We’re All In This Together

‘Green’ Governor Pressed to Stop Tefllon-Chemical’s ‘Toxic Trespass’ on Babies
Lead Toxins Take a Global Round Trip
Thomas & Friends Wooden Railway Toys Recalled
Chinese Manufacturer Used Lead Paint on 1.5 Million Toys, as Nation’s Recall Rate Troubles Safety Experts

Gripping headlines—but do they make a difference in how you do business? Can any of these hit your bottom line? At first glance, you probably think not. Why should you? After all, these appear to be consumer-driven stories regarding product safety. Now that product recalls are issued regularly, it’s easy to become somewhat numb. Already in 2007, the following “Made in China” products have been recalled: candles, ceramic heaters, children’s toys and clothing, hair dryers, oscillating fans, battery packs, electric lamps, bicycles, circular saws, stereos, pet food, children’s jewelry, drums, kitchen stools, outdoor grills, glassware, tires, toothpaste, recliners and hammocks.

But ignoring these headlines could cost you in the end, as they could easily point to any of us in the promotional products industry. After all, our industry has grown into an $18.8 billion business and, thanks to new and improved imprinting and decorating technologies, product categories continue to grow into a broad range of areas, from electronics and toys to apparel and more.

Since When Do You Need To Be A Chemist To Sell Promotional Products?
Stroll down the hallways of Norwood (UPIC:NORWOOD), Geiger (UPIC: geiger), R.S. Owens (UPIC:RSOWENS) and other large promotional products companies and you will hear daily discussions in management meetings and even by the water cooler about the latest chemicals to be added to California’s Office of Environmental Health Hazard Assessment (OEHHA) list of toxins. You may even overhear talk of the latest types of testing or new material standards. “Just this morning we were discussing the list of 800 chemicals regulated by Proposition 65,” says Paul Lage, MAS, president of Indianapolis, Indiana-based Norwood, one of the industry’s largest suppliers. “This list is fluid and growing all the time.”

Many in our industry have already taken a direct financial hit thanks to the California Safe Drinking Water and Toxic Enforcement Act of 1986, also known as Proposition 65. Passed by voters 20-plus years ago, it gives individuals the right to sue a business with more than 10 employees if even one California resident is exposed to a harmful chemical without proper warning.

Under Prop 65, a company found to be non-compliant with this law faces very real financial consequences. Every member of the supply chain—even those situated outside California—can be held financially liable for products that ship to California and expose individuals to harmful chemicals without prior warning.

“The issue of Prop 65 first bubbled to the surface for me when I attended PPAI’s Suppliers’ Forum,” says Scott Siegel, MAS, president of Chicago, Illinois-based R.S. Owens & Company, Inc. “Due to my involvement with manufacturing the Academy awards in California, I had to become more educated than many people in the industry.”

Promotional products potentially affected by this law include food products, drinkware, tableware, picnic products, costume and children’s jewelry, lead crystal awards, any items with an electrical cord, toluene markers, carbonless copy paper and brass products.

Lage says that when he became president of Norwood a little more than a year ago, the issue of Prop 65 was already a key topic in many in-house discussions. Since then, he has pulled together a legal team that focuses on compliance. This team talks to people involved in Prop 65 litigation to understand the challenges they’ve faced. But as Lage puts it, “it’s all a moving target.”

Effects Around The World
This isn’t just a California problem; there is growing global concern regarding the environmental and health impact of all products and chemicals in use today.

Many commonly used chemicals once considered safe may not actually be safe. When the Toxic Substances Control Act of 1976 finally went into effect in 1979, approximately 62,000 identified chemicals were in commercial use in the United States. All of these chemicals were grandfathered under the act and generally deemed to be safe. However, there is no standardized information on the toxicity for most of these chemicals. And without adequate testing, it’s very difficult to identify hazardous chemicals in the supply chain or to distinguish safer chemical alternatives.

