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Strategic research of global businesses of resource chains

The main aim of this research is to execute a strategic evaluation of the global functions of supply chain within Mattel Playthings Inc. Here its source chain will be evaluated along with the risks/ security risks it confronted and a platform will be presented to control these hazards.

With growing product/service complexity, source networks are also becoming increasingly intricate in the wake of outsourcing and globalization. It has influenced risk, changing it continuously. Risk can generally be termed as a possibility of injury, hazard, destruction or any other unwanted benefits. " The Royal Population (1992) defined a far more systematic description of risk: ''the likelihood a particular unfavorable event occurs during a stated period of time, or results from a particular challenge. "

In this analysis, we will suggest a platform for future source chain risk management in the view of Mattel's recall in 2007. This recall remaining a trail of media reports, public critique, investigations and huge lessons learnt.

Mattel Toys Inc. is a worldwide leader in the look, production and marketing of playthings and family products. It comprises of top-selling brands such as Barbie, Fisher-Price brands etc. Mattel is regarded as the 100 Most Trustworthy U. S. Companies by Forbes Magazine. (Source: Wikipedia)

In 2007, it experienced a collection of continuous alarming product recalls where around 21 years old million toys and games were pulled away from sale. If the toys were defective in design to lose small magnets, which if consumed could harm kids, or these were toys contaminated with lead car paint via unethical Chinese distributors was irrelevant as the situation was subjected to high multimedia critique and acquired outlined for quality mismanagement and various logistic routines in outsourced suppliers. (Biggemann 2008)

The stand (amount 1) below shows the toys recalled from Mattel's particular distributors and their sub-vendors:

Industry experts claim that Mattel is locked in a marriage with China having five factories and manufacturing there for nearly 25 years. It outsources its development up to 50 percent to third-party manufacturers and almost 65 percent of its toys are produced in China.

"In spite of quality control work, Mattel has had 36 recalls since 1998 and two formal Consumer Product Safeness Commission (CPSC) admonishments. It's most controversial recall, up until 2007, engaged 10 million Power Wheels toy vehicles. " (Biggemann 2008)

Below is a timeline depicting the main element events that occurred during the course of this recall,

Figure 2: Mattel's product recall timeline

The consequence of this recall was catastrophic for Mattel and it lost more than 45% of stocks in market value. Although sales at international marketplaces helped it gain some profit for that interval (Casey, 2008), yet these possessed very little impact on their annual information when compared with its damage. The question now elevated was "How do Mattel wrap up in such a tricky situation?" Is it a case of heavy disregard or something worse? It really is argued that this was the result of Mattel's flawed sourcing strategy.

Literature Review

Toy industry is one of the oldest sectors for creativity and extremely volatile in mother nature. In the United States alone there are around 3 billion playthings sold per yr (Elsasser 2007). Toy sales estimation are practically 22 billion USD (Strickler 2007). Physique 3 quotes the total annual toy sales from July 06 - June 07 which proclaimed a rise up to 22. 5 billion USD.

Figure 3: Talk about of Toy Industry

Erratic and changing demands in this industry make a layer of volatility credited to undersized and custom-made selling-openings and quick product lifecycles. Toy demand and toy sellers' needs are very volatile and expect toy manufactures to be very market responsive; but most toy manufacturers act in response with regular mass-production strategy which is very nominal in response and very mismatched to their strategy. Supply sites of such companies are growing into sophisticated and dynamic mesh of differing romantic relationships (Harland et al. , 1999). Risk is escalating and its focal point is ever before changing within the dynamism of resource networks all scheduled to outsourcing of supply operations overseas and also credited to growing complexity of product/service life-cycle.

Of overdue research has explored strategies to reduce risk in toy resource chains and networks. One of the main investments of toy manufacturers is their network position and the human relationships and policies that include these (Turnbull et al. , 1996). To asses and manage risks, network positioning takes on an important role especially in source of information posting, reputation management and terms of deal (Henders, 1992).

To begin the study, a books search was performed with the intention of finding articles related to provide chain security and risk. The search included all journals known to publish articles related to security, risk, and/or resource chain management. Study of the literature unveils four core premises that are regularly mentioned as essential for firms seeking to maintain effective degrees of security and in lessening and/or managing source string risk.

(1) Planning and planning initiatives.

