One must be very carefull with interventions in complex systems. Beware of what you wish for.
A storm is brewing in the USA after Congress and Senate passed a bill almost unanimously. This bill was a knee-jerk reaction after lead contamination was discovered in toys imported by Mattel from China. Protecting children from contamination is laudable but the cure has devastating side-efects. The problem was imports from China, the solution destroys a wide range of small manufacturers in the West (including the EU).
Evolving Excellence has an excellent overview of how bad the legislative design is.
- Lead levels must be reduced to 600ppm within 180 days of when the Act is enacted on February 10th, then down to 300ppm in a year and 100ppm in three years. This is not really a problem with the vast majority of products, which typically have about 6ppm.
- This is not just toys, it is any type of product that could come into contact with kids… so clothing, car seats, you name it.
- Problem #1: certification testing must be done by a lab on a “certified list”. This list isn’t exactly long, and their are hundreds of thousands of products. Guess what is happening to those labs: the waiting list for lab work extends out months and the cost per lab workup has gone from $200 to as much as $6000… per sample.
- Problem #2: testing must be done at the product level, not the component level. So a common component used in multiple types of products must be tested multiple times. What does this mean? Each SKU must be tested separately, even if they are virtually identical. One pair of jeans and a slightly different pair of jeans, both using the exact same raw denim, must be tested separately. See the video below, where a manufacturer of science kits has 40,000 SKU’s… and is looking at a $20 million dollar cost for initial certification testing. This is why many products, and companies, will simply cease to be sold.
- Problem #3: testing must be done by the final manufacturer, and supplier certification cannot be used. So if a company supplies the same denim to a variety of manufacturers, then each final manufacturer must test and certify their product… which has the exact same raw material. Companies are allowed to use supplier certification for attributes such as flammability, but not lead.
- Problem #4: ongoing final product testing, which is different than the initial product certification test, must be done by batch. Guess what will happen: batch sizes will increase and the companies that leverage speed and small batch sizes will have to give up that competitive advantage.
- Problem #5: even large manufacturers use bank lines of credit to handle long lead inventory purchases through cash generation after payment. Banks can only issue credit to “legal” activities (obviously), so on February 10th many types of products will cease being legal and credit will dry up.
With friends like this….
