Question

For the following case study address the questions in details (no bullets)

1- What is the nature of the product quality problem faced by Mattel?

2- What organizational practices of Mattel contributed to the problem?

3 What can Mattel do to enhance product quality?

4- Which toys should be recalled? What should the recall strategy be?

MATTEL AND THE TOY RECALLS (A)1

Jay Leno aptly reflected the mood of U.S. consumers during the summer of 2007. Many Chinese-made goods, such as pet food, toothpaste, seafood, and tires, had been recalled in recent weeks. These recalls began lo severely erode the confidence of U.S. consumers in Chinese-made goods. On July 30, 2007, the senior executive team of Mattel, under the leadership of Bob Eckert, CEO, received reports that the surface paint on the Sarge Cars made in China contained lead in excess of U.S. federal regulations .2 It was certainly not good news for Mattel, which was about to recall 967,000 Chinese-made children's character toys, such as Dora, Elmo, and Big Bird, because of excess lead in the paint. Not surprisingly, the decision ahead was not only about whether to recall the Sarge Cars and other toys that might be unsafe, but also how to deal with the recall situation .

TOY INDUSTRY - OVERVIEW

The global toy market was estimated to be a $71 billion business in 2007 -an increase of about six per cent over the previous year .3 About 36 per cent of the global market was concentrated in North America (about $24 billion), but annual sales in this region were growing at a slower pace -about one per cent. European markets accounted for about 30 per cent of the global toy sales and were growing at about five per cent each year. ln contrast, the markets in Asia grew at 12 per cent in 2006, and were expected to grow by 25 per cent in 2007.4 A large part of this growth was expected to occur in China and India, whose burgeoning middle-classes were thriving on the double-digit economic growth in their countries.

The toy industry in the United States had a large nu mber of players . About 880 companies operated in the dolls, toys, and games manufacturing industry in 2002. This figure was about 10 per cent less than the 1 ,019 companies that operated in 1997. Approximately 70 per cent of the toy companies employed less than 20 persons.5 The industry was dominated by a few key players such as Mattel, Hasbro, RC2, JAAKS Pacific, Marvel, and Lego. The industry leaders were Mattel and Hasbro, whose combined sales in 2006 were about US$8 .7 billion . The sales of many other major players were under a billion dollars. Exhibit 1 contains key financial data of some major U.S. toy makers.

Big retailers like Wal -Mart and Target had become major players in the U.S. toy market. They not only sold the products of other toy companies such as Mallet, Hasbro, and Lego, but also sourced toys directly from China. These toys were often sold u nder their own brand names . For example, Wal -Mart sold toys under its Kid-Connection brand while Target sold toys under its PlayWonder brand.6 It was estimated that Wal -Mart accounted for about 25 per cent of the toy sales in the United States.7 As a result of the entry of big-box retailers in the toy industry, specialty toy retailers such as Toys'R'Us had steadily lost market share.8 The top five retailers sold about 60 per cent of all the toys sold in the United States.9

Toy markets i n the United States were categorized into multiple segments, such as Action Figures & Accessories, Arts & Crafts, Building Sets, Dolls, Games/Puzzles, f nfant/Preschool Toys, Youth Electronics, Outdoor & Sports Toys, and Plush Vehicles. Of these, the infant/preschool toy segment was the largest, followed by outdoor and sport toys, and dolls. These segments had largely remained stagnant over the years. As a result of kids getting old younger (KOOY), the only segment with noticeable growth was youth electronics. By contrast, video games tha.t were outside the traditional toy industry ha.d been experiencing remarkable growth. For segment-wise sales of toys in the United States, see Exhibit 2.

While the major markets for toys existed in the United States and Europe, production was concentrated in Asia, primarily China.. About 60 per cent of the toys sold in the world were made in China.. More than I 0,500 toy makers operated in China. 10 These companies typically had contacts with large Western toy companies. The toy companies in China formed a complex web of supply chains, with contractors themselves sub-contracting production of components.,and often, entire products to various companies .

