Smarting from the massive product recalls of 2007 that saw RC2 and Mattel take it on the chin for shipping lead-laced goods into the US, toymakers and children’s consumer products manufacturers are still in the process of determining the best path to compliance. And with a new set of governmental and non-governmental health, safety and environmental regulations like the UK Toy Safety Directive on the horizon, the stakes have never been higher for manufacturers and licensors working in this sector. It is difficult to calculate the associated costs of winding up on the wrong side of a recall, but let’s just say it ain’t good for the bottom line any way you slice it. Everyone knows the best way to avoid embarrassing and possibly damaging public relations nightmares is to institute better practices and meet the highest levels of sustainability and product integrity while keeping the associated costs at a minimum. But that’s easier said than done.
“Every brand and IP owner is very, very conscious these days about issues surrounding how products are made, what goes into them, the environmental impact of the process and the working conditions in countries where they are manufactured,” says LIMA SVP of industry relations and information Marty Brochstein. “I have to believe that everyone wants to do business in the most ethical way possible, separate from the business reason of preventing blowback onto the brand.” (He notes that bad optics on even one product from one manufacturer can have a devastating effect on entire lines of branded merchandise, even for products not in any way associated with the problem.)
The overall issue has set in motion a working partnership, facilitated by industry org LIMA, to put licensors and their licensees on a solid path to compliance. The partnership includes major IP owners Mattel, Hasbro, Disney and NBC Universal and consultants from San Fransisco-based global business network and consultancy Business for Social Responsibility. Efforts got off the ground this past fall, with LIMA undertaking an industry-wide survey on the subject and hosting two informational webinars.
Interestingly, the survey revealed that licensors seemed to have a better grasp than their licensees on what compliance really means. The problem, of course, is that it’s the licensees that are closer to the manufacturing process and are in a much better position to exert control over the situation.
“The licensors tend to have much more sophisticated understandings of these issues,” says Laura Commike Gitman, director of advisory services for BSR. “They have the expectations of what the licensees should do, but don’t have the ability or resources to train all of them.”
The survey also found that licensees believe they understand the basic tenets of compliance, but still want to institute more training when it comes to managing licensors’ expectations.
To help eradicate these differences, BSR suggests licensors fully adopt what it terms “internal alignment” throughout their management processes. “Better management systems overall can lead to better products,” Blythe Chorn, associate of advisory services of BSR, told a collection of licensors and licensees during the most recent compliance webinar. “Internal alignment can act as a radar/navigation system to help identify and manage hidden risks and opportunities.”
In short, compliance cannot be handled by one department separated from the rest of the business. The concepts of compliance and standards have to be infused into every aspect of the supply chain, and often, depending on corporate culture, trickle down from the highest executive office to the front line of manufacturing.
“You really have to be consistent,” says Gitman. “You can’t have a compliance department that works with clients and factories that have certain expectations and a design and purchasing department that doesn’t consider the same factors.”
Another benefit of internal alignment is that licensors can better establish incentives for their licensees and manufacturing partners to follow the correct procedures.
“Is there going to be a real risk of losing business if manufacturers don’t comply?” asks Gitman. “That is why internal alignment needs to be a real factor in decision-making. It gives the incentives teeth.”
An even larger issue that the new partnership recognizes, but is leaving alone for the time being, is the seemingly insurmountable mess being created by the red-tape and complex paperwork related to the host of regulations issued by retailers, licensors and governmental authorities over the past five years.
“The problem is that no two regiments are alike,” says Brochstein. “If you are a [school] bag manufacturer and have seven different licensors that ship to 30 different retailers, you do the math. The possible number of combinations is astounding. Every requirement is different and what results is audit fatigue, an immense amount of paperwork and time consumption, and therefore, associated costs.”
Gitman says that while the partnership recognizes the importance of the problem, there are other efforts being made to unify standards and cut down on the duplication of processes. “It is one of the biggest challenges and that is something the companies are aware of,” she says. “There are a number of efforts underway to deal with that, so I’m not sure it makes sense for this group to address it.”
Taking a step back, Gitman hints that there’s also a philosophical bridge that has to be crossed in the relationship between licensees and licensors. She believes the fact that the whole debate has been framed around the word compliance represents an inherent flaw in the conception of the idea.
“I think the term itself has created this ‘I’m doing exactly what the brand is asking me to do’ feeling, rather than [the licensees] really owning the process and managing the issue,” says Gitman. “I don’t think licensors want to be in the position of needing to audit everything. The licensees want to manage risk in their supply chain so they can build management systems…and create a level of confidence in their ability to manage the issue.”