Now the European Union (EU) has taken the initiative to conduct a thorough analysis of all the chemicals in common use. Beginning this year, Registration, Evaluation and Authorization of Chemicals (REACH) will require chemical producers to register the most widely used chemicals and will place restriction on the use of 1,400 chemicals of very high concern. Companies will not be able to use the high-concern chemicals until they are evaluated and authorized. Under this legislation, there are no grandfather clauses.

“Globalization takes us beyond Prop 65,” says PPAI Chairman Paul Kiewiet, MAS, vice president for Atlanta, Georgia-based distributor CorpLogoWare (UPIC: CLW). “Promotional products are used globally, with items going into Europe and South America. After all, end-buyer companies are becoming more global in their outreach. The challenge is that each country can have different sets of regulations.”

Just The Tip Of The Iceberg
Beyond chemicals used in manufacturing, there is growing concern regarding the environmental and health impact of all products. Global companies are being pressured by governments and end buyers to prove that they are both socially and environmentally responsible.

In fact, there is a fairly new business term known as socially responsible investing. Also called values-based or ethical investing, this is an investment process that considers social and environmental factors, both positive and negative, within the context of securities and investment analysis. So now stakeholders are also adding to the pressures.

“The world has become very small,“ says Lage. “Ten years ago, manufacturing companies were very independent with other. Now that promotional products have grown to such large business, we’re regularly doing more business overseas.”

At this point, more that 65 percent of the products recalled in the United States are manufactured in China, according to the Consumer Product Safety Council (CPSC). In 2006, the number of product recalls—233—doubled from the year before. In most cases, lead was a recurring cause.

Take a look at the toy industry. Nearly 80 percent of the U.S. toy market is produced in China. Recently, Mattel Inc. recalled 10 million Chinese-made toys because of lead paint and tiny magnets that could be swallowed. Approximately 1.5 million Thomas & Friends wooden railway toys were recalled due to contamination of lead in the toys’ surface paints. If ingested by young children, lead can cause severe health effects. After a thorough investigation, the Illinois-based distributor, RC2, identified the source of the issue—its Chinese manufacturing facility.

In another case, CPSC recalled 500,000 pieces of children’s jewelry sold in supermarket vending machines because of dangerously high levels of lead. “Lead alloy is half the price of zinc alloy, and manufacturers are being pressured to produce products cheaper and cheaper,” says Steve Slagle, CAE, PPAI president and CEO. “Many promotional products contain lead, so it is becoming a real problem.”

The Chinese government is under a lot of pressure due to these recent high profile cases, and the country is now on a major public relations offensive. At press time, China announced plans to step up anti-corruption efforts, ban firms that advertise false medical claims and develop the country’s first food recall system.

So What Does This Mean Back Home?
Even with new efforts by the Chinese government to make improvements, trouble is just around the corner. At any point, anyone who has anything to do with the manufacturing or distribution of products that aren’t compliant with chemical or other product safety standards could be held liable.

“In the promotional products industry, we manufacture, distribute and sell billions of products every year. We would be naïve to think that all of these billions of products are compliant,” says Slagle.

Unfortunately, promotional products have already been in the headlines. The CPSC announced a voluntary recall of 300,000 heart-shaped charm bracelets that contained high levels of lead. These bracelets were free gifts with purchase of various styles of children’s footwear. Reebok recalled the bracelets after receiving a report of a death caused by lead poisoning when a four-year-old child swallowed a piece from the bracelet.

In another promotional products case, DreamWorks Animation SKG recalled 6,000 Shrek headbands because a small wire was known to protrude through the fabric, posing a risk of cuts to consumers. This item was a product giveaway distributed to Pepsi employees.

Look back for a moment to the spinach recall last year, when people in 21 states got sick from bagged spinach tainted with E. coli. Once the recall took place, no one—not the shippers nor receivers—wanted anything to do with the product. Who was left holding the bag? The truckers, who had to dispose of the spinach on their own. Translate this scenario to the promotional products industry, and you can end up with a situation where manufacturers and end buyers won’t want anything to do with a recalled product, leaving suppliers and distributors to dispose of the product on their own.

