Thursday, August 02, 2007

For better results, own your supply chain

Buried so deep in this weeks New York Times was a story on toy giant Mattel (maker of Barbie, Hot Wheels, among others). Unlike most retail manufacterers based in the US and Europe, Mattel actually owns the factories in China and elsewhere in Asia where most of its core products are produced. They do outsource non-core products and components to other suppliers, but only amounting to about 35% of total production.

This practice runs in sharp contrast to most other retailers who contract with factories in Asia for the low cost production. The article cited quality control, a committment to decent workplace conditions, and toy safety as the key reasons Mattel has opened its own factories in China - as opposed to outsourcing. I do recall the Dateline episode about 10 years ago when secret camera's entered one of Mattel's contract factories in Indonesia and revealed horrendous workplace conditions - in the lead up to the busy Christmas toy season this was disasterous for Mattel.

Prakash Sethi, an internationally renowned supply chain, ethics, and work place condition expert was hired to help Mattel get back on track after that expose. To this day he still has open access to any Mattel owned factory for surprise visits and is allowed to post his findings publicly. Now that is a true test of how confident the company is in its factory conditions!

From the perspective of sustainability reporting this bodes well for the company. Most companies struggle with their report boundary. The boundary for financial reporting is clear - it includes all entities that a company owns. But for sustainability the boundary is not as clear. The classic example is supply chain issues. A big brand retailer typically does not own the factories that produces its goods - and therefore it does not directly control the performance of that factory. It does exert some level of influence over that factory however - and it is via this influence that it can insist on improved conditions. This can be reported as policy or procedures - but performance results are often difficult to track. Mattel has the benefit of being able to control their factories directly - and therefore know the performance results.

1 comment:

Stephen said...

The timing on this New York Times article is quite suspicious (July 26) seeing as on August 2nd, The Globe and Mail ran a story on Mattel's subsidiary Fisher-Price, announcing a recall of 967,000 plastic preschool toys containing lead paint. The toys were made by a Chinese vendor in Fisher-Price's supply chain.

While it Mattel appears to being making progress in taking charge of their supply-chain, they are far from perfect. This situation demonstrates the complexity of international supply-chains. It also begs one to ask, how much of the New York Times article is Greenwashing?

On another note, I did a quick search on the New York Times article for "Fisher-Price." It appear only three times -- I suspect that Mattel, knew they were about to issue a recall and were trying to separate themselves from Fisher-Price, so that the Fisher-Price brand could "take the fall."