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The Dreaded Product Recall

Safeguarding your customers, company, and brand
  • Elizabeth Rennie
May/June 2016
As global supply chains become increasingly sophisticated and complex, product safety proves to be a vital pursuit for every business. Internationally, a number of emerging economies currently do not have laws to force recalls of dangerous products, putting consumers at considerable risk. Meanwhile—and in stark contrast—the rest of the world seems to see recall alerts at a startling rate. The European Commission posted 2,435 non-food consumer product notifications in 2014, compared with 388 just a decade earlier in 2004. The number of recalls in South Korea increased a full 25 percent between 2011 and 2012, according to the Organisation for Economic Cooperation and Development. And the US Consumer Product Safety Commission (CPSC) reports that consumer goods incidents alone cost the United States economy more than $1 trillion annually.

 
The indirect effects of a recall can be even more severe. Loss of consumer confidence and regulatory actions devastate brand image and shrink revenues for years after an event. Moreover, the vast reach of today’s social media makes shrewd product recall management a tactical necessity.

A survey by the Grocery Manufacturers Association, “Capturing Recall Costs,” revealed that 81 percent of companies deem the risks associated with a product recall to be “significant” or “catastrophic.” In addition, 58 percent of respondents have been affected by a recall event in the past five years, with their greatest losses coming from business interruption and product disposal.

 “From my experience and observations, costs to recover, repair, or replace impacted products and to retain existing or regain lost customers—as well as defamation of the brand name and reputation, loss of earnings, and other financial and economic losses—are the most common impacts,” explains Barbara Randall, divisional vice president of Great American Insurance Group’s product recall unit. “A product-recall event can cause a company to lose everything it has struggled to build for an entire lifetime.”

Warning bells

One company currently fighting to survive a severe recall event is Brenham, Texas-based Blue Bell Creameries, the third-largest ice cream maker in the United States. In April 2015, the Centers for Disease Control and Prevention (CDC) reported that the business recalled all of its products and shut down every plant as a result of a listeriosis outbreak. This life-threatening infection is caused by eating food contaminated with Listeria. The CDC investigation indicated that Blue Bell desserts caused infections in 10 people from four states. All were hospitalized, and three died.

CDC inspectors found that plant employees failed to monitor the temperature of water used for cleaning, which resulted in inadequate equipment-sanitizing processes. Additionally, some of the plants’ buildings could allow drops of water and condensation to contaminate ice cream and packaging materials. Inspectors also observed employees not washing their hands thoroughly.

Randall says employee error and carelessness are some of the top causes she sees for product recalls. She also has witnessed many cases that involve lack of preventive and predictive maintenance, such as planning for a foreign object falling from an employee’s pocket into a vat of product, a pathogen entering a plant on an employee’s clothing or shoes, and inadequate testing of water quality.

At Blue Bell, the issues were compounded by the fact that employees had found Listeria in a plant years earlier but failed to properly address the problem. “What was identified as an infection outbreak in 2015 was actually sickening people as early as 2010,” writes Peter Elkind in the Fortune article “How Ice Cream Maker Blue Bell Blew It.” He describes the company’s actions as “recall creep” and adds, “The episode reveals not only how difficult it is to trace the source of foodborne illness but also what happens when a company is slow to tackle the causes.” The US Department of Justice currently is investigating Blue Bell for its mishandling of the contamination.

Despite Blue Bell’s arguably sluggish response to its problems—not to mention the illnesses and deaths—countless die-hard fans call, write, and post messages on social media in support of the company every day. These devotees have taken to stockpiling ice cream and even posting it for sale on Craigslist and eBay with outrageous price tags. It seems a large population of consumers are undaunted by the contamination and simply want to know when the treats will be back in their grocery store freezers. (See sidebar.)

Throughout the past 10 months, Blue Bell carried out an intensive cleaning and training program at all of its production facilities and outlined the steps it would take to return its products to market. A root-cause analysis was conducted to identify potential and actual sources, and an independent microbiology expert was hired to establish controls to prevent future listeriosis outbreaks.

“Every department and employee was affected,” says Jenny Van Dorf, Blue Bell public relations market specialist. “Personnel from our offices, sales, production, warehousing, and distribution all had responsibilities in the recall process. We took a comprehensive approach at all of our facilities that included thoroughly sanitizing each facility and making enhancements to procedures and equipment.”

