Dual sourcing strategies: Operational hedging and outsourcing to reducing risk in low-cost countries

Abstract

Sourcing strategies that employ operational hedging can reduce the risk of op-erating in low-cost countries. This article examines the sourcing strategy of toy-maker Mattel. Like the high technology industry, toys suffer from many supply chain ailments including short product life, rapid product turnover, and seasonal demand. Coupled with long supply lines and potential political and economic turmoil in Asia, toymakers face an unusually complex set of risks. Managers in many businesses can learn valuable lessons in managing uncertainty from toymakers. Set during the Asian financial crisis, the case describes a facility location decision for Hot Wheels and Matchbox cars. Besides the international location decision, the case illustrates: 1) How toy makers manage demand uncertainty; 2) Mattel's outsoucing strategy in Asia; 3) How Mattel integrates its marketing and supply chain strategy.