Product Recall – Managing the Risk

The concept of product recall is gaining an increasingly higher profile in the global world of commerce and, as such, is getting attention at board and shareholder level for many businesses. As the quote above indicates, businesses all too often deal with this type of risk in a reactive way, but it is those that are proactive that will have significant competitive advantage.

Product recall is a reality which an increasing number of businesses are facing, and for a variety of reasons. Irrespective of what a company produces, and whether or not it has the most stringent product safety mantra possible, there is always a chance that things could go wrong. And just as we buy a burglar alarm for our homes in the hope that we will never have to use it, businesses would be wise to create a robust strategy prior to any incident. In an ideal world, this strategy will never have to be fully implemented, but if a company has the right philosophy, it is far more likely to weather the potential storm than if it is simply reactive.

In the European Union, it is estimated that the current effectiveness of recalls runs at around 30-40% in the consumer goods sector – when you consider that there were over 1,000 recalls in the EU in 2007, that’s a lot of unaccounted-for dangerous products. There is an opportunity to lead in your sector through efficiency and, potentially, there is a competitive advantage in being able to say that you successfully recalled over 90% of your product.

Complexity of Supply

Cutting costs is an inevitable part of doing business in a competitive environment and in the world of manufacturing, moving production to regions where labour and raw materials are significantly cheaper has, over the last 20 years, been the obvious solution. But the savings generated can often be significantly diminished, if not negated, through a badly managed off shore production strategy. This is represented by a hypothetical scenario outlined below:

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PRODUCT LIABILITY RISKS