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From the Desk of Jack Healy

Passing the Buck on Toy Quality: Design vs. Manufacturing

By Jack Healy, Director, MassMEP

With news of three recent product recalls for over 21 million Mattel toys and dolls, the impression given is that responsibility rests with a single Chinese supplier who did not follow Mattel’s quality requirements. However, as more is learned about the recalls, it has become apparent that the vast majority of the problems had nothing to do with the Chinese and had everything to do with Mattel. In the latest case, a product design flaw caused magnets on some toys to come loose.

Recalls are business as usual for the US toy industry and most are design-related problems. In fact, in a paper written by Hari Bapuji and Paul Beamish of the University of Manitoba’s Asper School of Business, it was found that of the 550 recalls since 1988, an overwhelmingly high number (420 or 76.4% percent) were due to problems that could be attributed to design flaws. In contrast, only about 10% (or 54) of the recalls were attributable to manufacturing defects such as poor craftsmanship, over-heating of batteries, lead paint, and inappropriate raw materials. In other words, the majority of recalls were a result of design-related problems, not manufacturing defects.

Such recalls are bad business. Mattel has taken a charge of $29 million to cover the cost of the product recalls, which represents about 5% of the usual profit for their $5.6 billion in annual sales. On top of that, the recall dollar loss does not take into account the effect the recalls will have on sales; Mattel is estimating that to be as much as $40 million more. And it is still unclear how much this will affect overall toy sales. 

Even though the recent Mattel recall is primarily attributed to design flaws by a US manufacturer, it is apparent that the general feeling from consumers is that all of this is really about toys "made in China." And so consumers are now looking at the product’s country of origin rather than the manufacturer’s label as the safety guarantee. There is no consumer upset focused on correcting US product design problems. Why not?

Regardless of the effect on industry sales, Mattel will be facing losses in sales coupled with direct recall write off costs and related lawsuits. As of October 2007 there were 10 personal injury cases filed in federal courts with even more in state courts. And with adjustments for "goodwill" on the balance sheet, we will be looking at an overall Cost of Quality for this event of more than $100,000,000.

Passing the Buck on Quality
Why do today’s companies so easily disregard quality? Why do they no longer feel that quality is a competitive differentiator? Why don’t companies with global supply chains that have poor supplier visibility and limited accountability feel that the adoption of major quality management initiatives, necessary to correct this situation, can be a source for competitive advantage? 

From all of this, I can easily conclude that there are no historians in manufacturing. If there were they would tell us that this is not something related just to toys; they would say that we have been here before. Historians would also tell us that this is not a ‘back to the future scenario,’ as we saw in the early 80s when we all learned that the biggest difficulties associated with managing the cost of quality can be within our own factories and not just an issue of our extended supply chains. Today, with just about every manufacturer outsourcing some part of their product’s production, we are finding that relying on intermediaries and suppliers to coordinate production and ensure quality requires a whole new skill set and closer oversight than many companies are willing to provide. Except maybe in the case of Mattel who is now testing every batch of paint that is being used on its toy products.

Responsibility Lies with the Name on the Label
It is not an additional expense for today’s manufacturing companies to develop robust systems to ensure proper quality of the products manufactured at their supplier’s factories. It is a necessary cost of doing business. Anything less will result in failure as the recent product recalls show that China still has manufacturing problems that are structural and not limited to just a few bad apples. Mattel recalls and the various other product safety issues in food products, pet foods, and tires have shown that China is having difficulties meeting western quality standards. While the Chinese government is issuing new safety regulations and is strengthening the local governments to regulate and inspect, they are still a long way from ensuring that their industries can provide products that meet a global standard. Products produced in China that fail to meet this standard will always be the responsibility of the company whose name is on the label.

Although today’s focus is be on the supplier, the real focus for all manufacturers who are looking to differentiate themselves by making quality job one, must start where manufacturing begins — with product design. The demands for product variety, increased technological sophistication, lower costs, and increased performance are the usual historical challenges faced by design engineers. These challenges are magnified by demands for shorter product life cycles and on-time delivery, as is seen in the toy industry. The pressure to get product to market on time and on budget has never been greater. There are several studies that show that delivering a product to market on time but over budget is more profitable than delivering the same product within budget six months latter. But it is a moot point as there is no acceptance in today’s environment for being over budget. Unless managed correctly, all of these pressures can result in costly new product introductions that will have a detrimental and lasting impact on a company, as in the case of Mattel.

Lean Product Design
All of these pressures and changes have brought processes such as Lean Product Design Engineering into widespread use. This is the systematic elimination of waste in the design process, such as wasted time and effort. Engineers working in a Lean Design Environment are usually highly motivated as they become more accomplished in the same amount of time, ultimately contributing to overall output. Lean Product Development trained engineers are also more customer-focused; they bring customers (both internal and external) into the product development process much earlier than before. Dealing with customers is no longer the sole domain of sales and marketing. This, along with the involvement of the design engineers in the internal cross functional teams that are part of the Lean process, precludes the usual excuse of ‘not being involved’ in product failures.

The implementation of Lean Product Design can be an important first step in ensuring Total Product Quality within a company. All of the recent press that Mattel put out relative to the recalls has been about discontinuing suppliers and sourcing policies that allow their subcontractors to hire two to three layers of suppliers below them, etc. Yet Mattel has been mute on what they are doing relative to product design, the part of the product introduction process that represents the biggest opportunity for the world’s leading toy company to reestablish itself as the leader in quality and product safety.

Readers interested in learning more about Lean Product Design should contact Dan Courtney at [email protected].

Toy Recalls—Is China Really the Problem?


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