TOY PRODUCTION IN CHINA

Over the years, U.S. toy companies shifted their production overseas and focused their domestic operations on product design, marketi ng, research and development, and other high-value activities . As a result, employment i.n the domestic toy industry declined from 42,300 workers in 1993 to 17,400 workers in 2005, while toy imports increa.sed.11 Approximately l 0 per cent of the demand for toys in the U .S. market was met by domestic production , while the rest was met through imports, primarily from China (see Exhibit 3).12

Chinese toy imports accounted for a full 86 per cent of toy imports to the United States in 2006, up dramatically from 41 per cent in 1992. The rise of China came at the expense of other toy exporting countries, whose combined share of toy imports to the United States plummeted from 59 per cent to 14 per cent during the same period. For instance, Japan remained a strong exporter of toys to the United States until a substantial drop around 2001. Despite its prox·imity to the United States, Mexico had not been able to sustain the up-tick it experienced in 2002. Further, Taiwan and Hong Kong toy exports had both been in decline for over a decade.

China's rising share of U.S. toy imports, and more generally, China 's position in the global toy industry, can be attributed to the lower cost business environment in China. China had attracted tremendous foreign direct investment and outsourcing of manufacturing operations . While analysts have often pointed to the phenomenal economic growth in China, they have also noted the resultant pressure on the physical, technical, and human resource infrastructures .13 These pressures. some analysts argue, have resulted in the Chi.nese manufacturers compromising on the product safety.

According to American regulators, tainted pet food imported from China was responsible for deaths of, or injuries to, about 4,000 cats and dogs. As a result, regulators initiated the biggest pet food recall in U.S. history. This was followed by worldwide recalls of Chinese toothpaste laced with anti-freeze called diethylene glycol, which was found to be responsible for nearly 200 deaths in Haiti and Panama. Shortly thereafter, Chinese-made tires were linked to two deaths in an accident in the United States and were recalled. The tires lacked a safety feature that prevented tire treads from splitting and falling apart.14 The spate of recalls of Chinese-made goods began to erode consumer confidence in products made in China .

TOY SAFETY

The safety of consumer goods in the United States is managed by four federal agencies: (i) the Food and Drug Administration (FDA) has jurisdiction over foods, drugs and cosmetics, (ii) the Department of Transportation oversees the safety of cars, trucks, motorcycles, and their accessories, such as tires and car seats, (iii) the Department of Treasury has jurisdiction over alcohol, tobacco and firearms, and (iv) the U.S. Consumer Product Safety Commission (CPSC) has jurisdiction over about 15,000 types of consumer products, from microwave ovens to cribs to lawn mowers .15

The safety of toys and other children's products falls within the jurisdiction of CPSC, which was created in 1972 by Congress in the Consumer Product Safety Act to "protect the public against unreasonable risks of injuries and deaths associated with consumer products ."In 2007, the CPSC had an operating budget of $66 million and a staff of 393 full-time equivalent employees . Its strategic goals for the year were to reduce deaths and injuries by fire hazards , carbon monoxide poisoning hazard, and hazards from children 's products .16 According to CPSC, 22 toy-related deaths and an estimated 220,500 toy-related injuries occurred in 2006.17 Based on its analysis, CPSC identified the Top Five Hidden Home Hazards. These hazards were listed 011 the CPSC website to make consumers aware of the hazards and avoid injuries due to them . In 2007, CPSC listed the following as the top hazards: magnets, recalled products , tip-overs, windows and covering, pool and spa drains.

The CPSC collects information about product safety issues from sources such as hospitals. doctors, newspaper reports, industry reports, consumer complaints, investigations conducted by its staff, and reports from companies. When a company becomes aware of hazards associated with the products it sold, it is required by law to immediately inform the CPSC. Based on the infomiation it received , CPSC worked in coordination with the companies involved to recall the hazardous products from the market. Exhibit 4 presents the number of toy recalls made by CPSC since 1988. Not surprisingly, the majority of recalls in recent years involved toys made in China. See Exhibit S for a list of the toys recalled in the United States since the beginning of 2007 . All the toys recalled, with one exception, were made in China. Seven of the recalls were a result of excess lead in the surface paint of the toys.

Lead in children's products poses a serious hazard because exposure to lead can affect almost every organ and system in the human body. Children exposed to h igh levels of lead can suffer from damage such as IQ deficits, attention deficit hyperactivity disorder, motor skills, and reaction time. Considering the damages that lead can cause to humans, particularly child ren, the U.S. government Limited the permissible amount of lead in products. Under the Consumer Safety Product Act 1972, lead in products accessible to children should not be greater than 600 parts per million (ppm).The standards for permissible lead in other products va1y depending on the usage and amount of lead in the product that is accessible.

