Playing It Safe (Part 2) – Product Safety Regulations Have Changed How We Make and Buy Children’s Products

The TA Creations lunch box controversy in California was merely a prelude to a barrage of product safety news that would change the way companies source – and consumers buy – children’s products.  Three years later, on June 18, 2007, the New York Times reported that all of the 24 toys recalled by the Consumer Products Safety Commission since the beginning of that year had been manufactured in China, including 1.5 million Thomas and Friends trains and rail components.[i]  Two months later, Mattel recalled 1 million toys – all manufactured in China – due to excessive lead levels.  The recall covered 83 products, including Sesame Street and Nickelodeon characters.  These high profile recalls created much controversy in consumer product safety circles and grabbed the attention of the media, federal and state legislators, and the Consumer Products Safety Commission.

Largely as a result of that uproar, roughly one year later on August 14, 2008, President George W. Bush signed the new Consumer Products Safety Improvement Act (CPSIA).  Between 2002 and 2007, the number of recalls of products made in China had doubled, and the law was a direct response to those recalls, particularly those related to the above-mentioned children’s products tainted with lead paint.  The new law banned all products with a lead content of more than 600 parts per million by February 2009, and drastically reduced the allowable level of lead content in any children’s product to 100 parts per million by February 2011.  The law also banned the manufacture, distribution and sale of any child care product that contained concentrations of more than 0.1 percent of phthalates, a compound that previously had been used in a number of plastic products, including some drinking containers.

Finally, the new law set up strict testing requirements to ensure compliance, including a paper trail in the form of a General Conformity Certificate (GCC) that would compel U.S. distributors of products imported from China to document and have available the ultimate manufacturing source.  Thus, importers are now required to have on file a record of an imported product’s “DNA,” including the date and place where the product was manufactured, and date and place where the product was tested.

In spite of the increasingly stiffer U.S. product safety regulations, one need only follow the news to know that many China manufacturers still possess little understanding of the importance of product safety in the U.S. market.  And it is not as though China is dumping unsafe, inferior product only on unsuspecting consumers here in the States.  Rather, it is a pattern of behavior which proves that lax safety standards are both tolerated and even covered up at some of the highest corporate levels.

During the height of the 2008 U.S. recalls of lead tainted toys manufactured in China, executives at the Sanlu Group, China’s largest producer of powdered milk, had discovered that some of their products were laced with melamine, a chemical used to produce plastic and fertilizer.  It was apparently added to the milk powder to boost the measurable protein content of the product.  However, with the Beijing Olympics due to begin in a matter of days, the company opted to bury the news for five weeks to prevent an embarrassing revelation during the Games, and continued to sell the product for consumption by infants.[ii]  Six babies died from kidney stones and other kidney damage, and over 800 were hospitalized.  Two people were eventually executed, another given a suspended death sentence, and three received a sentence of life imprisonment.  So one would think this would be the end of the possibility of finding melamine in powdered milk in China.

Yet, in late 2010 and early 2011, packets of melamine-tainted powdered milk were again found on store shelves in China.  Incredibly, some of the product seized during the 2008 scandal had been reused and put back on retail shelves three years later.[iii]  In July 2012, state media outlets announced that more contaminated formula was discovered in Guangzhou, China.  Tests confirmed that the formula contained excessive amounts of the carcinogen aflatoxin. This was only one month after baby formula with dangerous levels of mercury had been discovered.[iv]

In his book The End of Cheap China, Shaun Rein (no “China basher” by any means) recounts that after the tainted milk scandal re-surfaced in 2011, the Chinese government shut down 50% of the dairies because officials were still finding traces of melamine in dairy products.  The government arrested 2,000 and closed 4,900 businesses, yet Rein comments that this “is likely a small drop in the bucket because the problems are so immense.”[v]

Meanwhile, Raelynn Hughes at Mommy Necklaces continues to fight the battle against imports every day.  Cheap knock-offs from overseas are a constant threat, but her customers trust her and the safety of her products.  Occasionally, mothers of young children who buy her necklaces will send her some of their old jewelry, and subsequent testing will reveal lead levels far above the legal limit.