In the case of promotional products, it’s important to understand the needs of end buyers—large companies such as Kellogg, Disney, Reebok or DreamWorks—where brand value is almost priceless. These end buyers are being aggressive in protecting their brand.

For example, the brand value of the Summer Olympics is estimated at $176 million. If one child choked on one premium handed out at an event in Beijing and subsequently died, the devaluation cost for the Olympic name would be millions.

“What you’re now seeing is these companies writing their own terms and conditions,” says Slagle. “They are writing their own compliance needs and regulations.”

Kiewiet points to Kellogg as an example. “Kellogg conducts its own factory audits,” he says. “They look for cleanliness and pest controls. They check to see if bathrooms have soap and towels. They make sure products are not being contaminated by insects. They look for quality and safety.”

To protect yourself, your customers and their brands, it is important to take a 360-degree view of the entire supply chain process, paying careful attention to:
• Child labor. This means making sure that all workers are at least 14 years of age or older, which is especially important in countries where manufacturing is outsourced.
• Factory conditions. This encompasses monitoring all factories to make sure they meet health and safety standards required by the supplier.
• Product safety. This means manufacturing products that are safe and not hazardous to one’s health when broken or ingested.
• Security. This means getting the product from its point of origination to its overseas destination in a secure environment. As part of the Customs Trade-Partnership Against Terrorism (C-TPAT) program set forth in April 2002 by the Department of Homeland Security, many companies are requiring their products to be shipped in containers that can be sealed with cable or rod lock type seals.

The above four issues have become highly visible. When you overlook these issues or become complacent, you put yourself and your customers at risk. The cost of non-compliance can include enormous financial losses, damaged reputations, lawsuits, business closures and real harm to consumers.

How To Take A Proactive Approach To Compliance
With so much scrutiny, change and lack of control, how does one begin to manage compliance? Here’s some advice from a few of these industry leaders.

Face the fact that it’s not your dad’s supply chain anymore.
Rules have definitely changed and more players are involved than ever before. It’s time to be respectful of the global economy and work within this new reality. “Just yesterday a distributor needed products at lower cost. Unfortunately, we weren’t able to meet that cost, so the distributor decided to go direct to China,” says Siegel.

“We have pressure from distributors to offer lower prices. They expect us to do whatever we have to do to get the price lower. If our costs are too high, then we need go where needed to get it lower, even if that means overseas. Of course, distributors are still concerned about quality. The expectation is that we provide a $100 product for $50 and at the same level of quality,” Siegel says.

“The fearful part of this is that end buyers may do some of their own sourcing, which poses obvious challenges,” Lage explains.

As Kiewiet explained in his recent PPB Chairman’s letter…“I hate to break this to you, but suppliers are middlemen and so are distributors. Suppliers manufacture very few products domestically. While there are still some that do, the number is dwindling. The old S-D-E model has changed. Today, it is M-S-D-E—manufacturer/supplier/distributor/end buyer. And it doesn’t even stop there. Our influence and responsibility extends all the way to the recipient of the products we supply.”

Understand that what you don’t know can and will hurt you and everyone in the distribution channel.
As is the case in Prop 65, every member in the supply chain can be held financially liable for products that ship to California and expose individuals to chemicals known to cause cancer or birth defects without prior warning.

In the event of a recall, all members of the supply chain are vulnerable and potentially financially liable. The companies most at risk are the ones with the most to lose in terms of reputation and liability. No one besides you is going to remember the name of the overseas factory that manufactured the product, but the recipient is going to remember the end buyer and the end buyer will most certainly remember you.

“At Norwood, we’ve been very proactive in our efforts to manage these issues. Norwood has several offices in Asia, and we set our own social compliance issues and standards there,” says Lage. He believes it’s important for a company to be proactive and set its own standards. In Norwood’s case, the company works to stay ahead of the game by regularly testing products in Asia and keeping products compliant to a higher set of standards.

Siegel points out, “Some overseas suppliers will change materials without any notification. For example, they might suddenly use a different supplier for paint. This is a major concern for companies who don’t have any control over this.”