Although lead use is banned or restricted in many developed countries, the same is not true for developing countries. In developed countries, the only source of lead exposure to children is from paint. In contrast, lead exposure in developing countries occurs due to lead gasoline, ceramics, mining, batteries, and even medication and cosmetics. Manufacturers use paint with a high percentage of lead because it is highly resistant to corrosion, extremely malleable, and has poor electrical conductivity. In addition, paint with higher lead is heavy and bright, making products such asjewelry more appealing to consumers.

While excess lead in toys and other children's products is an issue of concern, CPSC has identified another major hazard associated with small magnets in toys. Due to the availability of powerful rare-earth magnets at cheap prices. the manufacturers began to use them in many toys, such as building blocks and jewelry. On some of these products, the magnets came loose. If a child swallowed more than one magnet, they could attach to each other and cause intestinal perforations and blockage, which can be fatal. In April 2006, CPSC and Rose Art Industries recalled 3.8 million Magnetix magnetic building sets following the death of a 20-month-old boy after he swallowed magnets that twisted his small intestine and created a blockage. In addition, several other children required surgery and intensive care to remove the magnets they swallowed .18

Following the recall of Magnetix building sets, Rose Art Industries redesigned its building sets to cover the magnets and reinforced these with resins so that the magnets could not be detached from the building set. Further, they changed the age suita bility of their product to six years or older and provided new warnings about the dangers associated with ingesting magnets .19 The recall of Magnetix was followed by another five recalls of toys that contained small magnets that detached . One of those recalls involved 2.4 million Polly Pocket play sets (an additional 2 million sets were sold worldwide), which was prompted by 170 reports of magnets coming loose and three children who swallowed the magnets requiring surgical care.20 The Polly Pocket play sets, recalled on November 21, 2006, were made by Mattel and sold between May 2003 and September 2006.

MATTEL - THE N0.1 TOY MAKER IN THE WORLD

With a vision to provide "the world 's premier toy brands -today and tomorrow," Mattel "designs, manufactures, and markets a broad variety of toy products worldwide through sales to its customers and directly to consumers."2 1 Mattel's position as a leader in the global toy industry was so formidable that Mattel 's international business division, with gross sales of $ 2.7 billion in 2006, would be the industry 's third largest company, if it was a separate company, and Mattel 's U.S. business with $3.4 billion would still be No.1.22

Mattel was an industry leader not only by its sales, but also through its pioneering efforts to be a good corporate citizen . In 1996, Mattel initiated its Global Manufacturi ng Principles, which aimed to ensure responsible management practices used in Mattel's fuctories as well as by its vendors. Mattel's factories were audited by the lntemational Center for Corporate Accountability , an independent body, and its results made publicly available by Mattel. Mattel engaged in philanthropic activities through Mattel Children's Foundation in 37 countries. It was named one of the top J OO Best Corporate Citizens by CRO Magazine i n 2006. More saliently, Mattel's corporate governance received the highest global rating of I 0 by Governance Metrics International (GMJ), which placed the company among the top one per cent of more than 3,400 global companies.

The journey of Mattel, however, began modestly in 1944, when Harold Matson and Elliot Handler began to make toys out of a converted garage in California. They named the company Mattel, using letters from their last and first names. Matson sold his share to Elliot Handler and his wife, Ruth Handler, who incorporated the company in 1948. Mattel's first products were picture frames and doll house fumiture.23 Jts first big product was a mass-produced, and thus, inexpensive music box, which established Mattel firmly in the toy business . The introduction of Barbie in 1959,and Ken two years later, propelled company growth . The products introduced later, such as Hot Wheels, went further to establish Mattel's position as an industry leader. Mattel went pu blic in 1960.

Mattel 's products were organized in three different business groups:(i) Mattel Girls & Boys Brands, which includes brands like Barnie dolls and ac.cessories, Polly Pocket, Hot Wheels, Matchbox, Batman, CARS, and Superman. (ii) Fisher-Price Brands, consisting of brands such as Fisher-Price, Little People, Sesame Street, Dora the Explorer, Go-Diego-Go!, Winnie the Pooh, and Power Wheels. (iii) American Girl Brands , with brands such as Just Like You and Bitty Baby. In the United States alone, the sales of these three groups in 2006 were: Mattel Girls & Boys Brands -$1.57 billion, Fisher-Price Brands -$1.47 billion, and American Girl Brands -$0.44 billion. About 45 per cent of Mattel 's sales were accounted for by three major buyers: Wal-Mart, Toys'R'Us, and Target. In addition to its principal competitors, such as Hasbro and RC2, Mattel also competed with a large num ber of smaller companies that made toys, v ideo games, and consumer electronics, and pu blished children's books.