A central target of the supply chain security/risk books is business and offer string continuity planning. Zsidisin et al. (2005a) give you a four-step business continuity plan, including awareness creation, protection, remediation, and knowledge management, regarded as salient for companies having to protect themselves and their resource chains from exterior risks. The business enterprise continuity planning notion is conceptually aligned with the supply string risk paradigm, i. e. source continuity planning by Zsidisin et al. (2005b), who suggest that controlling risks at the dealer level is crucial for firms wishing to avoid disruptions in resource lines.

(2) Security-related partnerships.

Another theme found in the security books addresses the creation and maintenance of security-related resource string partnerships. Sheffi (2001) posits that leveraging interactions with suppliers and governmental companies is necessary to ensure against property and product damage and thereby help in supply string continuity. He proposes that dealer romantic relationships should be built both locally and globally, with higher tolerance for cost and lead-time requirements, in order to diversify supply risk.

(3) Organizational adaptation.

An additional emergent research emphasis handles organizational adaptability as a coping respond to potential or recognized supply chain dangers and crises. The literature broadly suggests that supply string security-oriented organizations take adaptive steps toward both protecting supply chain property and lessening risk exposure.

(4) Security-dedicated marketing communications and technology.

A final feature at the firm level is the execution and consumption of security/ risk-dedicated communications stations and/or security-facilitating or risk lessening technology. Zsidisin et al. (2005a, b) state that the power of the company to control information and knowledge, also to build continuously on the knowledge base, are very important conditions for mitigating supply string risk.

In circumstance of Mattel Toys Inc, risk came from the actual fact that about half of its playthings are created in Mattel plant life and about 50 % are outsourced to merchant plants. A number of the problems came up in when these merchant crops also outsourced to other seller vegetation and again these other seller vegetation outsourced, thus, making the supply chain lengthy - or 'profound'.

The longer the supply string, the harder it is ideal for the foreign firms to keep an eye on who does what, when and the final quality of the parts or product (Lyles, 2008).

The next section provides a security framework to cope with the past and unexpected future dangers in the sophisticated source network of Mattel Toys and games. They are recommended guidelines for determining, assessing and managing risk.

Theoretical Framework

This section of the essay provides the overarching technique for interacting with Mattel's situation. For this function, the Supply Network Risk Tool submit by Harland et al. , 2002 has been used. A diagram illustrating the whole methodology has been listed below. This is followed by a justification for selection, and id of shortcomings.

(Fig4. Supply Network Risk Tool, Source: Harland et al. , 2002)

Justification of the Theoretical Framework

The framework is made on early research and involves individual frameworks for each section, thus analyzing the problem in depth. It provides a all natural view to assess the situation/occurrence and follows an absolute collection for mapping and applying risk strategy. For disruption like that of Mattel's recall in 2007 it provides a resilient strategy for managing the potential risks involved in an successful manner.

Testing/ Enlargement of the theoretical Framework

The Source network risk construction consists of six parts which measure the overall situation of the business in a thorough manner, and advises solution accordingly. During this extension, Mattel's situation is analyzed and simultaneously the platform is evaluated and later critiqued.

Part 1- Map Supply Network: The diagram provided below is a snapshot of Mattel's source chain from starting to end that been around prior to the recall in 2007.

(Fig5. Mattel's Global Resource Chain, Source: Barad, 2002)

Identifying Risks

Risks (desk 1) within Mattel's complicated source network have been revealed.

Strategic risk (Simons 1999)

Definition: Affects business strategy implementation

For Mattel:

New solutions can render their products obsolete

Sudden shifts in customer tastes

kids are receiving older more radiant (KGOY)

toy suppliers are consolidating

retail price is falling

Supply risk (Meulbrook 2000)

Definition: Adversely impacts inward stream of any type of resource to permit operations to occur; also termed 'input risk'

For Mattel:

increasing customization

outsourcing of operations

disruption to the supplier

quality problems, materials and parts shortages etc

bankruptcy of supplier

Customer risk (Meulbrook 2000)

Definition: Affects probability of customers placing purchases; grouped with factors such as product obsolescence in 'product/market risk'

For Mattel:

Shift in customer buying pattern

Shift in customer preferences

More competitive products during demand

Operations risk (Meulbrook 2000)

Definition: Affects a firm's inner ability to create and supply goods/services

For Mattel:

Failed/ out-dated technology

Labour strike

Disasters and Natural Calamities

Reputation risk (Schwartz and Gibb 1999)

Definition: Erodes value of complete business anticipated to loss of confidence.

