Production chains become more complex from one managerial model to another, from one activity to another, from one period to another. This aims to improve and perfect as much as possible the quality delivered of a product. Even with all of these efforts, recalls produced around the world continue to grow and persist in our daily lives. The recall costs and risks can be huge and out of control. The perception that revolves around the recall is purely negative.
Thinking out loud! Is a product recall a statement of failure? Is a product recall a measure of process weakness for a business?
In this article, we’ll try to answer this question by taking into consideration the costs and risks of a product recall.
Recall costs and risks: a threat on various levels
A product recall: a threat on various levels!
Following up on our previous article, generally, a product recall is necessary as soon as a potential risk to the health/safety of the customer is detected.
Non-conformity, substandard quality, a risk .. You can feel threatened yourself !! First, let’s deal with the risks generated due to a product recall, and second, calculate the related costs.
RISKS OF A PRODUCT RECALL
A product recall is such a complex event that it can be considered traumatic. Burdened with legal liabilities, financial costs, and competitive damages, the company finds itself in a critical position. This position can affect its activity on several levels:
In terms of brand image:
As a result of a default presenting a safety or health risk, the company risks losing its credibility. The existence of one, no matter how low or high, causes consumers to quit using the product and buying it. Such behavior results in a degradation of the brand image in the consumer’s mind.
In terms of customer satisfaction :
The more the product recall affects the effective plan of customers, the more critical the recall becomes. When the customer’s health, safety, belief, ethnicity are under threat, a feeling of disappointment or loss of confidence is approved towards the brand.
This disappointment can be projected not only on a single product. But on any product derived from the brand and ultimately on the brand itself. The loss of customer satisfaction poses a great threat to the existence of the brand and its customer base.
In terms of relationships
During a recall, you have to act quickly. Alerting your partners must be done quickly and urgently. Any delay in communicating the recall, to distributors or partners can aggravate the situation.
- Loss of partner trust: in such a complex economic world, trust is a key factor in prosperity for companies. The trust shared between different partners is based on managerial and technical transparency.
- In a product recall, all the confidence gained over several years can be destroyed in minutes. The continuous improvement of product quality is a condition for the success of the partnership. Whether instinctively or not, the deterioration in quality or the perception of the end customer weakens partnership relationships. This can cause companies to doubt their choices, their partnership criteria, and their relationships. The company that must proceed with a recall show an instantaneous degradation of its image. This degradation varies in degree depending on the gravity of the situation. And can grow to the point of shattering all the confidence delivered.
- A product recall does not always imply the loss of partner confidence. But any delay in reactivity when a product recall is needed or any chained ambiguity can generate conflict. Sooner or later, this may result in a loss of confidence. Thus, during a product recall, the company must think of its partners A the first place. And it must plan and develop a strategy that covers the entire process.
Recall costs
According to the newspaper “Les Echos” a total of 2 billion losses related to defective products
The longer the product recall procedure, the higher the costs will be. Indeed, we can distinguish different costs related to a product recall:
- HR cost: during a product recall, the creation of a crisis unit is essential. Training and resource allocation costs are required in this regard.
- An economic cost: Going back to the source of the failure and interrupting the production chain can translate into a loss of productivity, a loss of income, and an increase in supply chain’s costs. Depending on the activity and its complexity, other costs may be added to the expenses mentioned above.
- A technical, logistical, and managerial cost: going back to distributors, collecting, recovering, and stopping the marketing of the product require a lot of logistical, technical, and managerial efforts (resources, time management).
- A communication cost: alerting customers, users and consumers is the most important step in a recall. Knowing that the identification of the owners of the products is not always feasible or even impossible in some cases. The company, therefore, finds itself obliged to communicate over a large territory. For this, it goes to different mass media channels: radio, TV, public relations, advertising agencies, and others. The expenses related to such decisions are enormous.
CONCLUSION
Finally, a product recall is one of the most expensive processes in a product’s life cycle. This is a process involving many threats and huge expense with zero profitability. But is it really a zero profitability?
Rather, let’s legitimize our question of how to turn a product recall from a threat to an opportunity? In our next article, we will try to explain how to create an opportunity for product recall.