Pyramid Defense


        Preparing for a Product Recall

manufacturingtop

Think of your risk management plan as a pyramid that outlines a series of defenses to counter the threat of a product incident. The first line of defense is the base of the pyramid. What actions can be taken to eliminate the majority of threats, such as unwanted bacteria, disgruntled employees, malfunctioning equipment, sloppy suppliers or lax testing? Put that in the first tier (bottom) of the pyramid. Any threats that escape being eliminated by the first tier should be addressed by the second, and so on. As the pyramid rises, the plan becomes more specific and more effective at isolating and eliminating product incident threats.

     Tier 1 – Total commitment to quality.
The good news is that most of what can be done to protect against a product incident occurs in the area of product quality assurance and control. Commitment to turning out the highest quality products day after day is the best countermeasure to the threat of a product recall crisis. This dedication to quality should be evident in every aspect of business, from manufacturing to marketing. The logic is simple: If the product can’t leave the plant in a contaminated state and the packaging is designed so that tampering is difficult to accomplish or obvious once done, the odds of experiencing a major incident are considerably reduced.

     Tier 2 – Prepare with a contingency plan.
It is essential to have a plan in place before a crisis arises. Research indicates that the first 48 hours of a major product incident are more crucial than the next 48 days. Every company should have a workable product recall and crisis management plan.

     Tier 3 – Focus with training.
Contingency plans aren’t of much use if they haven’t been tested and honed under simulated conditions to ensure the plan works.

     Tier 4 – Respond with expertise and decisiveness.
Even with a good team and a good plan, there is a place in a recall crisis for professional consultants.

     Tier 5 – Transfer risk where possible.
Even the best companies who are prepared for a recall can suffer substantial financial losses. In spite of all precautions, a large-scale public recall may cost millions of dollars in extra expense, lost profits, lost inventory, lost shelf space and lost market share. If it comes to this, the last line of defense is a solid product recall insurance program—one that indemnifies for the host of extra expenses and losses in revenue that come with product withdrawals.

From vehicles to pharmaceuticals to food products, what might risk managers learn from mass media coverage of product recalls? For manufacturers of all types of consumer goods, they might serve as a wake-up call to the potential impact of a product recall event and a lesson in what should be done immediately to prepare for potential exposures. According to data from the U.S. Consumer Product Safety Commission (CPSC), there are an average of 35,000 consumer product-related injuries every year.

Costs from a product recall or contamination can easily become many millions of dollars. In addition to the physical expense of a recall, falling sales due to poor consumer confidence, brand rehabilitation expenses and potential shareholder lawsuits may also contribute to long-term losses.

Despite recall frequency and the potential for extraordinary costs, most companies don’t adequately plan, prepare and practice for—or buy insurance to protect against—product recall events. In addition to proper insurance coverages, careful planning is essential in managing the risk of a recall.


manufacturingbottom