Production Strategy in China

Mattel outsources its production to China through its Vendor Operations Asia (VOA), based at Hong Kong. VOA outsources to suppliers who are based at Hong Kong having their production setups in mainland China. These suppliers have the wherewithal to cut through the complex regulations and bureaucracy in China.

Mattel outsources only its non core products and short life cycle products to China, which can respond very fast to product changes and modifications due to its strengths in material processing and expertise in toy manufacturing.

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In House Production vs. Outsourcing:

In house production offers significant control over quality, product safety, because of the direct control over the supply chain by the company. It protects the IP rights of the company by not giving the manufacturing expertise and designs to any supplier. On the other hand, in house production can cost significantly more than outsourcing. Also, the company has to acquire a wide management knowledge base, to excel in supply chain management and manufacturing practices.

Outsourcing significantly reduces production cost because of lower labor costs, lower inputs and material processing costs, and an existing infrastructure in manufacturing. So Mattel has better operational efficiency and reduced capital requirements. On the downside, quality is difficult to monitor, especially where there are secondary and tertiary suppliers who supply to the main vendor.

A manufacturing plant needs to operate in an efficient manner. The support that is necessary for this is the supply chain, the costs of running a factory, including labor costs, and regulatory aspects of the country. The supply chain available in the country must be able to supply to this industry. Labor costs must be low and the local Government must be supportive of the venture.

Offshoring and Outsourcing:

When Mattel closes it American and European plants to set up its own manufacturing facilities in China, it is Offshoring. Offshoring happens when the company wants to manufacture by itself, but at a lower cost.

When a Mattel factory in UK contracts out a portion of manufacturing to Poland or Mattel contracts an outside entity to completely manufacture a toy, it is outsourcing. Offshoring is a factory or operations shifting to some other country. Outsourcing is contracting an outside entity to do certain operations.

Environmental Factors affecting Offshoring and Outsourcing in China:

China has lax IP rules. Hence a supplier could end up manufacturing a look alike of Mattel toys and get away with it. China is very sensitive about labor issues and rights. Mattel’s suppliers and the VOA sit in Hong Kong and production happens in mainland China. Hence, it is very difficult to maintain and monitor quality. Rising costs in China are making suppliers evade safety standards.

Amazon:

Value Creation to Customers:

Amazon creates value through its exceptional supply chain practices. These practices enable Amazon to offer a wide variety of products, at the lowest cost, with the best offers, at the fastest delivery time, with free shipping. These are achieved by  excellence in supply chain management, by establishing DC’s to cater to large demand groups and thus be able to serve customers quicker and better, generating higher sales.

Amazon’s Strategy Evolution:

Amazon started as a pure virtual e-marketing company, which will not stock its products but will operate with strategic alliances and only shipping and sorting operations are done.

To effectively serve its customers and to create value, the company has moved to becoming an e-marketing company which stocks, sorts and ships material with a very complex and sophisticated own supply chain and allied operations. It allows customers to sell their own products and partners with other sites that are looking for a channel. It has moved from an e-marketing company to a global internet channel brand.

Amazon’s US and European Strategy:

The US is a large market with no differences in terms of culture. So Amazon is dealing with customers who have the same language and lifestyles. In Europe, the company can not replicate its US strategies in totem. There are three different large markets in Europe: UK, Germany & France.

Each has a different language, lifestyles and requirements. While in the US, the DC’s can effectively stock the same items and supply them to the target geographies. But in Europe, with three different portals supplying different products, the strategy is different. Also, Europe has different regulations to be complied with in terms of pricing. So Amazon relies on postal agencies, for their efficiency and low costs to provide free shipping and thus show a saving for the customer.

Amazon started taking checks and postal orders to increase market penetration. In Europe, there were book wholesalers, so Amazon had to enter into direct partnerships with hundreds of publishers, unlike the US. Vendors do not operate on EDN, so time taken for fulfillment of orders is more and also uncertainty of shipped quantity.

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