Product Recall Can be Ugly
Any serious business in the manufacturing sector might want to completely obliterate the word recall from their dictionary. Indeed, most companies in recent times have raised the bar on quality just to ensure, every single product out there does not return to the factory. A product recall is the process of retrieving and replacing defective goods for consumers. There are two major categories of recalls; the public recall and the silent recall.
A public recall arises when defective products have been distributed widely and is perceived to have reached the homes of a large portion of the population. By classical definition a product recall is a request to return a product after the discovery of safety issues or product defects that might endanger the consumer or put the maker/seller at risk of legal action.
Product recalls would involve mechanisms that will alert the end user population about the defect and normally takes a wider announcement. The FDA would normally be actively involved in such situations.
In the case of silent recalls, defective products would have reached wholesalers and to some extent retailers and may not have reached consumers at all. The manufacturer may voluntarily ‘silently’ retrieve the products by contacting only the distributors of these products and would have to also inform the FDA.
When a business organization triggers a recall, it also becomes responsible for the entire cost of the process including replacement and in the case of non-food recalls, fixing the defective product. The total cost of fully retrieving defective products can run into millions of dollars.
Categories of Product recalls
Product recall is classified as an incident and depending on the risk that the particular defect poses to consumers, can be categorized as a major, serious or minor incident. A major incident is the release of products which is likely to have an adverse effect on the health and safety of consumers. An example using the food industry, would be a product that has been compromised chemically or microbiologically. So that when consumers begin to experience food poisoning with a food product on the market, that can be categorized as a major incident.
Similarly, the case of failed brake pedals in the Toyota vehicle some years back that triggered a major recall of the affected cars could be termed a major incident. A serious incident is said to have occurred if a product has been released onto the market but has no adverse health effects on consumers, however it has serious quality defects that is easily noticeable by end users and or customers.
With regard to food, you may refer to severe leakages in products that may not be microbiologically sensitive. Serious incidents may severely damage the reputation of the brand and by extension the company.
The last of the categories is minor incident, which occurs to manufactured products which may have consumer safety or quality issues but have not yet been released onto the market and is still under the control of the manufacturer.
The first two categories of incidents will trigger a recall and whether it is silent or public will bring cost implications to the company in question.
Causes of Product recalls
Product recalls can be attributable to many factors. Lack of a working quality management system is one of the major factors that could expose manufactured products to defects that could trigger a recall. The use of unskilled labour is another factor. Many business owners always have their eyes fixed on the bottom line and would not invest in human capital and other non-production related activities that go a long way to affect the quality of products they churn out. The use of old machines with no proper maintenance culture is one other factor that can generate defective products. Equipment cleaning and maintenance is seen as time wasters to many manufacturers. In this regard, the SMEs are largely the culprits, although large scale manufacturing companies occasionally find themselves in this same practice.
Lack of attention to the source and transportation of input raw materials to manufacturing sites can also be cited as one of the key avenues through which defective products end up on the market. Businesses are always looking at ways of cutting cost in every area possible and would normally cut out supplier quality assurance activities in their procurement practices.
Many outsourced activities are done under poor manufacturing or packing conditions depending on which type of the process is outsourced. It is important to note, that irrespective of the fact that a process is outsourced the final product still carries the name of your brand.
Finally, the use of outmoded manufacturing methods could generate defective products. Manufacturing is dynamic and that can be said of technology too. Sustaining old technologies because of cost expediency could do a lot of damage to your manufacturing activity. It is time for owners of businesses to embrace modern technology and seek to fill the shelves of our supermarkets with products that are safe and of sound quality.
Financial implications of Product recalls
The figures that are involved in past product recalls of major companies across the world are too scary for any manufacturer to even get into a situation of a recall. The loss of a whole production batch or in some cases several batches is enough to push small and medium scale businesses into bankruptcy.
It’s been said earlier that; the cost of a recall is borne by the company in question but that is just the natural thing to do. There are cases where lawsuits from consumers and fines from regulatory authorities come up and these can be so huge that, it would only take equally huge companies to survive.
In our own backyard, the amount of non-traditional exports to the international market keep rising and that is good news, but imagine a product recall that takes international dimensions. Any company can be in deep financial distress if there’s supposed to be a mop up of products that are already on the shelves in several parts of the world.
According to Investopedia, Toyota’s stream of gas pedal recalls resulted in a $2 billion loss consisting of repair expenses and lost sales. In conjunction with the financial crisis, Toyota’s stock prices dropped more than 20 percent or $35 billion. Likewise, Keurig saw a 2.2 percent fall in stock prices in light of the 7.2 million coffee machine recall.
It takes a lot of effort to build a brand, it takes extra effort to keep that brand. In cases where brands face fierce competition, maintaining brand positioning in terms of quality cannot be overemphasized. One public recall can be a big albatross that can hang on the neck of a brand until it gets drowned completely. Brand damage can be irreparable and when shareholders lose confidence in a brand, they are likely to withdraw and find an alternative brand to support with their money. Stocks may plummet and the financial base of the brand and largely that of the entire business may be weakened.
No one wants to associate with bad news. Even brand loyalists at a point may consider their notes especially when the damage done to the brand is so grave. The consumer pull factor drives customer activity although customers have the ability to also push brands on consumers and kind of ‘force’ them to change their preferences in the customers’ favour. However, the amount of work a customer does to make a sale cannot be underestimated.
This is not because consumers don’t want to make a purchase, but they are exposed to a wide range of brands to choose from. Hence the rejection of a product by a customer means there is not going to be a sale. The disturbing aspect is, customers tend to use the case of one product recall to make a case for a competitor brand.
The answers to prevention of recalls can be found under the causes above. Businesses should invest in the reasons why they were set up in the first place; to make profit. Investing in a working quality management system, skilled training, latest technology, sourcing the right input materials such as raw materials, supervising the operations of outsourced parties and suppliers, all come together to save the business needless product recalls that will eventually cripple the business and diminish any dream of having returns on investment in the long haul.
Businesses should spend time developing the medium to long term strategies, which may require that, in the short term, profits may not come through that quickly. However, there is everything to gain in the future when effort is put into making the end product so perfect, it will stand the test of time. Product recalls can be ugly and the only way to avoid it is the preventive approach outlined.
Johnson Opoku-Boateng is the CEO & Lead Consultant, QA CONSULT (Consultants and Trainers in Quality Assurance, Health & Safety, Environmental Management systems, Manufacturing Excellence and Food Safety). He is also a consumer safety advocate and helps businesses with regulatory affairs. He can be reached on +233209996002, email: email@example.com.
BY: Johnson Opoku-Boateng