Cheaper suppliers now come at a price

A man operates a shoe production machine at a leather shoe factory in Wenzhou, China.

TEXT OF STORY

KAI RYSSDAL: The first quarter's not usually a strong one for toy companies. There's that post-Christmas lull and all. Earnings from the world's two largest toy makers came in as a split decision today. Hasbro came ready to play. Profits were up 14 percent over a year ago. Sales of Barbie didn't do a thing for number one Mattel, that helped generate a first quarter loss. Ironically, as we were talking about earlier, both companies did better selling overseas than they did here at home.

Mattel's global supply chain did cause it some pain. It's still dealing with last year's lead paint recall of toys made in China, but toy makers aren't the only ones who buy parts and products they sell here overseas. Businesses save tons of money doing that, but sometimes they're buying worries, too, from tainted pet food to poisonous toothpaste, which has some companies working on ethical supply chains.

From WBUR in Boston, Curt Nickisch reports.


CURT NICKISCH: At the headquarters of Reebok, Gregg Nebel's job is to control the foreign factories that churn out his company's sneakers, sweatpants and ball caps.

JULIAN: Hello?

GREGG NEBEL: Hey Julian, buenas tardes. Estoy Gregg aqui. Como estas?

Nebel's team is working with officials in Mexico to make sure suppliers there meet Reebok's standards for fair wages and worker safety.

NEBEL: Which of the two cameras gave him that information? Do you know?

JULIAN: Camera de vestido, apparel chamber.

NEBEL: Yeah, yeah, yeah, yeah, OK.

Nebel says his job gets harder each day, because Reebok, and its parent company Adidas, rely on foreign manufacturers more than ever.

NEBEL: Ignorance is bliss. The more we learn, the more complicated it's become, the more you realize the things that you don't know and don't understand.

Reebok got a hard lesson in that two years ago, in a product safety case. A four-year-old died after swallowing a charm bracelet that accompanied a pair of shoes his parents bought. Turns out Reebok's Chinese supplier made the bracelet out of lead. There was a major recall, a settlement with the family and last month Reebok paid a $1 million fine to US regulators. Nebel says his company takes the fall when foreign contractors screw up.

NEBEL: Yeah, it's a reality, but we don't try and make excuses from that, you know? Just because we don't employ the workers in those factories, doesn't mean that we're outsourcing our responsibilities.

But babysitting suppliers is expensive. Reebok spends millions overseeing its product chain, and other companies are just now realizing they'd better, too.

MATT KELLY: That's often the case with corporate America. You don't act until it is a crisis.

Matt Kelly is the editor of Compliance Week magazine. He says global supply chains are great for making products more cheaply, but Kelly says they also turn tiny mistakes into huge problems overnight.

KELLY: It's not as if you're going to set up a small shop in China and manufacture a few hundred widgets and then see if things work. You're going to set up something big. It's going to cost you millions. You'll have thousands and thousands of products, and then you find out there's a big problem, and now you're stuck, because now you have a very big hole that you have to dig yourself out of.

It used to be so simple, when foreign suppliers just made T-shirts and trinkets. Now it's everything from mouthwash to airplane parts. With recent product scares, CEO's are now rolling up their sleeves, doing the work that was normally relegated to some deputy vice president for risk assessment. Adidas CEO Herbert Hainer says in the end, he has to cross his fingers and hope that his company has thought of everything that could go wrong.

HERBERT HAINER: I do believe that we do whatever is necessary to avoid things like that, where shoes are poisoned or whatsoever, and so I feel relatively comfortable, but you never know. I mean, you, when you're working around the world in over 120 countries, wherever you are, you cannot control the lost corner in the world.

But the simple fact is, companies have to try to. Global supply chains are here to stay.

In Boston, I'm Curt Nickisch for Marketplace.

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