“Moms stop wearing jewelry because they are fearful it will break,” Hughes relates.  “But what most Moms don’t realize is that this is not the only concern.  Most everyday jewelry is loaded with toxic levels of metals.  We test it regularly and the results are often scary.  It’s ironic that we think about what we feed our kids, what chemicals are in the diapers, environmental toxins in water; but a piece of jewelry that lays on our skin everyday and ends up in our child’s hand – we just don’t think about it.”

The fact that Hughes has thought about it, and solved the problem, has turned Mommy Necklaces into a global brand.  She now has customers across the U.S., in New Zealand and Australia (two markets flooded with Asian imports), and over 18,000 Facebook fans.

Michael McKeldon Woody is host of the upcoming television program, and author of the upcoming book “American Dragon,” both of which profile U.S manufacturers successfully competing with overseas companies.  He can be reached at mmw@americandragon.us and on Facebook at American Dragon – Michael McKeldon Woody.  

[i] Lipton, Eric B., and Barboza, David.  “As More Toys Are Recalled, Trail Ends in China,” New York Times, June 19, 2007

[ii] Leiber, Nick, and Rocks, David, “Small U.S. Manufacturers Give Up on ‘Made in China,’” Bloomberg Businessweek, June 26, 2012.

[iii] Melamine – China Tainted Baby Formula Scandal, New York Times, March 4, 2011.

[iv] Mark McDonald, Carcinogen Found In Chinese Baby Formula, International Herald Tribune, July 23, 2012.

[v] Rein, Shaun, The End of Cheap China, John Wiley & Sons, Inc., 2012, page 98.

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PLAYING IT SAFE – Product Safety Regulations Have Changed How We Make and Buy Children’s Products

When Raelynn Hughes of Holland, Michigan, founded her company, Mommy Necklaces in 2004, overseas competition was not even on her radar screen.  Raelynn’s goals were safety, fashion and comfort.  As a young mother with a new baby, she noticed that her easily distracted breast-feeding daughter, Megan, would instantly calm down when she focused on the heirloom necklace that Raelynn had received as a gift from her grandmother.  The baby would hold it, twist it, and try to put it in her mouth.  Raelynn was naturally concerned that her baby might accidentally break the necklace, or that the jewelry might contain metals that would be harmful to her child.  So she went to her computer and scanned stores that sold baby toys, trying to find a safe and practical substitute for her grandmother’s necklace.  It would be nice if it was also fashionable and relatively inexpensive too, she thought.  She quickly discovered that there was nothing available.

Then and there Mommy Necklaces was born.  Now a thriving company, with a wide range of safety-tested products, Mommy Necklaces distributes in the U.S. and overseas.  Her product contains no harmful chemicals or toxins, cording with a break-away closure, and beads that will not break, splinter or crack under the regular duties of motherhood.  Hughes has made a commitment to remain U.S. sourced.  She tests all components for product safety, and guarantees to repair any of her necklaces that are broken – no matter how.

Hughes employs a number of young women in the area, many of whom discovered the company as new mothers.  They work on production of the final product either at the Mommy Necklaces design studio, or taking pieces home to assemble.  As she describes it, “There is no sweat shop, child labor, or assembly line.  We’re a puzzle of perfection that could not be put together with the same integrity if we were outsourced and were disconnected from our sources.”

Ms Hughes decided that all cords, components and beads would be sourced in the U.S. because she wanted to support manufacturing in this country.  She chose as her supplier of beads the Greene Plastics Company in Hope Valley, Rhode Island.  Around this time she would read news reports about recalls of China-made products due to excessive lead or phthalate content.  Greene Plastics continuously tested its beads to ensure they were within standards set by the Consumer Products Safety Commission (CPSC).

“From the beginning,” Ms Hughes recounted in a 2012 interview, “I wasn’t trying to scare people, but simply open their eyes to the magnitude of this potential problem.  Our customers could buy our products with complete confidence that it was safe for their baby to be around our jewelry without worry that a transfer of toxic chemicals could occur.”  Her focus on the safety issue when she first started the company in 2004 would prove prescient.

In 2004, the same year that Raelynn Hughes was starting her company, Mommy Necklaces, the California Department of Public Health distributed 300,000 lunchboxes to children throughout the state to promote eating fresh fruits and vegetables.   One third of those were supplied by TA Creations, a Los Angeles company that had imported the products from China.  Two years later, a spot check by a Sacramento County lab discovered that some of those lunchboxes contained lead levels significantly above the legal limit proscribed by California Proposition 65 – at that time  600 parts per million.  All 300,000 lunchboxes were recalled and TA Creations was eventually slapped with a $10 million fine, the largest legal judgment against an offender up to that time.