One improvement Blue Bell enacted during the recall process is a test-and-hold procedure whereby products are not distributed until their production runs are tested. “[This is] designed to ensure that the ice cream we distribute is safe for consumers,” Van Dorf adds.

Hitting the brakes

Also in April 2015, Trek Bicycle recalled nearly 1 million bicycles after three incidents—one facial injury, one fractured wrist, and one crash that left a rider permanently paralyzed. According to the CPSC, a quick-release lever on the bike’s front wheel hub could come in contact with the front disc brake assembly, resulting in complete wheel separation or the wheel coming to an instant stop.

“We had never heard of a quick-release lever becoming caught in a disc brake while riding,” says Eric Bjorling, brand and public relations manager for the Waterloo, Wisconsin-based company. “We looked into it [and] determined that the cause was the improper usage of the lever. After some further analysis, we determined that the potential for this happening again was there, as the part was widely used throughout our bikes as well as a number of other brands.”

Trek brought this finding to the CPSC, which was previously unaware of the issue, and to executives at the other industry brands using the part, urging them to take collective action. Although the part itself was not defective—the issue was the result of improper usage—the supplier of the quick-release lever was contacted as well. Trek has since stopped using the part and found a suitable replacement.

“We were not going to wait for another accident, another potential rider to get hurt, to decide what course of action to take,” Bjorling says. “If [these notifications] prevented even a single accident, it was worth whatever costs would be incurred.”

Line of attack

During its recall event, Trek benefited from having a formal strategy in place—one that relies on its partnership with the CPSC and the cooperation of its independently owned retailers. The plan enabled Trek employees to work systematically and aggressively in response to the issue, something that a recent PricewaterhouseCoopers (PwC) report says can greatly improve a company’s ability to manage recalls. The report, “Are You Prepared to Protect Your Brand?” notes that taking prompt, definitive action is critical to recall success.

“Many companies spend the crucial first 48 hours scrambling to organize a recall team and to obtain the necessary information for a senior individual to make the decision to immediately prevent further distribution of affected product,” PwC’s Sally Bernstein writes. “The result is the recall issue continues to grow.”

Bernstein says the foundation of recall success is a predetermined “pivot point” team whose members are empowered to oversee the process and report to an executive sponsor. Team members are responsible for assessing the scope of the recall; tracking and documenting related activities, costs, and key performance indicators; and quickly and accurately responding to stakeholder requests for information. In addition, the group allocates and manages resources and shares progress. She adds that it is imperative for the team to guide cross-functional collaboration throughout the entire organization.

Product Recall Categories
Click to enlarge chart.

Bjorling says this was a key to Trek’s recall success as well. “Without the cross-functional buy-in and teamwork [of] communications, Customer Relations, forecasting, legal, logistics, marketing, retail, sales, and supply chain … this recall could not have been as successful as it was; they all played vital roles,” he says. “The biggest lesson is to make sure, when embarking on something of this magnitude, [that] all of your departments know the plan, buy into the plan, and act in the best interest of the customer.”

In her work at Great American Insurance Group, Randall regularly sees the value of having a formal recall policy, full traceability procedures, and a quality-control manual. “The key to loss mitigation and loss prevention, like anything else, is to have a strong business plan and strategy,” she says. “[This should include] implementation of required and necessary measures for food, consumer goods, or component-part product safety. Diligence with testing, regulatory compliance, implementation of plans, and overall quality control are very important.”

Another essential aspect of a recall strategy is the reverse logistics process. Daniel W. Steeneck, postdoctoral associate at the Massachusetts Institute of Technology Center for Transportation and Logistics, says reverse logistics is, unfortunately, an afterthought for many companies. “For recovered products, their best-value recovery or end-of-life option—for example, repair and resell, disassemble and salvage, or dispose— should be determined in advance. Either in-house operations should be prepared, or relationships with third parties with the right capabilities should be established,” he says.

On the bright side, he adds that the identification of reverse supply chain strategies is not only essential to effective contingency planning, but also can enable professionals to identify business opportunities from recovery of end-of-life products.