Without adequate on-site oversight and testing, you will not know the paint supply changed and will not be aware that you need to get the new paint source tested to ensure it does not contain lead or any other harmful chemicals.

Educate yourself.
Take the time to know the current laws and become familiar with the CPSC standards and American Society of Testing and Materials Standards. As Slagle says, many suppliers are not even knowledgeable about U.S. safety standards, much less what’s going on overseas.

“I’ve heard people in the industry say, ‘We’ll never have a problem. Our products have passed through customs.’ My response to that is just because something makes it through customs doesn’t make it safe or legal,” says Kiewiet.

Don’t become dependent on foreign manufacturing.
A key strategy that R.S. Owens supports is more stateside manufacturing. “We are attempting to find more efficient ways to manufacture so we are not dependent on foreign imports. We’re looking at more efficient machinery, for example,” says Siegel. Currently, R.S. Owens only imports about 10 to 15 percent of its products.

Use the toughest international standards as your base.
When testing products and setting standards, use the toughest guidelines as your base point and realize that these standards are fluid, will continue to change and will become even more stringent. “Smart suppliers shoot for the toughest standards,” says Kiewiet.

Be prepared to invest in compliance.
Compliance is an investment in your business. It costs money to do it right. For example, many larger promotional products companies have compliance experts on staff to keep up with the latest changes in compliance standards. “Norwood has its own legal staff that manages through these issues, like Prop 65, and makes sure we’re in compliance,” says Lage,

Test. Test. Test.
To know what chemicals are being used in your products, testing must be done on a regular basis. However, don’t always count on the manufacturer to test. It is becoming increasingly important to using an independent testing lab. Also, tests should be conducted sporadically and without warning because product and materials are often changed without notification.

Different types of testing are needed as well—best practices for Prop 65 compliance are very different from overseas product tests. “But there’s no clarification in Prop 65 on the way you should test,” Lage points out. “The way you test could give you different kinds of results. For example, there’s a submission test or a wipe test. Not all are applicable to specific products.”

Look to end buyers best practices.
In the case of overseas manufacturing, Disney, Kellogg and Coca-Cola in particular have been extremely aggressive in writing compliance standards. These companies painstakingly inspect the Chinese factories in which their products are made. They also have meticulous guidelines that distributors and suppliers of these companies are expected to follow.

As a promotional products professional, look to these end buyers’ standards as examples to follow. In the case of Coca-Cola, which is the world’s most valuable brand, it has a $67 billion name to protect. You can be sure that it is highly motivated to enforce the very highest manufacturing standards.

Use knowledgeable agents to work only with socially compliant factories.
It sounds obvious, but be sure the factories you’re associated with meet socially and environmentally compliant standards. The only way to know this is to ask the right questions and demand the right answers. Of course, you can’t be an expert on everything, so turn to experts who can help.

“Find an agent that you can depend on, a reliable company with experience. At R.S. Owens, we’ve had the same agent for the past four years. We found an agent who already had extensive experience with products similar to ours,” says Siegel. “Work with an agent who has experience with the product you are importing. He or she will know the factories and have relationships with the factory owner when inspecting productivity,” he says.

“In today’s global marketplace, sourcing is no longer the issue—sourcing wisely is,” says Kiewiet.

Compliance As A Competitive Advantage
Certainly, there is a distinct competitive advantage gained by compliance. Through education and efforts by groups like PPAI’s Global Strategy Council, “all members of the distribution channel will be better equipped to create and deliver value,” says Slagle.

“If you took a poll of the industry, there are still too many who are unaware of these issues. Even around those who are knowledgeable, it feels like a distant threat, not an imminent threat,” says Siegel. “Plus, when you have things like Jerry Brown, California’s attorney general, looking into attorneys who are profiting from issues like Prop 65, it makes one feel protected.”

