Mattel Toy Recalls

Mattel, Inc. is the largest toy company in the world. This largest toy company in the world was founded by Harold Matson and Elliot Handler in 1945, as they started to produce picture frames. However it was Elliott Handler who had a visionary of a side business in dollhouse furniture out of the converted garage (Mattel). As a top company, the primary activities of Mattel are to design, manufacture, and market the toys. As the company’s sales growing slowly, Mattel started to produce varieties of high quality products and became one of the of the best toy companies around the nation at the time.The major move by Mattel was when it sponsored Walt Disney’s Mickey Mouse Club television show that put the company in spotlight and company’s sales increased significantly. That sponsorship of Mickey Mouse Club helped the company to attract a very high proportion of young potential customers. In 1959, the wife of Elliot Handler, Ruth Handler came up with an outstanding ide a that changed Mattel forever. As Ruth Handler watched her daughter playing with paper dolls, she suggested the idea of making three dimensional dolls to her husband.Elliott loved the idea of making such dolls and introduced the doll with a full wardrobe and accessories to the market. The doll initially named after the nick name of daughter of Elliott and Ruth. The introduction of the new doll was a huge success for Mattel and immediately the doll became the major product line of Mattel (Finding). With the success of Barbie doll, Mattel was named a public company and ranked soon as one of the largest industrial companies in the United States. In 1968, Mattel have introduced another consumer-loved product called Hot Wheels. This was second biggest hit since the company introduced Barbie.Hot Wheels immediately labeled Mattel as the largest toy company in the world. As the toy industry was changing and new competitors were coming in, Mattel saw a stiff competition rising in the mid 198 0s. Like other companies in the toy industry, Mattel faced a stiff from the electronic entertainment. The electronic entertainment introduced many electronical videos games in which children switched to at an increasing young age from the traditional entertainment. To cope up with the competition and attract the new generation, Mattel decided to expand into technology by producing lectronic gaming products. Mattel failed to attract a high proportion of consumers, and were unable to fit in with the new strategy as there were new competitors producing electronic games with lower prices. Later, Mattel decided to focus on producing the core products of the company. This strategy to refocus on the core products and makeover some of the core products was a great success for Mattel. For example, after doing makeover, in 1988 to 1993, the sales of Barbie doll increased to $ 1 Billion dollars from $430 Million dollars (Sansweet).As Mattel is known for making most of its own products in their owned manufacturing facilities, the company owned and operated 10 manufacturing plants worldwide. Half of the manufacturing plants are located in China (Jiangyong). Since Mattel started its business, the company produced its products mostly in developing countries to take the advantage of cheap manufacturing costs. Unlike many toy companies, Mattel produced 70% to 80% of its products in their own manufacturing facilities. The company believed that making products in-house will be more stable and high efficient products.According to Mattel, in-house facilities have high standard safety measures and high quality control that produce high-quality products. Besides making most of its products in Mattel’s own manufacturing facilities, some of its production was outsourced to China and other developing countries in order to focus on domestic strategic efforts such as Research and Development and Marketing. However these outsourcing products were not efficient as products were made in in-house facilities. These outsourcing products were less stable and not as efficient.Many times these products needs to be recalled as they do not meet the safety standards and tend to hurt the image of a well-known organization like Mattel. Therefore, Mattel’s strategy was to focus on making most of its core products at their own manufacturing facilities, and outsource the products that are less popular and non-core. Due to outsourcing to other developing countries, the toy industry faced many hardships. The products that are made in developing countries that had substandard quality control were recalled many times due to the safety reasons.Mattel too faced a stiff pressure from the government and consumers for the products that were not safe and stable which are made in manufacturing facilities in China. Recently, Mattel recalled several of its products because they were not safe for consumers. Recalling millions of products, not only reduced the total revenues of the company, as well as it hurt the company’s image at the same time. Mattel had been always trusted by its consumers for making providing its consumers high-quality products and stable products.The recalls that are connected with lead paint made by Mattel’s lont-time manufacturers. These manufacturers are responsible for not having strong safety regulations and not complying with the quality control within the organization. The manufacturer, Early Light Industrial, was responsible for the second major recall of about 1 million toys. The manufacturer had more than 200 employees to inspect if the contractors were complying with safety regulations, but none of them were stationed on-site to inspect the products. Failure to inspect the products left the company with rooms or errors.In order to understand a company’s situation, financial statements are very important. Financial statements allow you to see the company’s performance, financial condition, and financ ial trend. By examining financial statements of Mattel, we can clearly foresee where the company is heading financially. Looking at ROA and PM, both ROA and PM increasing year to year from 2005 to 2007 which is very good news for Mattel. Despite the recalls, Mattel’s total revenue is still increasing year to year. These analyses clearly show that Mattel is performing very well in making profits.Some of the key financial highlights of Mattel recorded below: Selected Financial Highlights of Mattel, Inc. : YEAR 2007 2006 2005 Net Sales 5,970. 