Jn the 1990s, Mattel made a num ber of significant acquisitions, including Fisher -Price (1993, leader in pre­ school segment), Kransco (1994, made battery-powered ride-on vehicles), Tyco (1997, made Tickle Me Elmo and Matchbox cars), Pleasant Company (1998, mail-order firm that made American Girl-brand books, dolls,and clothing), and Bluebird Toys (1998, made toys such as Polly Pocket and The Tiny Disney Collection). Mattel 's acquisition of The Learning Company, a leading educational software maker, in 1999 at a cost of $3.6 billion proved to be troublesome. The company lost money and was later sold. Mattel also made a hostile bid to acquire Hasbro, the second-largest toy company. This bid, made in 1996, failed to materialize .

The toy industry is different from other industries on two major counts. First, toy sales are seasonal. Most sales occurred during the third and last qua11er of the year, which coincide with the traditional holiday period. Second, there is a lot of uncertainty around new product success. It was difficult, almost impossible, to predict whether a particular toy would be liked by children . Not surprisingly, many companies in the toy industry made millions with one succ.essful toy and also went bankrupt with one big failure.

Over a long period, Mattel had managed the pecul iarities of the toy industries well with a num ber of innovative and often revolutionary ideas. Traditionally, the retailers promoted toys during the holiday season and toy manufacturers had little, if any, role to play. In 1955, Mattel tied up with ABC Television and sponsored a 15-minute segment of Walt Disney 's Mickey Mouse Club for one full year. At that time, Mattel 's revenues were only $5 million, but it paid $500,000 for the sponsorship. The sponsorship quickly established a continuous connection for Mattel with the kids and gave it an opportunity to influence the buying habits of its consumers. Not surprisingly, this move changed the nature of marketing in the toy industry. Also, for Mattel, it paved the way for further partnerships with entertainment companies to produce character toys.

Mattel entered into licensing agreements to make toys based on the characters owned by companies such as Disney, Warner Brothers, Viacom (Nickelodeon), Origin Products, and Sesame Workshop. These agreements gave the company access to characters such as Winnie the Pooh, Disney Princesses, CARS, Dora the Explorer, Go-Diego-Go!, Sponge Bob SquarePants, Polly Pocket, Batman, Superman, and Elmo. Jn 2005, Mattel partnered with Scholastic Entenainment to produce educational learning systems. Not only did l\llattel license characters, but also Iicensed some of its core brands to other non-toy companies to design and develop an array of products sporting the core brand names . These deals included Barbie eyewear for little girls (with REM Eyewear), Hot Wheels apparel and accessories (with lnnovo Group), Barbie video games (with Activision), and CD Players, teaming laptops, and MP3 players .

Recently , Mattel was trying to reduce its reliance o.n its big customers, such as Wal-Mart, Target, and Toys'R'Us, through internet and catalogue sales.24 Traditionally, toy companies relied on point-of-sale (POS) data to forecast demand for toys. With its Hot Wheels brand, Mattel realized that variety was the key driver of the sales and introduced a rolli ng mix strategy. This strategy involved changing the physical 72-car assortment mix by seven to eight per cent every two weeks. This changed the nature of its practices and instead of relying on POS data, Mattel only needed to design the varieties and supply an assortment pack to the retailer .25

Mattel designed and developed toys in its corporate headquarters . ln 2006, Mattel spent US$174 million on in-house product design and development. 111 contrast, the company spent US$261 million on royalties and US$65 J million on advertising. Mattel manufactured products in its own factories as well as through third­ party manufacturers. Also, it marketed the products purchased from unrelated companies that designed, developed, and manufactured those products .

