MFG 2.0

How The Mattel Fiasco Really Happened

An interesting post in one of the Chinese blogs I read led me to a Caijing Magazine article about the Mattel lead paint situation, and how exactly the whole mess unfolded.

The article, entitled "Death of a Toy Maker," tells the sad tale of the suicide of manufacturer Cheung Shu-hung and the events that led up to it.

The story is filled with compelling background, such as this bit about the toymaker's total dedication to his business (something that many American businessman can relate to):

He would normally come to the factory every day with weekends often no exception, said a mid-level manager at Lee Der to Caijing. “He put his whole life into the toy factory. Pretty much all the money he earned over the years he invested back into the factory,” he said.

Cheung had no family. For many years he lived in the Nanhai district of Foshan, practically making the factory his home.

However poignant, the most interesting information contained within the Caijing article deals with the process by which the poisonous paint was sourced (over the internet) and how it slipped by five levels of quality checkpoints.

The story begins back in the 1990s. After getting a certificate of merit by Mattel in 1997, Lee Der's expansion brought on new facilities and increased need for suppliers to deal with the growth in orders:

Lee Der experienced a rapid expansion in the years between 1998 and 1999. In July 2000, Foshan Hengjing Toy Company Ltd., was created as a wholly-owned subsidiary of Hong Kong Lee Der Industrial. Some years later this company leased workshops at the former Foshan Shuaimeng Toy Factory as a production site, meaning that Lee Der Industrial was now running three manufacturing operations in Foshan. Their total number of employees was now over 2,500 and production last year was worth around 200 million. The output volume was by now the second largest of any toy-maker in Foshan, behind only Sino-American Toys.

But at the same time as orders, and the corresponding need for more suppliers, were growing:

The tainted paint had come from Lee Der’s supplier Dongxing, who bought the paint from Dongguan Zhongzin Colorants, a company they had found on the internet.

Dongxing’s boss had been good friends with Cheung for many years, and the small family-run business had supplied colored packaging and cardboard cartons to Lee Der.

Dongxing, founded in 2001, added paint manufacturing to its business ventures in 2002 and began supplying paint to Foshan Lee Der. It had provided Lee Der with five tons of paints and coating that first year.

Many Foshan Lee Der staff said that the growth of Dongxing’s business was thanks to the orders from Foshan Lee Der.

Quality testing was slackening off, both at Mattel:

A representative for one of Mattel’s approved paint suppliers told Caijing that there were only eight companies in China approved by Mattel to supply their toys, and Dongxing was not one of them. Yet Mattel had apparently not noticed the business relationship between Foshan Lee Der and Dongxing, although it had existed for a good four years.

The paint company spokesperson said that some Mattel suppliers would indeed source paint from non-approved suppliers yet still have their product accepted by Mattel.

..and at the toy manufacturer's approved supplier -- as well as at the supplier Mattel didn't even know it had:

...in early April Dongxing was short of yellow colorant and decided to buy some from a supplier in Guangdong province that they found via the Internet. This supplier, Dongguan Zhongxin Colorants, located in Dongguan city, sent fake paperwork to Dongxing claiming that their yellow colorant was lead-free, a problem Dongxing failed to notice. On April 10, Dongxing bought 500 kilos of colorant from Dongguan Zhongzin.

Lee Der’s management told the media that they decided not to test the colorant they received from Dongxing because they feared the process would hold up production at Lee Der.

Normally, Dongxing would send the colorant to testing agencies in Guangdong, which would take five to 10 days, said the management. Dongxing skipped the testing and around 200 kilos of the tainted colorant was used between April 19 and mid-June.

The change in paint products was noticed by alert employees on the ground (which is a whole lesson in itself):

A former Lee Der paint sprayer said he had observed in April that the paint they were using smelled differently from usual.
But the lethal difference went unnoticed on up the line:

...ordinarily a colorant will have to pass five different quality tests before use, with the colorant supplier and paint manufacturer being just two of these. So the problem wasn’t detected at the toy factory, by Mattel or by the Entry-Exit Inspection and Quarantine agency.

In mid-June 2006, testing by Mattel’s labs in China found the problem, and lobbying by the Sierra Club began to put pressure on the toy maker to remove the poisoned toys from store shelves.

As the pressure ratcheted up, Mattel made the recall notice (Aug. 2) for close to a million toys from Foshan Lee Der.

Even despite the massive recall, Mattel was willing to stick it out with Cheung. The article says:

Lee Der had already begun to put its house in order after the recall notice by using a paint supplier approved by Mattel.

And the article goes on to say:

Even on the very day the recall announcement was made, Lee Der had taken a new order from Mattel.

I truly think this is the most frightening thing about the entire story -- Mattel was still placing orders with a company that had just cost it millions of dollars in recall costs, not to mention PR points beyond count.

Ironically, it was the Chinese government (both local and national), and not Mattel, who shut the factory down.

China’s General Administration of Quality Supervision, Inspection and Quarantine announced a temporary ban on exports of the company’s products on August 9.
In the days after the scandal broke, the company submitted products for safety inspection on a number of occasions, but the local agency refused to inspect or approve them for distribution.

According to sources quoted in the article, inspection agencies rely on voluntarily submission of test reports, or at best conduct sample testing. Regular testing prior to export is not a widespread practice.

“The limitations of the inspection agency mean it can’t fulfill its appointed role, and the 1992 regulations are inadequate as a basis for effective oversight of toy export quality,” one toy maker said.

These regulations stipulate that before a toy maker is issued an export license for a product, they must submit to “model tests” by inspection agencies. Any toy for export that has been in production for two years must be submitted for re-testing.

Another source said:

“I’ve never heard of an outgoing shipment being stopped by customs in China and checked for heavy metals. Mostly it’s too much bother; all those toys, all those different models, you’d have to check every different color.”

Sadly, the article points out that there was even impetus for government intervention on both sides of the supply chain:

Between January and November 2005, the U.S. Consumer Product Safety Commission issued 27 recalls of Chinese-made toys. Later that same year, China’s General Administration of Quality Supervision issued a Warning Notice concerning Improving Testing and Supervision of Imported and Exported Toys to tighten up the testing procedures.


Finally, the report points out that toy recalls are on the rise:

Some 300,000 shipments of toys were exported from China to the United States in 2006. That same year the U.S. Consumer Product Safety Commission issued just under 40 recall notices. As of August 16, the Commission has already issued 35 recalls of Chinese-made toys.

And in a jaw-dropping display of insensitivity (these are children's toys we're talking about, after all!), a Chinese paint supplier is quoted as saying:

"I’ve been in this business for twenty years now, and seen my share of product recalls. This Lee Der incident certainly got made a big deal of."

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