Sunday - May 11, 2008

Product Recalls: Now What?

by Carl Brewer

Reverse Logistics Magazine, May/June 2007

Recently, recalls have made headline news. From pet food and peanut butter to washing machines, recalls take all forms and can happen to any manufacturer. For most manufacturers, nearly all of the brainpower and muscle goes into pushing products out the door – often overlooking the critical moment in the customer relationship that comes when something is returned. Those who invest in planning for a reverse logistics event before one happens will find that when done right, returns can deliver opportunities for building better relationships with customers, salvaging revenue and learning from past mistakes to build a better, next generation product.

The key to any successful return process – whether due to product failure, public pressure or criminal tampering – lies in having a plan in place that can be implemented on a moment’s notice and addresses the major components of recall management. Leaders are defined by their ability to act quickly and decisively, especially in a crisis, making internal communication and accurate real-time data essential. Knowing what’s happened and when, and communicating it throughout the chain often provides the ability to get in front of a recall – holding back what is still in the network, before it hits the streets.

When faced with a product failure or any issue that requires products be returned, answering these five questions gives manufacturers a reliable plan of action:

Who controls the process? A plan is only as good as the people who execute it. Create a reliable team that takes responsibility for the plan. From the CEO to the dock manager – make sure that there is ownership down the hierarchy – everyone needs to know what their role is and be able to execute the plan on a moment’s notice.

Remember: This is a critical time and the checks and balances that you would normally rely on to assure quality, consistency and accuracy need to stay in place for the reverse logistics process.
Remember that not all recalls can be proactively managed, be sure that you’re available to answer incoming queries and get the message across to your buyers.
How to communicate it? All recalls need to be quickly communicated to the internal staff, stores selling your products and end-users.

Inform employees! While everyone at the organization needs to be apprised of the situation, the most important people are those that will handle the external communications and warehouse/receiving center. The first step is to create a checklist of activities that need to be done for communicating outward.

Next, identify who needs to be spoken with, and what the priorities are for outreach. Instinctively, one would think that it would be a great starting point to simply identify where products have been shipped. This is not as easy as it sounds, as most products distributed today are tracked by the case and pallet levels. Even if you are not a pharmaceutical company required to comply with the Federal Drug Administration’s (FDA) stringent chain of custody regulations – these processes have value. Whether you’re a manufacturer doing direct ship or a 3rd-party logistics provider, tracking products at the lot and serial number levels; and capturing where products are shipped, who the receiver was and how to get in touch with them can be the best way to mitigate the risks inherent in a recall.

Lot numbers are typically tracked over a period of time, so the better the time-based view of inventory within each lot, the better limits or controls the organization can have on a recall. If you know that an issue occurred at a certain time, all inventory in the lots affected can be proactively managed. With serialization of inventory, each product is uniquely identified (i.e. timestamps within a lot), so the better the serialization the better the visibility in managing product recalls.

Since you’ll never know what product will be recalled, make this part of your regular routine. Think about how much easier it is to track down products when you have detailed information on when it was made and where they were sent, rather than trying to rebuild the information afterwards.

Remember that not all recalls can be proactively managed, be sure that you’re available to answer incoming queries and get the message across to your buyers. From service phone lines to public announcements in the news and on web sites, customers want to have a way to get information fast. For example, in the battery recall last year, Dell set up a website so that customers could enter the numbers on the bottom of their laptop and the site would automatically recognize which batteries needed to be returned. Not only did Dell reduce the numbers of “missed” returns, they were able to communicate with the customer specifically what they needed to do to send products back and proactively let customers know when a replacement product would be available.
Not all recalls are a total loss, so find out what value remains in the products that can be recaptured. Communicate to the end-user what is wrong and how you can correct the issue. Sometimes all it takes is a replacement part or an upload of a software patch.
What’s wrong with it? Determine the scope of the problem. The key is to have a system in place that diagnoses the problem quickly. Not all recalls are a total loss, so find out what value remains in the products that can be recaptured. Communicate to the end-user what is wrong and how you can correct the issue. Sometimes all it takes is a replacement part or an upload of a software patch.

If there isn’t a simple fix, communicate this down to the end-user and be upfront about the worst case-scenario. If you can’t define the select set of customers affected, it may be best to send your whole customer base a notice. Customers would rather be forewarned, than not warned at all. So, don’t leave any rocks unturned.
Where do I accept it? Establishing a central location where all returns are accepted, recorded and assigned a chain of custody is the critical next step in ensuring control over the process. Recalls can often cause chaos. Automate processes so that the receiver knows exactly what to do with products before they start showing up on the dock. Depending on what’s wrong with the product – especially critical in medicine – special steps such as “gate-keeping areas” may need to be put in place to accept the product back into the warehouse.

Again, good communication is essential at this stage: customers want to know that a credit or replacement is on the way; different points throughout operations need to know that inventory has returned, a product might have a quality issue, a customer might need a higher touch, shareholders might want to know how well a crisis is being managed and reports need to be filed with regulators.
What do I do with it? There are really only three options: resale, reclamation of critical components or destruction. Each requires systems and infrastructure that will ensure that resolution is complete, regulations are complied with and that the best possible outcome – where loss is minimized – is achieved.

It’s fair to say that most manufacturers will never have to deal with returns on the scale of those in the headlines, but that doesn’t mean that the reverse logistics process should be an afterthought. Establish processes that capture the complex array of issues. Best-in-class organizations have tools and procedures in place to successfully avoid, as well as deal with product recalls.

Carl Brewer is the president of Integrated Warehousing Solution, a leading provider of supply chain execution solutions. Brewer is available at cbrewer@irmswms.com.