Sunday, September 13, 2009

CPSIA - Consider the Source

From Thursday's WSJ: "Consumer advocates remain adamant that the law should remain as is, saying a reopening [the CPSIA] would allow businesses to make changes that will weaken protections for children. 'Businesses’ assertion that they’re having to test products they know are safe is absurd. You only know if a product is safe if it’s been tested,' said Rachel Weintraub, director of product safety for the Consumers Federation of America."

Master Propagandist Rachel Weintraub has now intoned that we in the business community don't know how to control our businesses or assess safety without her insights and instructions. And how, precisely, did she become such an expert on manufacturing controls? According to her resume that she presented as a speaker at an October, 2008 conference, she has worked at Consumer Federation of America as Senior Counsel and Director of Product Safety since January 2002. Before joining CFA, she worked at USPIRG from September 1999 to December 2001 as a "consumer advocate". Before that, she attended Boston University Law School (Class of 1999) and Binghamton University (Class of 1996). That's the entire resume - NO business experience whatsoever. By all appearances, she has never worked for a business of any kind since she left high school.

I think expressing ignorant opinions is dangerous, Ms. Weintraub. Having never worked at a manufacturer, I believe Master Propagandist Weintraub is not an expert on supply chain management, nor the person I would choose to consult on how to design a quality control system.

She asserts that "You only know if a product is safe if it’s been tested" and snorts at the notion that there is ANY other way to assure quality. I happen to have 19 years experience MAKING toys and educational materials and would like to comment on this contention. First, let me state MY qualifications for your evaluation. I have a B.S.E. in Chemical Engineering and a J.D. as well. [I only admit that I am a lawyer to friends, so consider yourself "inside the circle".] I have worked for a laboratory distributor, a manufacturer of machine tools and a national law firm, aside from my present employer Learning Resources, Inc. I have had responsibility for our company's quality control and legal compliance activities since I joined the firm in 1990 and since our founding in 1984, I estimate that we have sold between 750 million and 1 billion units. We have also tested consistently during that period of time and recalled a grand total of 130 units. All of these defective units were recovered. I know something about the issue Ms. Weintraub addresses.

Let me say as an initial matter that it is necessary to incorporate some testing into any rational quality control process. This is why we have consistently tested our products.

Among the many PROBLEMS with the law that Ms. Weintraub so ardently and manipulatively defends is that the CPSIA will cause us to significantly OVERTEST. Overtesting is not only ineffective but it is also very expensive. At our company, I believe we can maintain our sterling compliance record for about $150,000 per year in testing and inspection costs (absent government meddling). Last year, we spent $250,000 in testing and year-to-date, we have spent $200,000. I expect the costs to rise by year end to as much as $500,000. Next year, if Ms. Weintraub gets to realize her warmest wishes AND if we change NOTHING at our company (unlikely in that event), I think our testing costs will be far in excess of $1 million and may be double or triple that number. In a nutshell, the testing requirements that Ms. "I have never worked at a company" Weintraub fervently believes are necessary will drive our costs up 20 times. That's a . . . problem.

Perhaps in the Never Neverland of consumer groups, there appears to be no recession right now. Perhaps the flow of contributions from trial lawyers makes life full and rich for consumer groups these days, I don't know. However, sadly, out here in Reality World, profits are down. A lot. Raising testing costs well into seven figures, well, that money will have to come from somewhere. With budgets as tight as they are, financing difficult to obtain and orders light, the "where" is hard to identify. Under the circumstances, it may be worth reconsidering the "absurd" notion that safety can only be assured by a plan endorsed by the Master Propagandist.

In our business, we use many techniques to control our quality and our supply chain. We tend to use companies we know well to produce our products. We know the families that own and run them. We have longstanding relationships and have created alignment on manufacturing principles and expectations. They know the rules, so do we. Their character and integrity is part of our criteria for doing business.

We use other techniques when we perceive the need to take extra precautions. Remember, we are all too aware that we sell products for use by children - after all, our mission is to make life better for kids. It is an urban myth that we needed Congress to give us this insight. We overdesign products to withstand abuse. We use random testing and spot inspections. We regularly review products for possible design improvements. We also routinely test our products for compliance with a variety of safety rules, all of which adds to our certainty of safety. It is worth noting that our one recall in 25 years resulted from a retest at the request of an Australian customer against their local rules, which revealed a bad lot. [We subsequently fired this one-product supplier, who came into the company with an acquisition.]

