Question

1. How does Mattel’s supply chain/outsourcing model support its brand, its overall strategy, and create value for the company?

Answer 1

ANS. Mattel had its own production facilities and maintained tight control to address the possibility of trademark infringement.Mattel inspected materials when they arrived at the factory door. Suppliers were closely monitored for problems such as lead-based paint & vendors were terminated for violations.Mattel developed about 5,000 new toys each year. New toys were produced in small batches for approval. When fullscale production began, toys are inspected periodically.

Mattel sub contracts to 30 - 50 vendors to produce noncore products and also components of core products such as the fabrication and painting of eye balls for certain dolls.Mattel produced about 65 % of its toys in China. Most of these toys were produced in about 5,000 factories located in Guangdong province owned by Hong Kong entrepreneurs.Factories in Mattel supply chain should procure paint and other materials from certified suppliers and follow corporate safety standards.

Mattel did not price pressure suppliers, particularly on paint related products.Vendors subcontracted with other suppliers, who might further sub contract to other suppliers for parts or materials. – For instance, a company that was making a doll might subcontract certain processes, such as painting the eyes to another company. That company might obtain paint from still another supplier.Mattel prohibited subcontractors using multiple layers of additional suppliers.

Mattel required vendors to notify the company of all subcontract deals with option inspect them.Mattel had 200 employees based in Hong Kong whose sole responsibility was training and supervising its Chinese contractors.Mattel and its competitors had to continually reduce prices in order to meet the demands of the big retailers.

– This put pressure on Mattel's suppliers to continually cut their costs.

– There were also pressures (Yuan appreciation, tax and labor cost increases etc.) pushing costs higher with little room for cuts.

– In this cost-sensitive economic environment, there was little incentive, for Chinese factories to increase their investments in quality programs or product testing.

– Companies relied on testing samples. Once production started, companies did not test their raw materials, even though suppliers were known to substitute less expensive material.