an MBA in INDIA reports on product recall issues

Product recall:
A product recall is a request to return to the maker, a batch or an entire production run of a product, usually over safety concerns or design defects or labeling errors that we will see in below list of cases compiled for diverse companies and product categories.


The issues:
Product recalls are not uncommon phenomenon as evident from below given compilation and best of the companies and brand leaders are involved in this from time to time.

When there is too much outsourcing to lower costs so that US CEOs can play golf and show company efficiency to shareholders, it gets worse.
1. Do product recalls relate to negligence on part of manufacturers in supply of goods? Do they damage Brand image or enforce it by effective and quick replacement of defective product/ repair? We may also call it damage control.

2. The decisions have to be taken fast on receiving a significant number of initial complaints about safety concerned defects common to all users or accidents that might have taken place or there is serious design or component problem in product which may create problem for image of company and drag them into litigations for costly settlements. Consumers' life may be at risk.

3. What about failure of service provider like lawyers, doctors and others (Called service failure and service recovery processes), because in this case recall is not possible.

4. What local governments do about this issue and what are laws in various parts of world –(We shall take only USA and India in this article) about these issues of product defects and safety concerns-specially for drugs, children products, automobiles, home gadgets and food items. Of course in any product, safety concern may exist like clothing or even bibs used for children.

5. What are consequences of defective product supplies and its cost of calling back?

6. WTO agreement has a chapter relating to Sanitary and Phyto-Sanitary (related to plant material sources) conditions for imported food and other related items, which is being criticized by India and many other developing countries as non-tariff barriers. But recent incidents seem to justify such controls especially in food products, drugs and electric goods and even textiles (inflammable skirts scandal that took place a few years back exported from India to USA buyer) and those that come in body contact like Toy paints or decorative items and cosmetics, of course.

7. How the product recalls can be handled and is it possible to build in a system for possible product recalls like that for disaster management systems and Information system crashes in companies? How companies can ensure quick and safe recalls and ensure traceability of goods down the channel of distribution, the response time to recall and the reverse logistics for customers returning goods and getting refund or replacement . Customers may ask for damages in courts (USA). The delay may be fatal for consumers in certain products like electric appliances, automobiles and food items/medicines.
The recalls do have financial implications for companies and some may get doomed even.


8. Why these product quality failures (technical, functional or ingredients quality) occur and are these avoidable by process control models and advances quality control systems? Many failures are accounted for by poor design and ignoring safety aspects, like sharp corners in toys or loose parts or buttons on children garments which can be swallowed by kids.
Generally speaking Companies recall products when defects seem to have safety concerns for customers and affect large number of customers. Otherwise normal warranty procedures are adequate as part of standard marketing practice. Thus recalls are more of preventive in nature and to pre-empt costly litigations and financial and goodwill losses.


The story of Product recalls:
My first encounter with product recall in market was when I was undergoing my MBA summer training at Glaxo Laboratories, now Glaxo Smithkline Beecham (GSK), Mumbai at their Worli, plant. Glaxo had a unit at Aligarh (U.P) to make Baby powder/foods like Farex (Remember the then famous 'bony bony baby –Farex baby' radio jingle? Later Aftab Shivdasani, now film star, had modeled as farex baby).This brand is now with Wochardt. Wockhardt acquired Dumex India; Protinex & Farex (News item dated July 1, 2006). Before that Heinz (USA food Giant) bought it from Glaxo 11 years back when Glaxo globally moved out from food business.


Due to some problem in composition of powder then in some batches , the product was recalled from market and I witnessed a flurry of activities by Glaxo staff , the effort being colossal even in those times (1977) of smaller sales volumes to contact various drug stores and other stores that marketed baby food and allied items. There were no faxes, TVs in small cities and emails (internet); phones were only in D.O.T monopoly and sluggish.


This process of recalling products from sales channel partners or consumers may be called Reverse logistics (read my paper on this on indianmba.com) and costs are enormous. To call back widely distributed consumer products like battery cells, toys, and baby powder is quite cumbersome and expensive with time shortage ( One can't wait for disaster to happen).


Frankly speaking I was wondering if there was no immediate threat to life of babies, why Glaxo had gone to such a length and did all efforts to call back product from markets and of course it had no alternate use except for making a bonfire, may be. But the Glaxo brand made deep impression on me as a socially responsible, ethical and professionally managed company.

Remember there were no Consumer Protection laws then and concept of Corporate Social Responsibility and Corporate Governance did not exist in India, at least. It was License Raj in full swing and most of goods were in short supply.


Things have not improved since then and product recalls continue unabated across a cross section of industry and products by best of companies.


Let us have close look at some past and current cases of product recalls. These recalls are either for replacement or refund (return) or simply for repair or replacement of defective part(s) from product that is not meeting standards or is unsafe.

