Li Da, the Chinese third-party subcontractor to the manufacturer, some firms go to great lengths to establish where all raw materials come from and if quality and design specifications are followed at each stage of the supply chain" (pg.35). Additionally, not only did Mattel, Inc.'s supply chain falter, but their "quality enforcement mechanisms also failed regarding the lead-tainted toys. When Mattel specified quality control checks that must be followed, these steps were not followed by the manufacturer, Early Light Industrial Company. Mattel also performed monthly audits of their contract manufacturers' toys, which sometimes includes testing random units and other times involves reviewing testing records" (pg.35). Hence, the proverbial ball was dropped in this case given the myriad of issues that resulted from the hazardous toy designs. 

To curtail the problem, Mattel Inc. made significant changes in their toy structure including longer times for adhesive curing, the use of molding to encapsulate magnets within the toys as well as any additional adhesive believed necessary. Mattel also engaged in damage control with a number of activities that were designed to prevent any future occurrences of this nature including an apology from the company's CEO, Robert Eckert. Mattel would also slow down the number of shipments of toys that were arriving from Asia in order to conduct extensive reviews of both product safety and testing. As an effect of this, more than two-thirds of the toys that had been coming from Asian countries were halted due to the quality test results (Gilbert and Wisner, 2010). There are various ways in which Mattel, Inc. could have prevented future occurrences in addition to what they opted to do at the time. 

Proposed IOM Concepts/Tools & Application

As risk management deals with the assessment, examination, and prioritization of the risks of a given company, strategies have to be discussed to reduce the probability of said risk. The discussion typically results in what is known as a risk management plan, which contains the risk assessment matrix. In the case of Mattel, there are several global strategies that could have been implemented such as considering manufacturing the toys that had made them so successfully within the United States and Canada. While the cost itself it more expensive to do, the safety measures in countries overseas is not as stringent as they are in the United States and Canada. A risk assessment matrix shows the particulars regarding addressing future recalls.

In designing this matrix, Mattel would first have to determine the level of risks associated with various events. In categorizing the risks: four categories were developed: negligible, marginal, critical and cataclysmic and the probability of harm was reasoned to be certain, likely possible, unlikely and rare. In this case, how impactful the product recalls they considered to be. 

(Matrix omitted for preview. Available via download)

For example, if the product recalls had been sequestered to solely American Girl jewelry and had been nominal in number, then this could be classified as negligible with a certain probability of issues resulting. At the other end of that same thought spectrum, if it had been only American Girl jewelry that had been impacted in the recalls which took place in 2006 and 2007, then the categorization would be denoted as cataclysmic with a certain probability of issues resulting from the unsafe products. There are essentially two dimensions to the risk assessment matrix, the probability of an event happening and the level of risk associated with that event’s probability. 

With the product recalls, Mattel, Inc. had to be careful in how well executed their approach was to the consumer industry given the number of potential losses they could and would encounter. In a study done by Jerrell and Peltzman (1985) they examined automobile and drug recalls and the costs associated with the recall campaign. Essentially, they concluded that both the companies themselves and the shareholders of the firms lost significantly (Ekanayake, n.d.). Such conjecture can be put toward Mattel, Inc. in that while they lost significantly in terms of their recall campaign, had they waited to announce the recalls longer than they did, it could have been substantially worse. Yet, even in applying the strategy of creating a risk assessment matrix to curtail future problems, or at a minimum know what to do in case problems arise, what happens with the general public following a recall? How can companies rebound?

Rozembajgier (2012) stated that product recalls can be quite detrimental to both the brand and reputation of a company. The article cited that in "a recent study conducted by the American Marketing Association, the majority of American consumers are quick to forgive a firm that effectively responds to and manages a recall event, but that patience can be limited" (Rozembajgier, 2012). Essentially, the article noted that much of a company's ability to rebound deals in how quickly they handle their recall campaign in letting the consumer base known. "Successful recall management demands that all affected parties be identified and notified in a timely manner. This is one of the most challenging and critical steps in the product recall process, especially when a recall [such as the one at Mattel, Inc.] poses a public health or safety hazard. It is key to regulatory compliance and a guarantor of the company's reputation moving forward" (Rozembajgier, 2012). Therefore, the speed at which a company announces that certain products they've manufactured are being recalled the better. While fallout undoubtedly will occur, the swifter the pace of such announcement, the better for the company in the long run. Hence, this is why the CEO of Mattel, Inc. opted for a video apology immediately. The rationale, in this case, was immediacy and acknowledgment of what had happened. This immediacy will have to continue should there be future issues. 

Another element that is discussed within the realm of risk management strategies for companies dealing with product recalls is corporate social responsibility – essentially, the ethics associated with them. Corporate social responsibility also falls within the arena of risk management. In developing their strategies to specifically halt such circumstances in the future, Mattel, Inc. also had to undergo a sweeping change in their ethical guidelines. As aforementioned, Mattel, Inc. prides itself on ensuring that safety is/was their first order of business given the types of goods they produce and sell to the general public. Even with the notoriety that Mattel, Inc. had pre-product recall that could not overcome the safety issues that resulted. A notable number of toys that were recalled involved loose magnets. This safety issue posed the problem of them becoming detached and thereby potentially swallowed by young children. There were three cases within the United States of children who had swallowed the toy magnets as a result of the improper securing of them to the toys. Furthermore, in the latter part of 2007, there were two class-action lawsuits that were filed in California against the company. One dealt with the lead poisoning and the other with the magnet dilemma. The crux of the lawsuits were that Mattel, Inc. knowingly "withheld information regarding any safety risks in violation of the Consumer Product Safety Act of 1972, which stipulates that companies must inform the CPSC within 24 hours when they obtain product defect information which could create a health hazard" (Gilbert and Wisner, 2010). The issue here was whether or not Mattel, Inc. effectively caused the sale of such toys to be distributed to the public knowingly or rather without proper testing and in effect, risk management parameters in place. That raises the argument of corporate social responsibility. To what extent does a company have to its consumer base? With Mattel, Inc. there is a need to create a better and more responsive CSR strategy.

