Recalls—When the Worst Happens, Part I

by Hannah Kain and Gailen Vick

Reverse Logistics Magazine, Jan/Feb 2008

Managing risk when quality control procedures fail and can be a nightmare, especially when there is no recall contingency plan in place. Forethought and a streamlined customer interaction plan are essential to minimize both short- and long-term damage that results from recalls.

The mere word "recall" can send a shudder all the way through a company, from receptionist to the executive team, to the boardroom and shareholders. Recalls are costly and risky and can threaten the existence of a company.

How a company reacts to a recall can determine whether the company gets through the incident fairly unscathed—or even not at all. It is all about minimizing corporate exposure and maintaining customer satisfaction.

Prevention and Preparedness

As with any such incident, prevention and preparedness are key elements. While this is scant consolation to the companies subjected to a recall, this article would not be complete without mentioning these two aspects.

Prevention is, of course, related to quality control, failure analysis and supply chain management. Strict control from the design stages of a product to delivery would have prevented most recalls. Product recalls are frequently caused by the product being designed without proper consideration for the use and the dangers it may pose. In a rush to market, the product is not properly tested or evaluated. However, as is commonly seen today, a recall can be caused by even one small failure in the supply chain.

As supply chains become increasingly complex, the risk of failure goes up exponentially. Raw materials from subcontractors to a subcontractor to a subcontractor can be consolidated in one part of the world, used in another part of the world for a subcomponent, then stored and shipped to a third continent before being used in the final product— eliminating the likelihood that the buyer of the final component has a chance to review the supply chain risks. A risk assessment of the supply chain is a major aspect of recall prevention.

But even if recalls cannot be prevented, being prepared with a contingency plan is absolutely crucial (for a free contingency plan template, please contact ALOM or see other sources at the end of this article). The contingency plan includes: vendors; legal advisors; compliance team members; a PR agency; call centers; the web design team; the executive team; and information and authority levels to guide the recall team to move ahead in a fast, controlled manner.

However, most companies simply are doing business without a recall contingency plan in place.

Forced or Voluntary Recalls

Recalls can be initiated and implemented by authorities as a forced recall or by a company as a proactive step to prevent authorities from issuing a forced recall or just to ensure that customers have a working, safe product. Authorities that can force a recall in the U.S. include the Consumer Products Safety Commission (CPSC), the FDA, the National Highway Traffic Safety Administration, the U.S. Environmental Safety Protection Agency, the USDA Food Safety and Inspection Service and the United States Coast Guard. The forced recalls mainly take place when the hazards are both serious and fairly likely to happen. Several agencies have a Fast Track program for companies that issue a voluntary recall, cutting down on the required paperwork. The Fast Track programs typically allow a company to complete the recall in an easier, less bureaucratic manner. The CPSC, Office of Compliance, has issued an excellent booklet about recalls.

Recall Impact and Cost

The impact and cost of a recall can be broken into several groups:

• Cost of customer dissatisfaction/avoidance
• Long-term impact on brand
• Operational cost of recall
• Potential litigation cost

The following will outline these impacts/costs as well as how the cost can be contained.

Cost of Customer Dissatisfaction/Avoidance

For most companies, customer satisfaction and customer retention are key to running a profitable business. Any situation where the customer believes they received and paid for a substandard product represents a significant threat to customer satisfaction. The key - that many executives do not realize - is the perceived injustice by the customer. The product may be functionally sound, but if it is perceived to have a significant flaw, it can certainly impact the satisfaction or experience.

In addition, during a recall a company typically asks a customer to respond with their own time when getting the product fixed. This can be as simple as returning the product for a new replacement or having the customer re-install a component. The replacement product may furthermore be cumbersome to reinstall, as is typically the case with technology products. Several steps can be taken to improve the customer experience and lessen the impact of a recall:

React fast
As customers hear about the recall, they get concerned and frustrated about what to do with their potentially unsafe product. Reaction speed is critical.

Make it easy for your customers
Make the return or the replacement easy. This includes both the logistics part and the reporting part. This is not a good time to question the honesty or to test the relationship with the customers. Avoid anything that could further enrage the customer. Prevent: long holds on toll-free-numbers; confusing information on your website; poor customer interface for online reporting or troubleshooting; cumbersome forms to fill out; and putting the burden of proof on the customer.

Instead, review what a great customer experience would entail. For instance, companies can consider sending customers a replacement unit before receiving the original product back instead of waiting to receive the customer's unit prior to shipping a replacement unit. This tactic allows the company to include the return packaging and prepaid label with the replacement unit, making them return very convenient and free for the customer.

Make sure that it is done right
A recall is not a good time to make errors since the customer relationship is already fragile. The order must ship right, work correctly and arrive in perfect condition. Any refund must be prompt and correct. Impeccable quality of customer interaction becomes a must. This is especially hard for companies where customer interaction is usually not prompt, not very efficient or generally not of high quality. Internal staff is not trained to provide the high quality interaction needed, and the vendors used are mostly selected for cheaper price. Now is not the time to cut corners with a cheaper, inexperienced vendor.

Understand emotions
Customers feel that the contract has been broken. They paid for a good product, and they either received a bad product, a potentially defective product or - worst case - a dangerous product that may even be life-threatening. This is not - obviously - a normal business transaction. It is a transaction where the recalling company has broken trust, and the company must work hard to reestablish the trust. This attitude must permeate everyone who is involved in the recall.

Next issue: Recalls—When the Worst Happens, Part II will cover operational responses, communication strategies, long-term brand impact, and the costs associated with various recall options.

Other sources:
• CSCP - Consumer Products Safety Commission (www.spscs.gov)
• FDA - Food and Drug Administration (www.fda.gov), for policies, see http://vm.cfsan.fda.gov/~lrd/recall2.html
• Reverse Logistics Association (http://www.reverselogisticstrends.com/index.php)
• Center for Business Intelligence, Recall Conference (https://www.cbinet.com/conferences.cfm)
• American Society for Quality Control, The Product Safety and Liability Prevention Technical Committee (PS&LPTC), (www.asq.org) has published a book 9 http://www.asq.org/qic/display-item/index.html?item=10181)

Hannah Kain is President and CEO of ALOM, a leading package assembly and fulfillment company headquartered in Fremont, California. Kain, who founded ALOM in 1997, has extensive experience in the packaging industry. She has three university degrees and has won numerous awards, including ABWA, NAWBO and Women's Fund, and has been featured in books and articles, including "CEO Chronicles" and "Women Who Paved the Way."

Gailen Vick is President of the Reverse Logistics Association.

Reverse Logistics Magazine, Jan/Feb 2008