An organization’s specific reverse logistics process will depend on the nature of the recall—whether it involves repair, replacement, or return, Steeneck adds. For example, when recalling toxic materials, such as lead paint, companies must be compliant with Environmental Protection Agency disposal regulations. He also notes that a plan must be made for each contingency. For recalls requiring replacements or returns, the recovery channel and the processing of the returns are the “critical decisions,” he says.

Adequate recall insurance also is necessary. “Most business owners do not have experience implementing a recall,” Randall explains. “The expertise of a crisis consultant can drastically reduce the impact of an incident.”

The PwC report draws a similar conclusion, noting that poor engagement with insurance carriers leads to cash flow difficulties and ultimately hampers the recall process. “[Companies] should have a strategy for addressing insurance recovery,” Bernstein writes. 

“Immediately after a recall, the company should communicate with its insurance carriers about the recall process and identify all possible claim elements. This will … safeguard cash flow by enabling prompt insurance payments.”

She adds that the following points also are integral to recall-event planning:

  • Recall management should be a continuous process that goes beyond an annual mock recall.
  • The process should be embedded within each business function.
  • Plans should be actionable, with enough detail to be effective but not so much that rapid execution is impossible.
  • Planning and process design should be updated frequently to account for changes in suppliers, manufacturing, distribution, and customers.

Finally, Bernstein advises recall team members to make sure they can track product flow downstream, upstream, and across the supply chain to allow for quick identification of products. In addition, communication with regulatory agencies and other key stakeholders— including employees, suppliers, customers, insurance carriers, investors, and board members—must be thorough and swift.

As Trek’s Bjorling says, “The more flexible your supply chain can be to react quickly, the better off you’ll be.”

Social Media and Shielding Your Brand

News travels fast and far these days, whether it’s good or bad. Social media can intensify recall events, but it also can be used wisely to avoid misinformation, give consumers a way to ask questions or share information, and enhance the overall customer experience.

The study “The Role of Social Media in the Capital Market: Evidence from consumer product recalls” from the Journal of Accounting Research found that “increased frequency of tweets by other users exacerbates negative market reactions as disgruntled users interject negative sentiment into the online dialogue, while increased frequency of tweets by the firm lessens negative market reactions.”

Examining Blue Bell Creameries’ social media during its recall event illustrates these points. The first post about the recall said: “For the first time in 108 years, Blue Bell announces a product recall. … For more information, click on the link below.”

The reactions of Facebook commenters showed overwhelming support for the brand. One person wrote: “Blue Bell is by far the best ice cream in the world. Tainted or not!” Another commented: “So sorry this happened! 108 years [is an] awesome record!”

Yet, many others felt that Blue Bell’s statement was ill-conceived. One person wrote: “This is not a time to tout your rich history. People are dead because of your product.”

A subsequent Blue Bell post said: “Unfortunately, our training and repair efforts will take longer than we initially anticipated. We don’t have a firm timeline for when we will be back, but it will be several months at a minimum.”

And again, the responses were mixed. “Take your time and get it right, Blue Bell Ice Cream,” one commenter said. “In the meantime, is there a program for withdrawal symptoms from Blue Bell ice cream?!”

Interestingly, this time it was not the company but a social media fan’s remark that stoked the fire. “People died, and we are whining about not having ice cream? Sad state, truly, truly sad,” one poster wrote. And another said, “It is a dirty company, and I would never trust them again.”

The PricewaterhouseCoopers report “Are You Prepared to Protect Your Brand?” notes that consumer reactions to the news of a recall can result in lost revenues and substantial brand damage. “The speed of social media [has] made effective recall management a strategic priority,” author Sally Bernstein writes.

Barbara Randall, divisional vice president of Great American Insurance Group, agrees. However, she also sees valuable opportunities for positive social media interactions. “Increased awareness may help companies to more seriously consider pre-recall … product safety measures,” she says.

In the age of social media, it’s imperative that the information a company shares be delivered in a proactive, thoughtful manner. Effective and deliberate delivery of the message can make a big difference to the ultimate results.

Elizabeth Rennie is managing editor for APICS magazine. She may be contacted at editorial@apics.org.

To comment on this article, send a message to feedback@apics.org.

Comments

  1. Carlee September 28, 2016, 06:25 PM
    These topics are so counisfng but this helped me get the job done.

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