Are You Prepared for a Product Recall?

Are You Prepared for a Product Recall?

Experts urge manufacturers to be proactive as costs, scrutiny of recalls continue to escalate.

"The verdict is in," Transportation Secretary Ray LaHood pronounced this past February in releasing results of a study by NASA engineers for the National Highway Traffic Safety Administration. "There is no electronic-based cause for unintended high-speed acceleration in Toyotas."

While the result of the study into the possibility of electronics problems with Toyota and Lexus cars appeared to dispel that issue, the Japanese automaker, an icon of manufacturing quality, had already paid a heavy price. Toyota recalled 8 million cars to make alterations designed to prevent two mechanical issues -- "sticking" accelerator pedals and a design flaw that made it possible for accelerator pedals to become trapped by floor mats. Toyota estimated the cost of the recall at more than $2 billion. The company also paid $48.8 million in civil fines for being tardy in reporting quality issues. And this past December, Toyota settled a closely watched liability suit in California for $10 million. More litigation is pending.

Major brands such as Toyota face the most scrutiny in the 24/7 media world when a product recall is initiated, but Toyota's difficulties only underline one of the plain truths of 21st century manufacturing -- product recalls are a common and costly occurrence.

A quick scan of www.recalls.gov, the website set up by six federal agencies charged with recall responsibilities, shows just how pervasive product recalls have become among the world's best known brands. In July 2011 alone, NHTSA lists 43 recalls from companies including Polaris, Chrysler, Ford, Honda, Kawasaki and Mack Trucks.

Recalls have become so common that Stericycle ExpertRecall, an Indianapolis-based company that helps firms manage product recalls, started an index recently to track aggregate recall activity and trends in five product categories: medical devices, pharmaceuticals, food, consumer products and children's products. Among the aggregate totals noted by ExpertRecall was that the pharmaceutical industry recalled 35 million units in the second quarter of 2011 and there were 587 incidents connected with children's and infant's products.

Kevin Dooley, a professor at the W.P. Carey School of Business at Arizona State University, says better communication from the field to manufacturers may account for some of the uptick in product recalls. He said manufacturers may also be more willing to engage in recalls because they have a body of experience to draw on for how to handle a recall well.

Danny Lin, a partner in Accenture's process and innovation performance practice, said on the whole "companies are more aware today of the impact that product quality is having to their consumers and are much more responsive when defects are caught."

In a manufacturing environment where the drive for quality has been going on for decades, it might seem counterintuitive that recalls at least appear to be increasing. Lin opined that the drive for increased sales may be undermining quality efforts at some companies because they have not been able to scale successfully for increased production levels. "They may be overreaching and it leads to some of the problems we have seen," he says.

Prevention and Planning

Product safety experts stress the value of prevention and preparedness in dealing with product recalls. Scott Scdoris, director, food and beverage, for Celsis Rapid Detection, a manufacturer of microbial detection products, said the Food Safety Modernization Act, passed last December, shifts the regulatory focus to preventing contamination. "This legislation has made it more important than ever to have reliable and efficient lean manufacturing practices in place as part of your overall contamination and recovery plan," he wrote in a recent article on the new law.

ASU's Dooley also emphasized the value of good risk management practices aimed at preventing or minimizing recalls. "In general, you want to shift quality dollars away from reaction and toward prevention," he says. "On the whole, I'd rather throw a dollar at R&D to make my processes safer and not put my supply chain or my consumers at risk."

Experts say being prepared for a recall involves a number of steps. Companies should have a system in place that actively monitors for potential problems. They also should take time to establish a framework for making a recall decision, determining the principles they will follow and appropriate regulatory requirements. Next, they should have a plan for executing a recall if it becomes necessary.

Kozenski:
"Companies that have their act together and clearly understand their inventory genealogy and where their inventory is being shipped can do a very focused recall."

"A product recall can be very complex," Dooley points out. "There can be lots of logistical issues that need to be figured out before you can execute the recall. You want to figure this out ahead of time so that you can act in short order." For example, he said, if you are a consumer products manufacturer, you should have a plan for communicating with distributors and retailers.

Visibility and traceability are key aspects of improving product recall efforts. Manufacturers are investing in various tagging and identification systems so that they can identify down to a specific batch or even part where a problem might lie and then correlate that with shipping information to pinpoint where the product is in the supply chain.

Tom Kozenski, vice president, product strategy, for RedPrairie, a provider of supply chain, workforce and retail software systems, said the way in which recalls are announced gives a "pretty clear picture" of how companies have addressed automation of their inventory and shipping data. "Companies that have very little process or very manual processes are recalling everything. Companies that have their act together and clearly understand their inventory genealogy and where their inventory is being shipped can do a very focused recall."

Kozenski advocates mock recalls so that companies can check on whether systems will actually work before a crisis takes place. "When a recall hits, you find out that someone purged the data in a computer and you don't have shipment history," he says. "That is the end of the world there. You have no idea what is going on."

A Better Fix on Fittings

Taking a proactive approach to product traceability is Flexpipe Systems, a Calgary, Alberta, manufacturer of crimped steel fittings and other pipeline products for the oil and gas industry. Though the company has not had a fitting recall in recent memory, company officials wanted to be sure they could quickly mobilize a recall if needed.

"In years past, we always had a manual system where each fitting has a lot number on it," explains Colin Moyer, Flexpipe's inventory manager. When a fitting was pulled out of stock, an employee had to label it and then write the batch number on a piece of paper. That batch number was later photocopied, scanned and saved in a file. The firm also wrote a part number on the fitting with a marker. "We needed a quicker, faster solution for anything that could potentially impact the company or our customers," says Moyer, who said the company's target was to be able to track any part within eight hours.

After it made the switch to an ERP system from IFS, Flexpipe acquired a system where inventory tracking could be done with a handheld scanner rather than manually. Each part now has a barcode on it.

"When we ship the fittings, we scan the barcodes and the system attaches that specific number to the order and saves it in a table," says John Lapointe, warehouse manager. "At the same time, it picks the inventory out of the system so we have real-time inventory with the picking process."

Lapointe said that where the manual system took an average of 20 minutes to record orders, the scanning takes four to five minutes. Moreover, he said, it rejects a part if it has been incorrectly selected for an order.

With both a public and government agencies attuned more than ever to product safety issues, manufacturers are likely to continue investing in better systems for quality and product tracking. They are coming to see, as marketing professional Hitesh Bhasin wrote on marketing91.com, that "you might be good in good times but how you behave in bad times is what defines you as a brand."

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