The wake-up call for Mattel came just as it was preparing to announce that the company would recall 1.5 million Chinese-made toys that were tainted with lead paint.

Surrounded by boxes of Barbie dolls, Hot Wheels cars and other sample toys, Mattel Executive Vice President (Worldwide Operations) Tom Debrowski, learned in the middle of a July 30 meeting that Mattel, which had become over-confident about its ability to operate in China without major problems, was in fact in a serious crisis mode.

At the time, Mr Debrowski thought Mattel was dealing with at most “A single failure, from a single vendor who made a big mistake.” But, the early-morning trans-Pacific telephone talk he was having with his Hong Kong team, he learned otherwise.

Moment of truth

Mattel Asia Operations Senior Vice President David Lewis broke the bad news to him. Mr Lewis had just taken a call from the company’s safety lab in Shenzhen, China, where toys made by outside companies are tested. “We’ve had another failure. It was one of the toys in the Pixar cars.”

That was the moment that threw Mattel into turmoil, forcing the company, considered one of the more successful Western manufacturers in China, to recognise that it had more of a systemic problem than simply an isolated case of one bad paint supplier.

Toys for the coming holiday shopping season were already being shipped across the Pacific, and Mattel wanted to catch any other problems that may have slipped through the cracks before those toys land on store shelves and cause even greater damage to its reputation.

For Mattel, the big problem was that some of its trusted vendors had turned to cheaper paint suppliers outside the company’s approved list. Mattel is now racing to increase its supply and product testing, no longer giving local contractors several months at a time to do the tests themselves.

Mattel executives are openly saying that there may be more recalls if it finds more problems in its investigation.

And Mattel has quietly carted loads of toys and dolls to its own factories in Mexico to recheck the most recent arrivals from Chinese contractors. With its back-to-back recalls, Mattel — the  toy maker and home of Fisher-Price toys, American Girls dolls, Matchbox cars and Barbie — is put into the centre of a debate over the safety of products made in China.

The growing pile of products recalled this year has sent consumers digging through their pantries and toy chests looking for everything from Thomas & Friend toy trains and children’s jewellery to toothpaste, dog food and, most recently, SpongeBob SquarePants journals.

Mattel has been manufacturing in Asia far longer than many companies; the first Barbie was made there in 1959. That led to long-term relationships with certain Chinese contractors, many spanning decades. Paradoxically, that appears to have contributed to Mattel’s problems: the longer it outsourced to a factory supplier with good results, the looser the leash became.

The two contractors that caused this month’s recalls were among the most trusted. Lee Der, the supplier involved in the first recall, had worked with Mattel for 15 years. Early Light Industrial, which made the Sarge cars in the second recall, has supplied toys for 20 years.

Mattel first got word of its China problem in early July, when a European retailer discovered lead paint on a toy. Mattel shut down its production at Lee Der, which made the 83 recalled toys.

The recall on August 14 was not as large, affecting 436,000 Pixar car toys, but, combined with a separate recall of millions of toys with tiny magnets that had harmed some children who swallowed them, the blow to Mattel’s public reputation was substantial.

The Pixar toys were made by yet another contractor, Early Light, which had subcontracted production of the car’s roof and tires to a company called Hong Li Da. In both cases, the Chinese companies broke Mattel’s rules on what paint they were allowed to use. Mattel has certified only eight paint suppliers.

Pressure on margins

Mr Debrowski readily acknowledges the rising costs that companies in China are facing. “In the last three or five years, you’ve seen labour prices more than double, raw material prices double or triple,” he said, “and I think that there’s a lot of pressure on guys that are working at the margin to try to save money.”

But isn’t Mattel putting pressure on its vendors to save money? “No absolutely not,” he replied. “We insist that they continue to use certified paint from certified vendors.”

On the day of the second recall, Mattel announced a three-point plan that tightened its control of production, cracked down on the unauthorised use of subcontractors, and included Mattel testing products itself. “We do realise the need for increased vigilance, increased surveillance,” Mr Jim Walter, who reports to Mr Debrowski on quality assurance, said.

Mattel makes its best-known toys, like Barbie dolls, in its own 12 factories. But even as it increased the share of toys it makes itself to about half, it still relies on roughly 30 to 40 vendors to make the other half.

Mattel now realises it was not watching those companies closely enough, executives said. A number of companies whose factories Mattel has never visited may have had a hand in making the toys that were shipped around the world.

Damage limitation

Out of the public eye, Mattel is now cleaning house. The company has fired four subcontractors and is evaluating more. It also moved to enforce a rule that subcontractors cannot hire two or three layers of suppliers below them.

As part of its effort to rebuild its image, Mattel is emphasising that it is less dependent on Chinese contractors than most toy makers are. It has run ads around the world featuring Mattel Chief Executive Robert Eckert’s vow to do better.

International Herald Tribune