There are over 3,000 effective recalls every year in North America alone, and while regulations on companies are getting stricter as time goes by, manufacturers are given the opportunity to review current supply chain processes and see where there could be positive changes.

For manufacturers and many distributors the reality is that recalls are not just a sunk cost for one party, but can create soft costs for everyone in the ecosystem including disruptions to work flow and the supply chain. When a product is recalled, manufacturers, wholesalers, and retailers must all take action to clear the faulty inventory from their shelves. These same companies are also compelled to find out where their product went, and reach out to the consumers below them. This costs time and money.

Disrupting the “Chain”

Supply chain disruptions are expensive. For retailers and wholesalers, supply chain disruptions result in an average 5.56% reduction in the level of return on sales. Retailers and wholesalers also experience on average a 24.4% reduction in operating income. For manufacturers, the cost is steeper. Reduction in operating income for manufacturers is 112.29%, and level of return on sales is reduced by 9.18%.

Everyone involved within the reach of a recall has some sort of responsibility; Because of recent laws enacted by CPSC*, retailers and wholesalers are responsible for monitoring their inventory and making sure they are not selling recalled products. Even if you are not responsible for a recall, you can be penalized for carrying recalled products!

Managing Recall Risks

There are several tips to managing risk related to recall. Most manufacturers and retailers find it healthy to:

          1) Check existing insurance policies to make sure there is “recall” specific coverage including legal fees, merchandise replacement and shipping costs (often overlooked)

          2) Have recall plan or recall team in place. Even if a full team isn’t possible make sure someone on staff is the lead in case of a recall.

          3) Have contacts in place for vendors or potential vendors during recalls. Often when the time arises that vendor proposals are needed urgency can shift to finding the right vendor for your needs.

There are also free resources online or you can contact info (at) consumerbell (dot) com for more information.

With our inventory monitoring and email notification services, you will be kept up to date on any problems that arise along the supply chain, so that you can address them immediately whenever they happen. This way you won’t have to lose money recalling products that never should have been shipped or sold, and your customers will value your commitment to their safety, which will improve your brand reputation.

To find out more about how we can help your company save money and avoid risk contact any of our staff.

Read More:

Product Recalls Online as the New Consumer Engagement, 2011 SocialTimes

How Social Media Could Change Product Recalls, 2011 SocialTimes

5 Tips to Handle Recalls Online

Risk Managing a Product Recall on Facebook, 2011 AllFacebook

 *Consumer Protection Law of 2008, Law 110-314.Sec 104

 Sources

 Burke, David. Product Recall. Rep. Catlin Group, Apr. 2012. Web. 07 Nov. 2012

 Hendricks, Kevin B., and Vinod R. Singhal. “An Empirical Analysis of the Effect of Supply Chain Disruptions on Operating Performance.” (2003): Web. 12 Nov. 2012. <http://www.acsisinc.com/wp-content/uploads/Effects_of_Supply_Chain_Disruptions_on_Operating_Performance-Vinod-Singhal.pdf>.