Ms. Weintraub advocates a simple-minded approach to safety - namely, that piles of passing test reports stacked up to the sky will assure safety. I can understand why she might think this, having never worked for an actual company. It sounds good, doesn't it, especially if you don't think about it too much? Personally, I don't think it will work and would not advocate it as our company's primary quality control strategy. The notion that we can rely on pieces of paper for safety assurance will not bear up over time. Have you ever heard the expression that "there are many slips 'twixt cup and lip"? The only technique which I think works is supply chain management. If we allow our laws to place the focus on safety test compliance, rather than safety itself, ultimately a horrific safety issue with a children's product will emerge - backed up with lovely passing test reports. [I have previously speculated that this in fact occurred in some of the large scale recalls of 2007/8.] What then, Master Propagandist?

As I said, the money (and human resources) to support the CPSIA's ridiculous testing scheme has to come from somewhere. It will come at the expense of future product development, current speciality market products and finally, will siphon off management time and attention that might have been applied toward a better safety system. Not good . . . .

If these safety costs are allowed to be implemented in February 2010, many of us won't be around to see what happens, either. You will miss us - and all you will have left are the consumer group propagandists. I hope they are good at designing, manufacturing and financing the specialty market products you need. Let me know how it goes.


Sebastian said...

Can we put "Out here in Reality World" on tshirts?
Tested and compliant tshirts of course.

Anonymous said...

UPS and Fedex as well as many companies in a variety of other industries have been charging "fuel surcharges" now for decades. Even when fuel prices drop, these surcharges are still levied and even increased. To the best of my knowledge, these surcharges are legal and are not regulated by govt. They are permanent fixtures in the way these companies bill.

Which brings me to: Why not simply pass (a portion) of the CPSIA compliance costs on to the American consumer? OK, maybe today, $300 for a set of 12 wooden blocks seems high, but wouldn't a consumer be willing to pay this if she knows its backed up by a stack of testing documents?

Sarcasm aside, suppose to make the source of product cost increases, i.e., compliance costs, more evident to the consumer, we establish a consortium of child product manufacturers/retailers that would levy a small fee (probably not enough to cover actual compliance costs), say 2-10% on every sale of a child's product, and this surcharge would be listed on every invoice as a CPSIA compliance charge. The consortium could use some of the surcharge thus collected to hire lobbyists to give Ms. Weintraub and her ilk others to argue with.

While not fleshed out, this is not meant at all as a cynical or sarcastic proposal. We all raise prices to cover costs, else we go out of business. This is just another cost, though arguably a cost for which there are virtually no benefits to society.

It is only when the American consumer becomes fed up that it gets (sometimes) a rise out of our government. Even then, it does not necessarily produce a reasoned response (to wit the CPSIA), but what do we have to lose - profitability? Not much more left to lose in that category!

Anonymous said...

"What then, Master Propagandist?"

Well it seems your years of actually working in the business failed to provide you the obvious answer.

There was obviously not enough testing because testing would have found the problem and so the answer is....

More testing

Rick Woldenberg, Chairman - Learning Resources Inc. said...

If the answer is "more testing" and no other strategy will suffice, then the expense will start to bump products out of the market owing simply to testing costs. The failure of the "precautionary principle" is that it is uneconomic, and therefore irrational. The flaw in the reasoning is that somehow there must be a "free move" in this game, but there isn't.

To test is very costly - that cost will be taken into account in manufacturing decisions. To NOT test is also costly, if it results in injuries. Thus there are costs on BOTH sides - so which is better? The economically better choice is the choice we should make because we pay either way. In this case, the less costly (more beneficial) method is to focus testing resources on those issues where the expense will make a difference. Testing and retesting does not alone make for greater safety because it provides little useful information.

Let me illustrate with a simple CPSIA example. Under the law, we must eliminate six phthalates from toys. Phthalates are a man-made additive and thus, if not put in the product, can't be in there. So if you source or manufacture on a phthalate-free basis (I refer to the six illegal phthalates), testing for them is nothing more than a check on the system. This kind of testing is useful if done to statistically check your work but if done prophylactically, is a complete waste of money. It is excessive and provides no useful information.

Violations of safety laws are manufacturing defects. Manufacturers need to work to minimize defects, whether poor colors, cracks or high lead content. Better quality control will result in better compliance. "More testing" is too simplistic an answer and if implemented, will cost YOU too much when you lose access to important products or important companies. Let's stop the madness before it consumes this critical market once and for all.