This was merely a prelude to a barrage of product safety news that would change the way companies source – and consumers buy – children’s products.  With the passage in 1986 of California Proposition 65, businesses were prohibited from knowingly exposing consumers to potentially dangerous substances without clearly notifying them of the presence of those substances.  The burden of proof was now placed on companies, not government, to ensure that they were selling products that complied with official limits on hazardous chemicals.  Products that were non-compliant were required to carry a label stating that it “contains chemicals known to the State of California to cause cancer and birth defects or other reproductive harm.”

Proposition 65 was clearly a challenge for U.S. manufacturers who now had to comply with a more stringent set of safety regulations in California than in the balance of the country.  But it was an even greater challenge for U.S. companies importing finished goods from China.  Many of these importers had been simply shopping product off the shelf of a trade show booth of a China manufacturer or agent in Hong Kong.  They may have never taken the time to actually visit the mainland China factory where the products were manufactured.  They never inspected the materials going into the products they were importing from China; never saw the conditions in the factories.  They were buying from China like one would buy a can of peas off the shelf of a grocery store and simply assuming the products were safe.

But Proposition 65 forced those importers to pay more careful attention to the “DNA” of a product – the base metal from which it was constructed, the chemicals that were used to manufacture it, the composition of the paint that decorated it.  Although these were also challenges for small to mid-size domestic manufacturers, they were far more onerous challenges for an importer with little knowledge or control of a manufacturing process taking place half a world away.  Of course, if you were an importer not willing to comply you could choose to stop selling into California, or simply ignore the law – and put others at risk.

(In Part 2, to be posted next week, read how dangerous levels of lead in imported toys led the Consumer Products Safety Commission to take action)

Michael McKeldon Woody is host of the upcoming television program, and author of the upcoming book “American Dragon,” both of which profile U.S manufacturers successfully competing with overseas companies.  He can be reached at mmw@americandragon.us and on Facebook at American Dragon – Michael McKeldon Woody.  Twitter: @usdragon1  

Using the “FEWER” Principle to Beat the Imports

What is the “FEWER” principle?

The “FEWER” principle holds that when developing new products, a manufacturing company should focus on those that allow for shorter production runs and/or customization in order to better compete with imports.

Why focus on shorter production runs and/or customization?

Because the concept of having exactly what one wants – as opposed to a “one size fits all” mentality – has become ingrained into today’s consumer, particularly those in the U.S.  There are numerous examples of this phenomenon, but here are three.

Consider how we order coffee today.  In the 1970’s you had basically two options, regular or decaffeinated.  The server would give you the cup of coffee and you would add your own cream and sugar.  But walk into most coffee shops today and the options are almost overwhelming.  Regular coffee, espresso, lattes, decaf, all with a myriad of flavor options plus cream, milk, skim milk, soy milk, etc.

Remember when Lay’s had two types of potato chips, regular and ruffled?  The company just recently held an online poll that allowed their customers to choose whether their next new flavor would be Ginger Wasabi, Mango Salsa or Cheddar Bacon Mac & Cheese.  The winner will be added to options that include barbecue, sour cream and onion, ranch, sea salt and vinegar, etc.  In fact, there are now 51 different combinations of chip styles and flavors listed on the Lay’s website.

Those of you my age recall putting on a record album and listening to songs you did not particularly care for because you had to hear every song on the album side in order to hear the ones you really liked.  Now, we create our own digital music playlists and listen only to the songs we love.  And Google recently announced the launch of a music subscription service that anticipates your mood and plays what it thinks you will want to hear based on your past habits and the time of day and/or venue.  So not only do you now have the option of listening only to the songs you love, but this service actually anticipates and plays those songs you want to hear at a particular time of day based on how you are feeling.

We have come to expect products and experiences customized to our own tastes.  From Burger King changing the fast food business by asking you to “have it your way” to Dell revolutionizing the personal computer business by allowing customers to pick and choose the features on their laptop, consumer expectations have irreversibly changed.  The power of 3D printing is the latest, most extreme manifestation of the “FEWER” principle.

