Resilient strategies for complex supply chains: Mattel Inc.

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From Dr. Paolo Trucco and Dr. Alessandra Negri.

Headquartered in California, Mattel Inc. designs, manufactures, and markets a broad
variety of recreative products. The company employs nearly 30,000 employees and
its yearly sales in 2016 amounted to about 4,930 million euros, with an operating income of 469 million. Mattel’s principal manufacturing facilities are in Canada, China, Indonesia, Thailand, Malaysia and Mexico, but it also relies on third-party manufacturers all around the world. From August to September 2007, Mattel recalled more than 1.5 million toys due to non-approved surface paint containing high quantity of lead. Since the US regulatory established that the surface coatings cannot exceed 0.06% lead by weight, the company had previously given manufacturers in China a list of paint suppliers that they could use.
However, a subcontractor employed an unauthorized supplier, exceeding the limit. Lead-based paint is dangerous for children because its ingestion causes learning and behavioral problems, slow muscle and bone growth, hearing loss and brain damage. Therefore,
consumers were asked to return products in exchange for a voucher valid for a replacement toy. After the event, the Chinese government revoked export license to the subcontractor and Mattel tightened its product-monitoring efforts. Thanks to its experience with recalls, the company smoothly faced all aspects of the incident, giving accurate, quick and efficient information about the recall to the public and reassuring consumers. It also created a website dedicated to the recall. In addition, the company’s effective communication strategy was fundamental: it placed notifications in 20 languages on its website, sent letters to its customers and retailers, manned a hotline, placed full-page ads in major newspapers, and worked closely with the media.

Even though the low impact of the event on Mattel’s annual results was determined mainly by its ability to manage a good communication plan, some supply chain complexity drivers played an important role in the recall, as well. First, having facilities worldwide, the company could slow down shipments out of Asia, flexibly relying on other plants. Secondly, partially covering layers of the supply chain on the demand side allowed the company to prevent affected toys from reaching end consumers, by stopping them in distribution centers and contracting retailers. Thus, high complexity of the supply chain on the demand side, thanks to the collaboration with actors of the distribution channels, positively contributed to reducing incidents. However, the large number of actors involved in Mattel’s supply chain also revealed an issue of visibility of the supply chain, reducing the possibility to quickly identify non-compliant suppliers. Therefore, the internal structural complexity of the supply chain in this case achieved mixed results. Internal dynamic complexity drivers allowed for both flexibility and velocity. Being used to investing in initiatives to improve the supply chain, the company could manage the supply reconfiguration determined by the incident. Furthermore, this spirit of constant improvement allowed Mattel to review its safety procedures and extend its product testing programs.