Very recently following product recalls have taken place (at the time of writing this article): USA/Globally-
Mattel Inc. toys, manufactured for them by a Foshan based Chinese company (the owner, Zhang Shuhong has already committed suicide (August 14, 2007 news item) for small detachable and swallow-able magnet in toys and lead (in paint) health hazards allegedly in some other toys. The recall runs into millions of toys.


The U.S. Consumer Product Safety Commission has issued more warnings, this time recalling thousands of SpongeBob SquarePants journals, various spinning tops and children's jewelry, following Mattel episode.


A class-action lawsuit has already been filed against Mattel related to its recent recall of more than 1 million lead-tainted toys.


Nokia- Mobile phone batteries BL-5C (manufactured in China but for Matsushita, Japan) have been recalled for getting overheated and bursting during charging- Although most of mobile sets heat up while in use for a longer period continuously-this is yet to be addressed by mobile manufacturers who are busy reducing instrument size.

Another issue related to safety in Mobile hand sets is micro/radio wave emissions that emanate from handsets and being doubted as health hazard (no conclusive studies are yet available).

In perhaps the largest product recall in India, mobile giant Nokia recalled 46 million batteries pursuant to customer complaints across the globe.
A couple of days ago, Nokia issued a 'product advisory' (the company does not call it a recall) for these BL-5C batteries having certain period of manufacturing. On the first day of the opening of its centre (August 16) for advice on the faulty batteries, Nokia India answered 20,000 calls and received 1.45 lakh SMSes , according to Devinder Kishore, Director- Marketing.



Other product recall cases in recent past:
In another case Toyota (Japanese) had to recall 500 thousand Tundra light trucks for some steering system defect that caused serious accidents. (Can one imagine the gigantic task?)


Robert Bosch Tool Corp. and the Consumer Product Safety Commission (CPSC) USA recently announced a recall of more than 800,000 Skil-brand power circular saws due to laceration risk.


For the second time this year, toymaker 'Hasbro' has issued a recall for about 1 million Easy-Bake Ovens (children's Gizmo)after receiving complaints that young children were getting their hands or fingers stuck in the oven's opening, causing serious burns.
The U.S. Consumer Product Safety Commission and Hasbro received about 249 complaints of children getting their hands stuck, 77 of them reporting burns.


Cadbury was recently fined $2 Million in Salmonella case (a Typhoid bacterium and potential bio weapon)


Atico International (USA) recalled about 392,000 coffeemakers sold exclusively at Walgreen because they pose a fire hazard. The manufacturer said it has received 14 reports of electrical failure and six reports in which the coffeemaker ignited. So far, no injuries have been reported. Signature Gourmet and Kitchen Gourmet coffeemakers can ignite due to an electrical failure and may cause a fire.


IBM and computer maker Lenovo announced in September 2006, a recall of 526,000 laptop batteries worldwide made by Sony Corp. because of a fire risk. The recall affects the lithium-ion batteries found on the ThinkPad Notebook line of laptops, which were sold by both IBM and Lenovo. Sony Corporation also announced it would initiate a global replacement program of the company's lithium-ion batteries but did not provide any details of the program.


In 2006, Dell recalled 4.1 million notebook computer batteries made by Sony because of overheating and fire risks. It was the largest recall in the company's history.


Then, Apple recalled 1.8 million iBook and PowerBook laptop batteries that were also made by Sony.