There are numerous examples of large manufacturers using 3D printers to speed up the product development process – and lower its cost – by using 3D printers to make prototypes.  But these printers are nearer to making the leap to consumer products than you may think.  Nike has used 3D printing to create custom sports bags, and in a recent interview, Under Armour’s Senior Innovation Design Manager, when asked whether the company has any plans for 3D printing, responded, “If you want to put something in your hat (figuratively), definitely something big is going to happen in the future.”  It sounds to me as though a cap tailored exactly to the shape of your head is in the works.  So, if you are in the process of creating a new product or service, you want to be certain that you have the flexibility, as a company, to cater to the consumer’s desire for something personalized.

Michael McKeldon Woody explains the FEWER principle

How does focusing on the FEWER principle make me more competitive against overseas companies?

It makes your company more competitive because most overseas manufacturers, when it comes to exporting, have a business model that focuses on long production runs of commodity products.  Given their distance from the U.S., and the costs for transportation, they need to produce long runs in order to keep prices low.  And they need to ship a lot of product at the same time in order to keep the costs of shipping low.

When competing against an overseas manufacturer, hit them where they are weakest.  It is next to impossible for overseas manufacturers to revamp their factories for short production runs or to create customized products.  And even if they did, those companies would still confront the cost inefficiency of shipping smaller quantities halfway around the world.

Makes sense for consumer products, but how does this affect business-to-business transactions?

The same people that have developed a craving for a niche flavor of potato chips and a half caffeinated vanilla latte with no foam are also working as purchasing managers at companies that buy parts.  So they, too, will want precisely what they want, exactly when they want it.  When you go to work, you don’t check your personal preferences at the door.

Also keep in mind that B2B buyers are increasingly focused on maintaining lower parts inventories in order to improve their cash cycle and their companies’ bottom lines.  By developing the ability to make and ship smaller quantities, a U.S. manufacturer can exploit that need.  An overseas manufacturer, with a business model built on making and shipping high quantities of a commodity-type product, cannot.

Davis Industries beats the imports by benchmarking their overseas competitor’s minimum order size, then reducing their own to 10% of those competitors, far below traditional industry standards.  How?  By making a modest investment in new production technology that allowed them to produce smaller quantities with lower set up costs.  They also moved smaller orders into what was formerly their “fast-track” sample production line so these orders would not be stuck in the queue behind larger orders that took more time.  Finally, they lowered set-up charges to remove a significant hurdle to new orders, calculating that they would recoup those costs in repeat orders.

Their accountant fretted about the operational costs of those smaller orders, but I urged them to consider them marketing costs for customer acquisition and retention, not production expenses.  Since implementing the change, their order count has quadrupled and 90% of their orders use the new technology.  Has the new technology displaced workers?  Just the opposite – their workforce has almost doubled in size.

Implementing the “FEWER” principle in your product development and production areas is an essential step in your battle against overseas competitors.  But the “FEWER” principle alone is not sufficient to ensure success.  It must be implemented in conjunction with the “FASTER” and “FINER” principles to have the greatest impact.  More to come on “FASTER” and “FINER” in future blog posts.

Michael McKeldon Woody is host of the upcoming television program, and author of the upcoming book “American Dragon,” both of which profile U.S manufacturers successfully competing with overseas companies by using the principles of FEWER, FASTER, FINER.  He can be reached at mmw@americandragon.us and on Facebook at American Dragon – Michael McKeldon Woody.  Twitter @usdragon1 

Why Arguments Against Government Mandated “Buy Made in USA” Programs Are All Wrong

Over the last few years, several states have considered bills that would mandate preferences for U.S. made products in the government procurement process.  An effort in Maryland was ultimately successful, and a Texas bill passed overwhelmingly in a bipartisan vote before being vetoed by Texas Governor Rick Perry.  In spite of the obvious benefits of such policies, constituencies opposed to the measures made strikingly similar arguments against them.  Here is a recap of the arguments typically made against “Buy American” provisions – and why those arguments are wrong.

Argument #1 – Buying American would raise the costs of the project.

Yes, the price of the project may be higher, but if all companies bidding for the project are under the same “Made in USA” constraints, then the playing field would be level for all bidders.

