The Noggin Blog

Understanding the Product Recall Threat

Posted by The Brain on Sep 19, 2018 6:53:49 AM


Understanding Product Recall@2x

Selling goods on the market? Then you know the product recall threat can’t be understated. Defective products are already a leading cause of liability loss, according to insurance giant, Allianz. And the overall toll of consumer goods incidents to (just) the U.S. economy: $1 trillion plus per year. You can’t make this stuff up.

If that weren’t bad enough, the price tag keeps growing. In 2016, auto recall costs rose 26 percent. And the average cost of a recall to a food company is up to $10 million in direct costs.

That total might not even be the half of it. Because you won’t find a lot of big ticket items in direct cost tallies, including:

  • The cost of notifying stakeholders (usually mandated by law)
  • The cost of retrieving, storing, and/or destroying unsalable products
  • The cost of extra labor to tackle the actual product recall
  • And, of course, lost future sales from the hit to your corporate reputation

To illustrate the last point, Harris released survey results, revealing that 55 percent of consumers would switch brands temporarily following a recall. Twenty-one percent would avoid purchasing any brand made by the manufacturer of the recalled product. Those are steep costs indeed.

Add to that: the product recall threat is only getting worse. Supply chains are only getting more complex, while twin oversight by the media and regulators tends to be getting more intense.

We’ve already seen spikes in the number of product recalls. Recalls in the food and automotive industries, in particular, have dramatically increased over the last few years.

The case for defensive planning couldn’t be clearer. And indeed, in many sectors, some degree of planning is already mandated by the law.

If we check the numbers, it looks like the majority of organizations are taking the product recall threat seriously, which is good. Seventy percent of them are confident in their level of preparedness for a product recall, according to a Deloitte survey.

The question though is are businesses resting on their laurels? Seventy percent is a big number, but only a paltry 22 percent of organizations have conducted the requisite simulation exercises to actually ensure preparedness. That’s pretty disconcerting.

Need help bringing your plans to life? Download our guide to developing a product recall plan.

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Topics: Crisis Management, Noggin Crisis, Critical Issues Management, Crisis Plans, Crisis Planning

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