Maytag Corp. has recalled 636,000 Hoover Self-Propelled Upright Vacuums due to a defective on-off switch , according to the US Consumer Product Safety Commission. The CPSC said Maytag (Research) has received 249 reports of vacuums overheating -- which caused the handle area to smoke, melt or catch fire -- due to the switch problem. One minor burn injury requiring no medical attention was reported.
April 2007: Nestle voluntarily recalled it's Caramel Kit Kat Chunky bars and KitKat Cookie Dough Chocolate bars due to some bits of hard plastic being found in it.
Merck & Co. reported its worst annual profit since 1998 after pulling Vioxx off the market late last year and boosted the amount it set aside for lawsuits over the recall of the once popular painkiller (this is sold in India too). Merck added $604 million in the fourth quarter to the $71 million it had previously set aside to cover litigation related to Vioxx, the company said. Merck officials also said they believe that losses related to the drug are behind it, news that ignited a rally in the drug maker's beaten-up stock (shares).
Old Navy has agreed to voluntarily recall about 666,000 children's coats and fleece pullovers because the zipper pull could present a choking hazard, the Consumer Product Safety Commission announced Tuesday. The company received 13 reports of the zipper pull detaching. No children have been injured, although there has been one report of the zipper pull being found in a child's mouth, the agency said. The recall involves seven different styles of outerwear tops, including a fur-trimmed coat, pullover fleece wear and fleece jumpers with a hood. The garments being recalled have a clear, oval-shaped zipper pull and were sold in sizes 6 months to 4T.
Clover is a popular brand of dairy spread in the United Kingdom, produced by the Dairy Crest group. It resembles butterfat but is easier to spread when cold. The brand was launched in 1983 and the company claims that it is used in over 5 million households. It is made near Telford.
Over 2 million tubs of Clover spread were recalled by Dairy Crest in a recall announced on Saturday, 26 May 2007. All Clover spread products of all sizes have been recalled by Dairy Crest and refunds to consumers have been offered on all products with a lid date of 10 August 2007. The recall as announced by Dairy Crest. The cause is the occurrence of an unknown sourced mold (a kind of fungus) in product.
Pfizer recalled Benadryl products to correct labeling error. Pfizer initiated a voluntary recall from store shelves of Benadryl Allergy & Sinus Fastmeltä and Benadryl Children's Allergy/Cold Fastmelt tablets on june 02, 2001.
The Automobile Industry Safety issues are one big reason of product recalls:
FORD cars recalled finally: Two years after his wife of 34 years died in a fire, an Iowa man continues to maintain that the blaze was started by a faulty cruise control switch under the hood of her 1996 Ford F-150 pickup truck -- while it was parked in the garage attached to his home.
Although Ford had denied -- and continues to deny -- the switch started the fire that killed 74-year-old Dolly Mohlis in 2005, The Company settled a lawsuit brought against it by Earl Mohlis. And it issued a recall of an estimated 3.6 million vehicles -- bringing the total recalled over the past decade to more than 10 million -- every single car and truck built with a similar cruise control switch.
The famous General Motors Controversy:
General Motor's model Chevrolet 'Corvair' was nicknamed 'unsafe at any speed' after Ralph Nader's publication in 1965, the author who fought dangerous battle with GM but ultimately won. He was intimidated to remain silent. Automobiles in fact is one industry that had and has several safety concerns like Tire and suspension designs, gear shifting system pattern, air bags ( introduced in 90s in USA finally), front bumper and crash resistance of its body and chassis. Large numbers of people die in defective design cars, equally poor maintenance and negligence in India and other countries, even USA. The automobile industry being powerful giant have successfully managed to scuttle several such issues for decades. Ralph Nader's contribution in his even named book cannot be undermined.
Peltzman Effect
The impact of the safety regulations that spawned because of the book became the basis of a paper by economist Sam Peltzman. The conclusions of this paper—that the regulations actually caused additional deaths—became known as the Peltzman Effect. Peltzman argued that because regulation made cars safer, getting into an accident became cheaper (it was less risky) and so it happened more. Driver and passenger deaths changed little after the regulations were in place, but pedestrian deaths increased, probably because there was no improvement to car safety with respect to those outside the vehicle.
Peltzman also argued that car safety was already improving, though at a slow rate, since the invention of the car. These improvements tended to be minor but had a huge impact in improving safety (such as a rearview mirror mounted on the outside of the car and automatically canceling turn signals) (Courtesy CNN.com)


Indian Scenario
1.As far as India is concerned , In 1994 Maruti Udyog recalled Maruti 800 cars due to some problem in front axle components which endangered customer safety on road ( for axle replacement only, of course). In case of cars it is relatively easy to do that as customers are in finite numbers and their database is available with dealers/company. Maruti incidentally was in a collaborative sector with Suzuki Japan, which now fully owns the company.
2.The MDH (Mahashian Di Hatti Limited) brand name is very well known throughout India. It is an exporter too.The products sold under the brand name include single spices (such as chilli, coriander and turmeric) as well as blended spice mixtures.The Food Standards Agency of UK recently announced withdrawal of MDH Sambar Masala due to its contamination with Sudan I (an diazo-conjugate dye with a chemical formula of 1-phenylazo-2-naphthol. Sudan I is a powdered substance with an orange-red appearance. The additive is mainly used to colour waxes, oils, petrol, solvents and polishes. Sudan I has also been adopted for colouring various foodstuffs, including particular brands of curry powder and chili powder, although the use of Sudan I in foods is now banned in many countries due to inconclusive reports on its possible health risks. But it still is used as a coloring for cotton refuse used in chemistry experiments.
3.Soft drinks & Pesticides Controversy
A couple of years back there was tremendous rage in India generated due to a Delhi based research lab's report that all MNC and Indian company made soft drinks had pesticides contents far more than internationally accepted standards. The basic cause was contaminated water in India with pesticides used indiscriminately. But that could not give excuse to producers to pass off contaminated drinks.


SOURCE