We must also consider the total cost to the city, state, or federal government.  If the price to the government entity for the “Made in USA” project is X% higher, is that X% premium covered by the taxes paid by the U.S. workers employed because of the “Made in USA” provision?  Conversely, if those jobs are lost due to the lack of the “Made in USA” provision, what is the cost to the government entity of unemployment and other benefits?

Thus, although the price of the project may be higher, the difference between the higher price and the actual cost to government may be ameliorated, or eliminated, by these other factors.

Argument #2 – It’s impractical – some intermediate parts may not be available here in the U.S.

Yes, that’s possible in some cases.  However, most “Made in USA” provisions of which I am aware are expressed as preferences.  Thus, if the price is too high, or the product is not available from a U.S. vendor, then bidders are typically allowed to source outside the country.

Argument #3 – Even though working conditions are deplorable in most low cost manufacturing countries, by buying there we help create better living conditions for the jobless in those countries.

This is a public relations argument often used by multi-national manufacturers, brands, and big box retailers to justify offshoring.  It’s ironic when large corporations characterize their sourcing model as a form of philanthropy for developing nations, when what the sourcing model truly reflects is the slogan “always the lowest price, always.”  For example, it’s apparent that apparel importers started sourcing in Bangladesh not to help the Bangladeshi people, but to buy at the lowest possible price.  It is only since the Tazreen factory fire that those same companies are now touting their sense of “social responsibility” for the people of Bangladesh as the reason for not moving their apparel purchases to another country (or back to the U.S.).

Of course, anyone with a shred of empathy is concerned about the poor in developing countries.  But should that concern drive government purchasing policies?  Should U.S. government procurement be a form of social welfare for other countries?  Is that not the role of foreign aid?

Argument #4 – We should let the free market rule and buy where the goods are cheapest.   In the long run, it’s better for all.

This argument is based on the economist David Ricardo’s theory of competitive advantage.  In a nutshell, it says that if you produce X efficiently and I produce Y efficiently, then I shouldn’t waste my labor producing X and you shouldn’t waste your labor producing Y.  If each of us does what we do most efficiently, then we can trade X for Y (and vice versa) and we’ll both be better off in the long run.

It’s a nice theory, but when Ricardo developed it he presupposed perfect competition and undistorted markets; neither of which exists when it comes to our trading relationship with China, the country from which we import most of our finished goods.  When China lets its currency reach market value, protects intellectual property, and invests in the manufacturing costs required to make goods that comply with CPSIA and FDA guidelines, then we will be nearing the state of undistorted markets under which the comparative advantage argument might be considered.

Finally, let’s remember that China is a strategic threat to the U.S., so the trade policy tail should not be wagging the foreign policy dog.

Argument #5 – Government preference for “Made in USA” is protectionist trade policy – China cites “Buy U.S. Made” rules as a justification for their own discriminatory policies.

This is a spin-off from the “comparative advantage” argument, often used by multi-nationals more interested in selling into China than rocking the boat with China.  If China didn’t have “Buy American” policies as an excuse for their own trade barriers, they would find another whipping boy.

Argument #6 – If it’s good to buy USA-made, isn’t it even better to buy Texas-made?  And if it’s good to buy Texas- made, isn’t it better still to be Dallas-made, etc.?

Hoover Institution economist David Henderson actually made this weak “reductio ad absurdum” argument for a John Stossel column written in November 2011.  Why is it weak?  Because the debatable proposition is not whether it is good to buy “Made in USA.”  Rather, it’s whether it is in the best interest of the U.S. and its citizens for U.S. government purchasing policy to establish a preference for products made in the U.S.A. under reasonable circumstances.  This is a more nuanced proposition than the one set up by Henderson.

There is no downside to government mandated “Buy American” provisions in Maryland, in Texas, or in any other state, as long as that mandate ensures flexibility if the comparable U.S. product is much more expensive or simply not available here in the U.S.  Sadly, the point may soon be moot.  The Trans-Pacific Partnership trade agreement currently being negotiated with Pacific Rim countries is likely to further weaken – if not eliminate entirely – government mandated “Buy American” provisions.

Michael McKeldon Woody is host of the upcoming television program, and author of the upcoming book “American Dragon,” both of which profile U.S manufacturers successfully competing with overseas companies by using the principles of FEWER, FASTER, FINER.  He can be reached at mmw@americandragon.us and on Facebook at American Dragon – Michael McKeldon Woody.  Twitter @usdragon1