For Mattel:

Recall history

Financial risk (Meulbrook 2000)

Definition: Exposes a company to potential reduction through changes in financial marketplaces; can also occur when specific debtors default

For Mattel:

Drop in market share

Devaluation of company show price

Fall in credit rating

Legal & Regulatory risk (Meulbrook 2000)

Regulatory explanation: Exposes the company with changes in regulations impacting on the firm's business

Legal meaning: Exposes the organization to litigation with action due to customers, suppliers, shareholders or employees

For Mattel:

Changes in rules and administration policies

Lawsuits

Supplier country legalities

Then these have been categorized into various types which were used as a guide to examine the risk (desk 2) and repercussions faced throughout their great product recall in 2007.

Type of Risk

Identified Risks

Consequences

Causes

Supply Risk

Quality related:

Lead Car paint Contamination

Loosely fitted components

Supplier related:

Fraud

Contract Default

Recall of products and associated costs

Lawsuits

Re-evaluation of suppliers

Suppliers pulled out of market

Increased dealer control

Defective recycleables moving downstream

Trust deterioration

Deviation from quality standards

Outsourcing of quality control

Low transparency in Agreement Terms

Poor tractability of source of supplier

Falsification of documents by suppliers

Use of uncertified led paint

Deviation from quality standards

Improper sub-vendor tracking

Falsification of documents by suppliers

Improper regulation

Operations Risk

Design related:

Unfeasible magnet design

Recall of products and associated costs

Costs of redesign and R&D

Failed screening both in design and creation stage

Flawed R&D

Market related:

Brand Image

Loss in sales

Loss in customer loyalty

Uncertainty

Bad consumer experience and accidents

Health hazards

Falling consumer confidence

Decreased Brand Loyalty

Adverse effect on other products

Loss in revenue

Increased doubt in buyers

Harmful products

Betrayal of customer trust

Delicate aim for market

Policy & lawsuit related:

Legislative

Regulatory

Lawsuits

Fine by CPSC

Led to new and tighter regulations

Did not track their own standards

Political effect by stakeholders

Financial Risk

Economic related:

Drop in share price

Drop in sales

Drop in sales and revenue

Implementation of 3-fold plan by Mattel

Retail pullout

Recall of products

Media critique and bad publicity

Customer fallout

Strategy Risk

Outsourcing related:

Vendor subcontracting

Sub-vendor quality control

Drop in product standard

Harmed consumer base

Affected brand name

Dropped market share

Vendor subcontracting and then sub-vendor again subcontracting

Flawed track of sub-vendor and sub-sub-vendor activities

Assessing Risk

In this section a probability-impact matrix has been created to assess the impact of risk (talked about in number 3) on the supply network of Mattel Toys predicated on its possibility of occurrence.

High

2, 3, 5, 6, 7, 8, 11, 12,

13, 18-23*

Impact

*Refer Appendix abdominal for information of number

1, 4, 10, 14, 15*

Probability

Low

High

The matrix plainly shows that most of the major risks associated with its supply network is based on High Impact - Low Likelihood and High Impact - High Probability region. This matrix has been used as a mention of create another matrix (below) for a particular risk that Mattel suffered i. e. , the great recall of 2007.

High

Fraud, Contract Default, Quality- Lead contamination, Design- Magnet part,

Impact

*Refer Appendix abs for information of number

Brand Image, Damage in sale, Reduction in customer loyalty, Legal & Regulatory, Drop in show price

Low

Probability

High

During this era, all risks got very high impact on Mattel's source network and triggered setbacks and disruption that have been hard to recover from.

Managing Risk

There are a few ways in which Mattel can increase their capacities of supply chain risk management;

Visibility - To be able to properly assess supply string risk and react to events, visibility over the supply chain is required. Which means that the supply chain risk management tool must be capable of integrating with, and modeling ERP analytics from, multiple disparate ERP systems, including systems aiding the source and circulation nodes.

Event recognition and alerting - The sooner a supply chain disruption is identified, the faster the response. An alert that shows up in e-mail or a lightweight e-mail device will ensure that the correct people are made aware of the event when it happens. Way too many times, event diagnosis is based on the function itself. Being truly valuable, alert should be induced predicated on the expected impact of the function. For example, if the supplier is out of business, however the loss of this distributor doesn't impact key metrics, an alert might not exactly be necessary.

Analytics - The full suite of resource chain analytics needs to be modeled in the source chain risk management tool to guarantee the impact of the potential supply string event is known. When an event happens, analytics are being used to model the event and determine the impact. Above all, these analytics have to be performed instantly, especially when giving an answer to an unanticipated supply string disruption. When a meeting happens, every second matters and an organization can't wait days and nights or weeks to comprehend the impact or to determine resolution alternatives.

