Cost of Quality : Mattel

Background

From March 2006 to October 2007, Mattel and its Chinese toy suppliers experienced a very serious problem. Mattel recalled approximately 14 million Chinese-made toys in the U.S. and Canada. Millions more of the toys were recalled in other foreign markets as well. These two problems related to legal, health, trust, reputation and certainly financial implications not only for Mattel, but for its distributors, retailers, Chinese suppliers and the families around who bought Mattel toys. Over two million of the recalled toys had either been sprayed with high lead-content paint or contained potentially hazardous levels of lead within the materials, while the remaining toys contained small (0.125 inch diameter) powerful magnets which could become dislodged and swallowed. Shares in Mattel dropped 57 cents, to $23, during regular trading, but rose the same amount after hours. Mattel announced a $30 million charge soon after that recall.

Some of the lead-tainted toys had been painted by a third-party subcontractor working for one of Mattel’s primary Asian toy suppliers, Hong Kong-based Early Light Industrial Co., a large toy maker for many of the world’s biggest toy companies. Hong Li Da, a Chinese subcontractor used by Early Light, should have followed the procedure by using Mattel-specified low-lead paint, but it didn’t follow the procedure. Chinese subcontractor, Lee Der Industrial Co., had also used an unauthorized paint supplier in the toys making, included in the August 2 recall (Zamiska and Casey, 2007). The co-owner of Lee Der, Zhang Shuhong, committed suicide by hanging himself in a factory warehouse confirmed by Chinese Official.

Responded to this case, in mid-August 2007, Mattel decided to do more paint inspections, testing every batch delivered to every supplier. Following the third quarter 2007 recalls, Mattel slowed down the shipments coming out of Asia to do more product testing and safety reviews. Mattel also created a Corporate Responsibility division, which had accountability internally and externally for adherence to company safety and compliance procedures (Mattel Annual Report, 2007). It made new policies requiring all direct suppliers to do quality tests on all of their incoming materials as well as finished toys made by any of their subcontractors to prevent any defects to he customer. Mattel continued using the Early Light, since they had been a trusted supplier for more than 15 years.

Analysis
From this case, we could see that Mattel had spent a huge External Failure Cost from a massive global recall on March 2006 to October 2007. The defective product was delivered to the customers. It was such a failure on the safety management. The higher External Failure Cost, the higher Total Quality Cost. Recalled approximately 20 million toys worldwide, it was such a big spending on External Failure cost for Mattel. Such cost can reduce profit significantly. The management should gives this area special attention. 

Matell faced a though battle to regain customer confidence. Mattel's sales had been hurting following its safety-related recall. However, Mattel resolved this issues by 2007. Learned from mistakes, Mattel working hard on managing quality cost by increasing its spending on prevention and appraisal activitiesin the upcoming year so more defects were caught inside the company before they were shipped to customers. The more effective Mattel did on appraisal activities, such as paint inspections and quality test, the greater chance of finding defects internally and the greater the level of internal failure cost. This is the price that spent to avoid incurring external failure cost, which can be devastating. The best way to prevent defects from happening is to design procesess that reduce the likelihood of defects and to continually monitor, processes using statistical process control method, which Mattel improved by quality improvement, create Corporate Responbility Division to maintain safety procedures, and sytem development improved by new poicies.  As continued emphasis is placed on prevention and appraisal in future years, Mattel’s total quality cost should continue to decrease.

Conclusion

Better to do prevention than correct the problem after it has occurred, it much less costly. It’s an important thing for many companies to control their quality cost wisely. It’s better to emphasis on prevention and appraisal activities, preventing any defects delivered to customers.

Reference :

Mattel, Inc. Annual Report, 2007. 

Zamiska, N. and N. Casey, “Toy Makers Face Dilemma Over Supplier,” Wall Street Journal, August 17, 2007, p. A10. 

Mattel Recalls Million Toys Sent from China : http://www.nytimes.com/2007/08/15/business/worldbusiness/15imports.html?pagewanted=all

THE CHINESE-MADE TOY RECALLS AT MATTEL, INC. Joel D. Wisner, PhD, C.P.M., CTL University of Nevada, Las Vegas; College of Business Department of Management; Las Vegas, NV 89154-6009 On