Offshoring the Toy Production

Mattel 's principal manufacturing facitities were located in China, Indonesia, Thailand, Malaysia , and Mexico. It closed its last toy factory in the U.S., originally part of its fisher-Price divisions, in 2002 .26 Mattel produced its core brands, such as Barbie and Hot Wheels, in company-owned facilities , but used third-party manufacturers to produce its non-core brands. It used third-party manufacturers in a number of countries, including the United States, Mexico, Brazil, India, New Zealand, and Australia. This manufacturing mix minimized Mattel's risk and gave it focus and flexibility. The core brands were a staple business, while the non-core brands tended to be those products that were expected to have a short market life. The non-core brands were typically associated with popular movie characters and had a life of one year.21 The development of new toys was done at Mattel 's corporate headquarters. Outsourcing for the manufacturing of non-core brand toys followed a strict multi-step process . The design teams created a bid package containing the new product's blueprint and engineering specifications. It often contained a physical model. After the selection of a vendor, the company established the vendor's production infrastructure. At this point, Mattel assumed responsibility for the cost of tooling. The vendor then produced 50 units as "First Shots"to verify if any tool modifications were required.This was followed by one or more "Engineering Pilot," depending on the toy's complexity, and the "Final Engineering Pilot." After this, a "Production Pilot'' of 1,000 units was run using the entire assembly line to run the product. Finally, the"Production Start''phase began only when the new toy met design compliance .28

Mattel and its vendors manufactured about 800 million products each year. Approximately half of the toys Mattel sold were made in its own plants, a higher proportion than other large toy makers . Also, Mattel made a larger percentage of its toys outside China than other large toy companies. Mattel 's manufacturing and offshoring strategy was developed over a period of five decades. The company made its first Barbie doll in Asia in 1959. Since then , Mattel managed the risks of offshored operations by employing a mix of company-owned and vendor-owned manufacturing facilities all over Asia .

In China alone, Mattel had contracts with approximately 37 principal vendors who made toys for the company.29 The principal vendors further used smaller companies for the full or pa11ial production of toys. As a result, the supply chains in China were long and complex. According to some estimates , about 3,000 Chinese companies made Mattel products .30 However, Mattel had direct contact only with the principal vendors.

A RECALL UNDERWAY

In June 2007, a French direct importer of Mattel 's products , Auchan, performed pre-shipment tests with the help of Intertek, an independent laboratory. These tests revealed that Mattel's toys, made by vendor Lee Der Industrial Company, contained lead above permissible limits. lntertek sent the test results, on June 8, 2007, to Mattel employees in China. Consequently, Mattel employees contacted Lee Der instructing it to correct the problem and provide another sample for testing. Another test by Intertek on June 29, for Auchan, on the same toy produced by Lee Der had passed the test.

On June 27, 2007, Mattel 's call center in the United States received a report from a consumer, who informed them that a home test kit found excessive lead in Mattel 's toys. These were also manufactured by Lee Der. Following this, Mattel tested five samples of Lee Der toys and found on July 6 that three of them contained excess lead. As the testing was underway, Auchan informed Mattel on July 3 about lead violations in another toy made by Lee Der. As soon as the test results were out, Mattel employees in China notified Lee Der and stopped accepting products made by Lee Der. Further tests on the toy samples collected from Lee Der were conducted on July 9 in Mattel's own laboratories, which revealed that nine of the 23 samples of Lee Der toys contained excess lead :in surface paint.

Mattel 's employees in China notified the senior management team at corporate headquarters on July 12 about the issues with Lee Der products . Following this, Mattel management ordered an immediate suspension of all shipments of products made by Lee Der. Further investigatio11s by Mattel revealed that the nonconformi ng lead levels were because of a yellow pigment in paint used on portions of toys manufactured by Lee Der.31

Lee Der Industrial Company was located in Foshan City of Guangdong Province, where thousands of small toy factories existed. The company was founded by two Chinese entrepreneurs, Cheng Shu-hung and Xie Yuguang. Mattel first used Lee Der for making a small batch of educational toys in 1993. By July 2007, Lee Der employed approximately 2,500 people and made toys almost exclusively for Mattel. With annual sales of about $25 million, Lee Der was about to open a new $5 million plant.32

Lee Der had purchased its paint from Dongxing New Energy Co.since 2003. The owner of Dongxing was a good friend of Cheng Shu-bung. In April 2007, D011gxing ran out of yellow pigment and sourced about 330 pounds of it for $1,250 from Dongguan Zhongxin Toner Powder Factory . Then, Dongxing supplied the paint to Lee Der, which used it in Mattel 's toys. Initial reports suggested that Dongguan Zhongxin Toner Powder Factory was fake and that its owners were not traceable.33

An essential component of Mattel 's contracts with its vendors is that the products made by vendors comply with applicable safety standards . Mattel had systems that required the vendors to either purchase paint from a list of eight certified vendors in China or test for compliance each batch of the pai nt purchased from a non-certified vendor . Mattel also conducted audits of certified paint suppliers and vendors to ensure that Mattel 's requirements were being followed.The frequency of audits depended on Mattel 's prior experience with the suppliers and vendors.

