Supply Chain Location/Ownership

When it comes to cutting cost in a supply chain, the location of your manufacturing plant can make a huge difference with the cost of your materials and the labor cost of the employees. By comparing the direct competitors of Hasbro Co. and Mattel Inc. we can prove the difference the location has on cost. Both these companies are valued at over 5 billion dollars but Hasbro Inc, pays a typical employee about $74,000 a year while Mattel Inc. only pays around $6300. This figure is a huge difference with two companies that make generally the same product in dolls and action figures. The difference comes from the location of the manufacturing plants and the level of ownership each company has in manufacturing. Mattel employs over 35,000 people who work outside the United States. Most of these manufacturing plants are in low-wage regions of Asia, which allow Mattel to capitalize on a low cost opportunity.  In contrast, Hasbro has about 5,400 employees, and more then half of them work in the United States, where the minimum wage is significantly higher. This labor wage difference shows the opportunities that companies have to exploit globalization to reduce cost. The move that Mattel made to have the majority of their product overseas does come with some additional costs. These costs include currency exchange rates, exporting and importing costs, travel for executives, and tariffs that Mattel has to pay to sell their products in various companies. This last cost is very important, especially today because of Donald Trump’s decisions to raise tariffs on certain products coming into the United states, and the momentum to increase tariffs on many more products. Hasbro doesn’t have to worry about these tariffs and will also receive tax breaks for having manufacturing plants in the United States.

Another key cost differential between the two companies is the level of ownership each company has on its manufacturing. Hasbro makes very few products themselves, as recently they eliminated their last two manufacturing facilities. They use sourcing done through third part manufactures in Asia to produce their products. Since Hasbro doesn’t own the factories that make its toys, they don’t directly employee the workers that make their products. Because of this, the low-wage employees in the factories do not pull down the average wage of their employees showing why they have a $74,000 salary per employee. Mattel makes many of their toys and games in manufacturing facilities that they own. Since they own the factories that they use they pay the workers that are working the low wage jobs in Asia. Mattel believes that they are able to maintain better control over the quality and efficiency of their production process. The downside is that on their financial reports they have an extremely low average wage of their employees which creates a black mark on their companies ethics when someone looks at their financials and compares them to competitors.

Do you think that companies show own as much of the supply chain process as possible or do you think its better to delegate responsibilities to other companies? Would seeing the low average wages that Mattel pays its workers cause you to take your business to a competitor?

https://global.factiva.com/ha/default.aspx?ftx=Supply%20Chains#./!?&_suid=15239250494630971353808459342

One thought on “Supply Chain Location/Ownership

  • April 18, 2018 at 11:05 pm
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    These days it feels like there is a real pushback against companies that exploit low labor costs in other countries. Not just because of poor working condition scandals like the ones faced by companies like Nike in the past, but also because of shifting and changing working conditions in Asia. With manufacturing growing in Asia the working conditions have been improving and along with that wages are rising. According to an economist article, the average factory wages have more than quintupled since 2004 in China. Along with that, China’s currency has appreciated which offsets some of the gains from lower wages abroad. With manufacturing growing so quickly in China as well as other Asian countries it’s not surprising that business ventures in Asia may start facing decreasing returns on investment. With high transportation costs and new Tariffs proposed by Trump, like Tommy mentioned costs could continue to rise even higher. What Mattel sees as a positive cost saving strategy now could turn into a problem for them in the future. I think to that end it’s important to monitor the state of the economy of the country you are deciding to locate in. If you plan to sell a lot in a country that has an improving economy that is likely a good thing, but if you hope to produce there and sell elsewhere then you may face some issues. This just goes to show how important supply chain location is for companies. What could be a great location for an initial investment may not always be a good location in the future and companies need to make sure to spread risk and not put too much investment in one location.

    https://www.economist.com/news/business-and-finance/21614076-rethinking-low-cost-and-high-cost-manufacturing-locations-when-cheap-not-so-cheap

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