Distributors who are educated about what’s happening on a global perspective can speak to end-users’ concerns about product safety. They bring added value to the table, rather than just a price point. Suppliers who are educated, knowledgeable and have a close pulse on the manufacturing process bring added value to the distributor so that the distributor can focus on sales, not on sourcing. “The key is to create value every step of the way. Educated members will be the ones who have the competitive advantage,” says Siegel.

“In the world of price, suppliers and distributors have little remaining relevance. In the world of value, both are critically important. The value that educated, professional suppliers and promotional consultants create makes the difference between success and failure in recognition, appreciation, motivation and performance programs,” says Kiewiet.

What this means to the industry is that these global issues are not just a distributor problem. Nor are these global issues just a supplier problem. Or even, the factory’s problem. It’s about all of us. We all have to take responsibility and face the fact that we’re all in this together.

Cassandra Johnson is a marketing communications consultant for PPAI’s Regional Affiliates, delivering more than 15 years of expertise in areas such as public relations, direct marketing and e-marketing. She is also a freelance writer, supporting clients in a variety of industries, including hospitality, financial services and technology.

---

Global Vision
PPAI Partners With Disney and Coca-Cola To Form Proactive Global Strategy Council

Seeing the need for increased education, exploring best practices and addressing end buyers’ concerns about product safety, PPAI is bringing together a diverse group of individuals and companies to help form an Association-wide strategy. “The longer we wait, the further behind we will be,” says PPAI’s president/CEO, Steve Slagle, CAE. “We believe the challenges our industry is facing will be with us for many years, and we need to begin now to decide how we can help mange our future rather than just react to whatever may happen.”

In an effort to help distributors and suppliers understand the impact of these global issues, PPAI recently announced the formation of a new initiative—The Global Strategy Council.

In addition to PPAI President/CEO, Steve Slagle, CAE, and PPAI Chairman, Paul Kiewiet, MAS, this well-rounded group includes some of the industry’s top leaders representing all points in the supply chain: distributors, suppliers, a manufacturers’ trading agent and leading end buyers including Coca-Cola and Disney.

“We also have Specialized Technology Resources, a product quality, safety and performance testing firm, and the International Council of Toy Industries that have agreed to be a part of the Council,” says Slagle.

The purpose of the Council is to “build awareness, create alliances and establish benchmarks to give PPAI members the knowledge and tools that will help them develop promotional campaigns with products that are manufactured overseas.”

The Council has five main objectives:
• Deliver an on-going, short- and long-term strategic plan for the Association to address global marketplace opportunities.
• Establish education curricula for global manufacturers and member suppliers.
• Establish global industry standards for social and environmental responsibility, intellectual property protection, human rights advancement, product safety and quality, and manufacturing certification.
• Develop venues and programs for meaningful dialogue between global manufacturers and PPAI member suppliers.
• Develop global opportunities for PPAI members to export products, services, knowledge and distribution networks.

This industry think tank already has plans begin face-to-face discussions with some of Asia’s most influential associations, such as the Chinese Gift Association, the Chinese Manufacturers Association of Hong Kong and the Hong Kong Trade Development Council.

“They would like to continue commerce with us and put quality standards in place,” says Kiewiet. “We want to move forward on showing them how to work within our systems.”

PPAI is also turning to the global toy industry for guidelines. ”They are dealing with similar issues to what we’re addressing,” Slagle says. “For example, we’ve begun a partnership with the Toys Suppliers Association to offer more cost effective rates for container shipments, and TOYSA provides valuable assistance and advice regarding the C-TPAT standards.”

Why are these initiatives important? “I think the world is getting flatter and flatter. We need to be at the forefront of these issues and determine the most effective way to convey these issues to members. We can help them avoid fines and take advantage of opportunities,” Slagle explains.

“We’re not being like Chicken Little and saying that the sky is falling, but we want to provide the resources and means for helping companies be aware and be prepared. We need to substitute the ‘when’s’ for the ‘what if’s.’ That’s the reality,” says Slagle.

For more information on the PPAI Global Strategy Council and other global outreach initiatives by PPAI, contact Anne Lardner, PPAI Public Relations Manager, at 972-258-3041.