Following its investigations, Mattel filed an initial report with the CPSC on July 20 and followed it up with another on July 26, indicating that it would like to is·sue a recall of all the products manufacnired by Lee Der between April 19, 2007 (the date when Lee Der took delivery of the lead-tainted paint from its supplier), and July 6, 2007, the date when Mattel stopped accepting products from Lee Der.34 Work on this recall was underway and Mattel and the CPSC were scheduled to announce the recall on August 2, 2007. See Exhibit 6 for the press release announcing the recall expected to be issued by the CPSC. Mattel had already informed big retailers such as Wal-Mart and Toys 'R'Us of the impending recall. The retailers pulled the toys off their shelves and flagged the cash registers so that customers could not buy the toys from the stores.35

ANOTHER INSTANCE OF LEAD AND FURTHER REPORTS OF LOOSE MAGNETS

While Mattel was prepari ng to announce its recall, on July 30, 2007, it found that paint on Sarge cars contained excess lead. The Sarge cars were made for Mattel by Early Light Industrial Company, Ltd. of Hong Kong, which made them in its manufacturing facility located in Pinghu, China.36 Early Light had supplied toys to Mattel for 20 years.37 Only further investigation would be able to clarify where exactly in the supply chain the problem originated, and why . Initial reports indicated that approximately 250,000 Sarge cars made between May 2007 and August 2007 may have been affected with lead paint.

After the November 2006 recall of eight different Polly Pocket play sets made in China for the problem of magnets coming loose, Mattel reinforced the magnets. by locking them in the toys rather than gluing them. Nonetheless, in recent months, Mattel had received a few hundred reports of magnets coming loose from a number of play sets sold before Novem ber 2006. The play sets affected with magnet problems were: (i) fifty additional models of Polly Pocket play sets (about five million of these play sets were sold between March 2003 and November 2006), (ii) Batman and One Piece action figures (about 350,000 toys sold between June 2006 and June 2007), (iii) Barbie and Tamier play sets (about 683,000 toys sold between May 2006 - July, 2007), and (iv) Doggie Day Care play sets (about one million sold between July 2004 and July 2007).

Recalls are a nightmare to companies for several reasons. First, the recalls pose major logistics challenges as the company needs to establish a set-up to handle the recalls . Second, the company has to deal with regulators who tend to push the company to ensure that not only a recall is issued, but the products in consumers' hands are actually returned to the company. Third, recalls are often viewed as an admission of guilt and open the company to consumer litigations. Finally, recalls damage the reputation of the company and result in increased costs, lost sales, and stock price erosion.

Mattel and Fisher Price were not new to recalls. In their long history, they had recalled products in the past (see Exhibit 7). Nevertheless, the current situation seemed entirely new, complex, and challenging. It was not clear if and which products needed to be recalled . As importantly, how could the company minimize the negative consequences that were germane to any product recall? Finally, how could the company ensure such recalls did not recur?

Answer 1

1. The nature of the product quality problem faced by Mattel is quite grave and concerning. The amount of lead in Mattel toys was way above permissible limit. Lead in children's products poses a serious hazard because exposure to lead can affect almost every organ and system in the human body. Children exposed to high levels of lead can suffer from damage such as IQ deficits, attention deficit hyperactivity disorder, motor skills, and reaction time.

Due to this reason, the business of Mattel was severely affected. The company had to recall around 967000 toys. This was a severe blow to the business and brand image of Mattel.

2. The organizational practices of Mattel which contributed to this product quality problem are:

1. Centralized business model
2. Inadequate Quality management
3. Inadequate Vendor management
4. Supply change management

3 The measures that Mattel may take to enhance product quality:

• Internalization of its business model
• Stringent quality and vendor management
• Regular quality audits in the supply chain
• Rigorous inspection of the final product
• Good R&D implementation in product technology to sustain product quality

4- The following toys must be recalled:

• 967000 products made by Lee Der
• 250000 Sarge cars made in the period of May-Aug 2007
• Around 7033000 play sets sold by Nov 2006

The recall strategy to be employed by Mattel:

• Ask the retailers to send the faulty products back to warehouse
• Recall strategy must be communicated to the customers through media and website. This highlights that the company values its customers health and will maintain the company’s goodwill
• Customer service department must follow up with customers and retailers to track the recall
• A well managed reverse logistics system needs to be established and monitored