Lead Paint Watch: Supplier Quality Issues Cost RC2 $30 Million

Remember RC2? Perhaps better known as the importer of the Thomas the Train rail-set to the North American market, RC2 was the company that made headlines last year not for delighting little girls and boys with its wooden railways, but rather making them sick through high levels of lead paint in their overpriced wooden rail cars. Adding fuel to the lead fire, RC2 was forced to eat crow again later in the year when they issued a free gift to those who heeded the recall that was also recalled because, you guessed it, high levels of lead paint. But perhaps now that RC2 has settled a class action suit for $30 million, they will finally have closure to the situation. It turns out that only one supplier in question, Hansheng Wood Products, was responsible for the lead contamination in both RC2s initial and later secondary recall.

All of this begs the question: Did RC2 even have any supplier quality or development teams in place in China? You'd think that after an initial recall, they'd have a full-time team at their key, strategic supplier overseeing quality and performance to prevent such issues from resurfacing. Perhaps they reckoned it was cheaper and easier just to pay the lawyers than to invest in their suppliers. But a $30 million settlement is just the tip of the supply risk fall-out iceberg. The real cost to RC2 shareholders has been much higher. Try $400 million higher. That's right -- since the initial announcement of the lead paint issue, RC2 has lost over 50% of its market capitalization. If that's not reason enough for all companies to invest in supplier development and supply risk management programs, I don't know what is.

- Jason Busch

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