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    Planning For The Inevitable Product Recall: Barry Berman

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    Andres Vanegas
    Planning for product recalls is important given the large number of recalls, increasing frequency, and high costs involved. Over 25% of consumer product companies have experienced a recall, with some recalls involving millions of units. Both direct costs, like communication and distribution during the recall, and indirect costs, like lost future sales, can be substantial. Thorough planning is needed to effectively manage a recall and mitigate associated expenses if a recall becomes necessary.

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    Planning For The Inevitable Product Recall: Barry Berman

    Uploaded by

    Andres Vanegas
    14 views1 page
    Planning for product recalls is important given the large number of recalls, increasing frequency, and high costs involved. Over 25% of consumer product companies have experienced a recall, with some recalls involving millions of units. Both direct costs, like communication and distribution during the recall, and indirect costs, like lost future sales, can be substantial. Thorough planning is needed to effectively manage a recall and mitigate associated expenses if a recall becomes necessary.

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    Planning for product recalls is important given the large number of recalls, increasing frequency, and high costs involved. Over 25% of consumer product companies have experienced a recall, with some recalls involving millions of units. Both direct costs, like communication and distribution during the recall, and indirect costs, like lost future sales, can be substantial. Thorough planning is needed to effectively manage a recall and mitigate associated expenses if a recall becomes necessary.

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    © All Rights Reserved
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    14 views1 page

    Planning For The Inevitable Product Recall: Barry Berman

    Uploaded by

    Andres Vanegas
    Planning for product recalls is important given the large number of recalls, increasing frequency, and high costs involved. Over 25% of consumer product companies have experienced a recall, with some recalls involving millions of units. Both direct costs, like communication and distribution during the recall, and indirect costs, like lost future sales, can be substantial. Thorough planning is needed to effectively manage a recall and mitigate associated expenses if a recall becomes necessary.

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    Planning for the Inevitable

    Product Recall
    Barry Berman

    A safety-related product recall seeks to have been recalled under


    withdraw products from the market due the fast-track program
    to one of the following hazards: design since its implementation.
    flaw, production defect, new scientific informa- Given the number of When your product
    tion about dangers from a product or material parts, processes, suppliers, problems come
    previously thought safe, accidental contamina- types of consumers, and
    tion, product tampering, unforeseen misuse, or product uses encountered, back to haunt you,
    failure to comply with safety standards. An ex- it is probably only a matter
    ample of each type of hazard is provided in Fig- of time for any product
    you'd better know
    u t e 1. Although many of the recall examples in manufacturer to have one what to do.
    this article relate to safety issues, some of the or more of its products
    strategies discussed apply to non-safety-based recalled.
    recalls as well, such as when a product does not Both direct and indirect costs are associated
    meet a given performance standard. with a product recall. Direct costs include those
    The importance of planning for a product for communication to intermediaries, business
    recall can be seen by analyzing the large number customers, and final consumers; physical distribu-
    of recalls, the increasing frequency of them, and tion in recovering and returning the recalled
    the high overall costs they incur, both direct and product; product replacement or repair; product
    indirect. According to Richardson (1992), an A.T. disposal; and the loss in profits for the recalled
    Kearney survey of more than 500 consumer and related products due to diminished sales
    product companies found that nearly 25 percent during and after the recall period (see Figure 2).
    of the firms had experienced a product recall. These costs can be substantial, even crip-
    Many major recalls have involved several million pling, for a firm. Toy and Driscoll (1990) estimate
    units. In 1996, Ford Motor Company recalled 8.7 that the total direct costs of Perrier's 1990 world-
    million cars and light trucks due to an ignition wide product recall, resulting from the discovery'
    switch thought to be responsible for nearly 900 of traces of benzene in its bottled water, came to
    ignition-related fires. Intel's recall of a Pentium $30 million after taxes. This estimate did not in-
    chip that made errors in complex mathematical clude Perrier's loss in future sales caused by the
    calculations involved 5.3 million flawed chips. product's tainted image. Intel's Pentium replace-
    The number of products affected by recalls ment program, reports Bertrand (1995), resulted
    has grown in the past decade. In 1988. the U.S. in its racking up a one-time charge of $475 mil-
    Consumer Product Safety Commission (CPSC) lion. Schwan's Sales Enterprises' ice cream was
    negotiated 221 recalls affecting 8 million product found to be the cause of a major salmonella out-
    units. In 1993, these numbers had risen to 367 break affecting 224,000 people. The company
    CPSC-based recalls covering about 28 million was able to recoup a large part of its recall costs
    product units. And 1997 saw 362 CPSC-based from two suppliers and one hauler of its ice
    recalls involving more than 76 million consumer cream mix. According to one of Schwan's attor-
    products. In addition to the CPSCs traditional neys, the "claim was over $200 million" (Katz
    product recall program, the agency now offers a 1997). This covered the costs of the nationwide
    fast-track program that removes the stigma of the recall, including the retrieval and disposal of the
    CPSC's "preliminary detern~ination" that the prod- ice cream, the value of the ice cream that was
    uct is defective. More than 21 million products destroyed, the loss in sales of other Schwan's

    Planning for the InevitableProduct Recall 69

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