09 5,650. 16 5179. 02 Cost of Sales 3,192. 79 3,038. 36 2,806. 15 Net Income 599. 9 492. 93 417. 02 Total Assets 4805. 46 4955. 88 4372. 31 ROA (%) 12. 4 9. 5 9. 53 PM (%) 10. 4 8. 72 8. 05 Firm Strategy One of the Mattel’s primary strength is that the company is the leading brand named leading toy company in the toy industry. Ever since Mattel started its business, the company always produced high-quality and consumer-loved products . Mattel has plenty of name brands products that are very popular among the customers. Mattel’s brand name recognition stared in 1959 when the company first introduced the famous doll, Barbie.Other products, Hot Wheels, Fisher Price, and NASCAR also are very popular products and behind the huge success of Mattel. In order to continue making the high-quality products Mattel’s main focus is to keep doing what the company is doing and find out what the customers’ want and desire by research and development. Mattel’s main goal is to maximize production efficiency while minimizing the risks, controlling expenses, and maintaining flexibility. In order to focus on that strategy, Mattel has decided to use the third party manufacturers to produce its non-core products.Slowly, Mattel has been moving its manufacturing to countries like China, Japan, Indonesia, Thailand, and many other developing countries. As Mattel has contracts with thousand of vendors in those co untries, the company does not need to rely on a single manufacturer. However, this strategy may not convey quality assurance of the products and also raise concerns over safety regulations. Due to substandard safety measures revolving toy designing and manufacturing in China, Mattel has been facing some tough challenges.During 2007, Mattel has made five recalls of over 21 million toys are made in China due to the excessive lead paints on toys and having loose magnets that normally impose danger to the children while playing with them. These loose magnets and lead paint can easily be consumed by the children. These recent recalls started to hurt the image of the company and as well as the reputations of the company. Sales in some areas started declining, however, the total revenues of the company is increasing than the previous year.Possible Options As we have detected causes of the problems, we need to come up with alternative solutions to solve the problems. There are some alternat ive strategies Mattel can apply in order to stay on the of the toy industry. Possible alternatives include rebuilding strategy, and manufacturing in United States. Option 1: Rebuilding Strategy: Mattel should focus on rebuilding strategy. The company needs to rebuild the consumer trust in toys, rebuild the trust of the industry, and as well as the trust of China.Accountability and responsibility required strongly to repair the image. Denial and accusations will just hurt the image of the company more as it could bring counter attack by the accused. Option 2: Manufacturing in United States: Mattel may decide to move its manufacturing back to United States as they are facing many problems in foreign countries. However, this strategy will be really costly to Mattel financially. Also, it will harm the relationship with foreign countries. Therefore, rebuilding strategy is strongly recommended. Recommendations and ImplementationsDuring the crisis management, accountability and responsibil ity is very important to maintain the reputations and sales of the company. Admit the wrongdoing, instead of throwing blame on China. Blaming China will just hurt the relationship with the Government China. Mattel, Inc. is also required to change its strategy to address the concerns in design, manufacturing, quality control, and safety assurance of the products. In order to implement the rebuilding strategy, Mattel needs to take some of the important steps. The company needs to be open and truthful.Confess to wrongdoing is a great tool to start re-establishing the trust. The company also needs to focus on communicating with the consumers to address their needs. For better standard safety measures, Mattel should hire a third party for sudden inspections of the products in manufacturing facilities. The company should maintain its current strategy and continue outsourcing in China where it could focus on expanding product lines. The company may also incorporate with established manufac turing facilities where they have standard quality control and strong safety measures.Most importantly, the company needs to focus on more modifying the safety operations in facilities by inspecting standards of production and examining the materials that are supplied by third-parties. October 26, 2010 Robert D. Katz Ishaque Mohammed Ibrahim Mattel’s Case Memo Executive Summary: California-based Mattel, Inc. is well-known to the world for making the high-quality and brand-name recognized products. Recently, the Mattel Company recalled millions of products that are mostly made in China for the safety concerns that raised many questions about the sustainability of the company’s products.Due to these recent recalls, now Mattel is totally aware of the perils of manufacturing in developing countries, where the safety measures and working environment were totally unacceptable. The purpose of this case analysis is to understand the problems that occurred and how Mattel will c ome to solutions to solve them. This case analysis will review the problems Mattel is facing, analyze firm strategy by using SWOT, and recommend alternative strategies to solve the problems and best way for Mattel to proceed successfully in the future.