Simulation - Simulation is crucial to both attributes of supply chain risk management. When examining the risks, simulation helps to model different risk cases. Further, simulation can be used to model alternative mitigation strategies to ensure they are sound. When giving an answer to an unanticipated supply string event, simulation is utilized to model and compare the various response alternatives.

Collaboration - The risk management team will need to examine several possible mitigation alternatives. Members of the team will not have the specific knowledge necessary to explore all alternatives in the fine detail needed to develop a strong mitigation strategy. The ability to bring other people into the evaluation process is critical both to validate the proposed strategy and also to propose key improvements to the strategy. Similarly when responding to an unanticipated resource chain event, collaborating with those with the detailed knowledge means that the response alternatives are acceptable.

Scenario evaluation - in the procedure of growing mitigation strategies or responses, the team may develop multiple strategies that potentially deal with the problem, but in differing ways. The team needs to decide on which image resolution or mitigation alternate best satisfies the goals of the business. One procedure may increase lead times by 30 days, while the other may increase the cost of goods sold by 10%. Your choice on which procedure is best needs to be evaluated in light of corporate and business goals.

Form collaborative source network risk strategy

To achieve success in today's intense toy market, retailers and manufacturers should drive trim and closely manipulated source chains. As the rate of promotional marketing and progressive product launch continues to grow, companies are largely caught between active customer demands and comparatively set manufacturing and logistics parameters and constraints. Collaborative planning helps in dealing with supply chain issues. To boost supply chain responsiveness in Mattel, it requires shared presence with suppliers and vendors into events occurring now and in the future, while working jointly to solve issues and problems encircling delivery constraints.

Implementation

To keep up with dynamism of market demand and unseen risks, Mattel must implement its strategies for risk management in clear set up, and/or procedural way. Relating to Freedman (2003), strategy execution should encompass order, dedication, ingenuity, management control and advanced execution skills. In Mattel, the Corporate Responsibility division should use this as a guideline for his or her advisory and research. Freedman (2003) also discovered that moderating complexity is one of the core steps in strategy execution. This is in regard to Mattel's supply chain network that was complex and merchant mismanagement lead to one of these biggest recalls.

It is recommended for Mattel, to train and educated their workforce to handle unanticipated risks in supply networks (Harland et al, 2002). Their labor force needs to be made more aware of the total inherent risks encountered following the great recall and figure out how to identify such hazards in first stages. They have to concentrate on current tactics of risk management and evaluate if these are apt after the recall. Mattel must handle complexities within their supply chain network by increasing visibility in it. This is achieved by evaluating risk at the level of the network somewhat than limited view to just immediate sellers (Harland et al, 2002). . They need to increase access to and control of sub-vendors throughout the source network. Therefore will help those to expose risks throughout their source chain. Also they need to develop/upgrade their existing supply network risk strategy and take it in-line with the organizational routines and the platform recommended here.

The key to successful risk management execution is by identifying two situations to react to supply chain occasions (Source: Kinaxis);

An unanticipated source disruption1

And, an anticipated resource disruption by executing a mitigation strategy

In both situations, the main job is to warn on time that an event has happened. It's difficult to respond to an event if you do not have information onto it. The supply string must be monitored consistently. The practice of risk management - from spotting risks, through choosing suited risk management strategies, and then changing the framework of the resource chain - is an information-demanding procedure (Source: Husdal). This means it's very reliant on information sharing. The main element activity then is to recognize essential information signalling risk while filtering data.

Critique

The model is critiqued to identify the shortcoming of the construction:

The model is build upon existing model and does not provide any new strategy to provide a total security solution.

The model is subjective in nature as the author Harland et al, 2002, themselves remarked that on categorization and identification of risk, the view of assessors examining may vary.

It may not always be possible for organizations to consistently examine risks and also have tactical frameworks in position

The establishing of collaborative arrangements in supply network and identification of dangers and implementation of this in existing system may confirm costly

As the model is subjective in mother nature, there might be difference in judgment of the assessors on the score of particular risk in the organization.

Conclusion

In the wake of Mattel's great recall in 2007, it is seen that their technique for outsourcing brought about one of their biggest loss and resulted in brand tarnishing and major street to redemption in their market value. Their response to this turmoil was well-handled but this lifted questions how they foresee their risks and avert them?

The suggested security framework draws a bird's eyes view with their resource network and asses risk at every level of their supply string. It provides 6 key tools to asses risk and some effective steps to use them. Later this construction is also put through self-critique but from a broader picture it can offer some key changes to the shortcomings in Mattel's current strategy.

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