Under CSR, there are potential benefits that all companies and corporations can find immeasurable. They include improved management of risk, enhanced management of standing, an augmented capability to both develop and retain staff, a stronger completive force within their respective industry, and better operational efficiency (Hohnen, 2007). Companies and corporations such as Mattel, Inc. can better prepare themselves against risk issues such as product recall when there is a definitive CSR strategy in place. While it is reasoned that Mattel, Inc. has a CSR strategy in place at present, there obviously were problems within that strategy that caused them to have the massive product recall in 2006 and 2007.

Hohnen (2007) stated that there are six steps in developing an efficient CSR strategy which include "building support among the staff at a company, researching what others are doing and assess that against what [your] company is doing, preparing a CSR matrix, developing options for proceeding [and] deciding on direction, approach, boundaries and focus areas" (pg.32). In Mattel, Inc.'s case, the biggest step out of those going forward is to research what others are doing. While it can be reasoned that Mattel, Inc. knows what they are doing in the realm of toy manufacturing, the significant amount of product recalls that took place were an obvious concern that the long-standing toy manufacturer was not impenetrable. 

In their assessment, Mattel, Inc. would have to examine Lego, Nintendo, Hasbro, Playmate, Tiger Electronics and others with regard to their operations to understand why product recalls for those companies have been nominal or nonexistent. To do this, they would need to "examine the vision, values and policy statements of the [aforementioned] leading competitors, along with their codes, new CSR related product lines or approaches and any initiatives or programs in which they can participate. Assessing the benefits, costs, immediate outcomes, resource implications and changes to current practices [is] necessary" (Hohnen, 2007) in order to understand where they went wrong in their product recall. In rectifying the CSR of Mattel, Inc., management would need to also pay close attention to the direction, approach and focus areas.

Within this particular area of the CSR, the company aims to address worker health, safety, and safety of products. Under the approach part, companies have to consider their communication efforts with regard to supply chain contractors and with the focus areas, there are objectives that would have to be examined to decide on what needs to be combated first to prevent further issues (Hohnen, 2007) like product recall. Therefore, Mattel, Inc. would need to speak with their overseas contractors not solely Early Light Industrial Company, but every manufacturing company that assists them in the toy creation process. This will ensure that there is effective communication to prevent further massive product recalls. While reasoning suggests that everything will not always be created and manufactured perfectly, it can be at bare minimum minimized with the proper protocols of CSR. 

Additionally, as a part of the CSR, Mattel, Inc. would need to reinforce how they see their consumer base. Given the forgiving nature of the general public, the potential for enforcing the consumer aspects of the toys in which they produce is possible through promotional and marketing efforts as well as continued campaigns regarding the brand and reputation of Mattel, Inc. Hohnen (2007) proposed that companies and corporations must have CSR commitments, which "are policies developments to address [both] social and environmental impacts. These commitments ensure that the firm's corporate culture is consistent with CSR values, help align and integrate the firm's business strategy, objectives and goals, provide guidance to employees about how they should conduct themselves and communicate the approach [as mentioned prior] to business partners, suppliers, communities, governments and the general public" (pg.42). With this in mind, application of both CSR and risk management parameters being enforced and reinforced, this will hopefully cease future product recalls associated with Mattel, Inc.

Conclusion

One could say that the product recall in 2006 and 2007 that occurred with Mattel, Inc. was a matter of happenstance, but as Gilbert and Wisner (2010) mentioned the many issues within the supply chain of the company. It stands to reason that companies should not be provoked to go back to the drawing board if they hone in on their corporate social responsibility and their overall approach to risk management. That incidence, therefore, highlights additional problems within the mechanics of Mattel, Inc. With an overhaul of their approach to the consumer base and the cost-benefit analyses in utilizing manufacturers internationally that are considered problematic or have relaxed safeguards, Mattel, Inc., will hopefully prevent future occurrences of that magnitude. As previously stated, while product recalls are more often than not unavoidable in certain instances, companies and corporations have a vested interest in ensuring that the consumer base that they rely upon for monetary means are protected and stood up for as best as possible.

References

Ekanayake, E. M. (n.d.). The Impact of Toys Recall Announcements on Market Returns. Journal of Interdisciplinary Business Studies, Retrieved from https://www.sbrconferences.com/uploads/Vol1-Sengupta_Sunando.pdf

Gilbert, J., & Wisner, J. (2010). Mattel, Lead Paint, and Magnets: Ethics and Supply Chain Management. Ethics & Behavior, 20(1), 33-46.

Hohnen, P. (2007). Corporate Social Responsibility: An Implementation Guide for Business [Guide]. Retrieved from International Institute for Sustainable Development website: http://www.iisd.org/pdf/2007/csr_guide.pdf

Mattel, Inc. (2013). Retrieved July 27, 2013, from Mattel, Inc. website: http://corporate.mattel.com/#&panel1-1

Oneal, M., Callahan, P., & Osnos, E. (2007, August 15). Mattel recalls 18 million toys.Chicago Tribune. Retrieved from http://articles.chicagotribune.com/2007-08-15/business/chi-toysaug15_1_tuesday-s-mattel-tiny- magnets-chinese-made-toys

Rozembajgier, M. (2012, September 12). How To Restore Consumer Confidence During A Product Recall. Retrieved August 1, 2013, from Advantage Business Media website: http://www.foodmanufacturing.com/articles/2012/09/how-restore-consumer-confidence-during- product-recall