In 2003 and early 2004, many of the recalls revolved around high-profile counterfeits of name-brand prescription drugs, such as the 200,000 counterfeit bottles of Lipitor® pulled from the market.

But the pharmaceutical industry is not the only one facing significant recalls. In 2003, the Consumer Product Safety Commission (CPSC) obtained 280 voluntary recalls involving some 40 million consumer product units that either violated safety standards or presented a significant risk of injury to the public. Recalls included 1.2 million infant car seats (carry-handle problems), 1.1 million weed-cutting attachment metal blades (broke off and hit users), and 1.7 million boxes of bamboo stick sparklers (stick handles could catch fire, burn and disintegrate, and emit burning fragments).

The pressure to quickly release new products to satisfy consumer and shareholder demands may mean that safety checks and balances are overlooked, resulting in a growing number of recalled products. As the illness, injury, or death toll mounts due to product failure, any financial gain that may result from getting a new product to market quickly and at consumer-friendly prices is soon offset by the costs of a recall, resulting lawsuits, and damage to corporate and brand reputation.



"According to a study released by the American Society for Quality (August 2003), each product recall costs an organization, on average, more than $8 million. This conservative estimate includes reimbursement expenses to consumers, recall execution costs, and compensatory damages from litigation. It does not include lost sales due to reduced marketplace credibility and lost market share."

In addition to product failure, recalls can be initiated because of public pressure or even as a result of product tampering. The best example of how to deal with a product recall resulted from the Tylenol tampering case in the 1980s. Johnson & Johnson demonstrated that the safety of consumers was paramount by voluntarily recalling all of its products, cooperating fully with regulators, and communicating openly about the issue. Subsequently, J&J undertook a series of operational and design measures to ensure that such tampering would not occur again.

The most effective and logical way of dealing with any product recall is to plan for it in advance. Whether manufacturing a food product, prescription drug, or an automobile, to name a few, having a standard methodology for dealing with product recalls efficiently and in a timely manner is imperative — whether the recall is due to deficiencies in one's own manufacturing processes, tampering, or public pressure. Without a formal process in place, product recalls can quickly turn into crises, resulting in an enormous financial and reputational impact on an organization. Effective management is vital as the media and public will focus on the story as long as the product recall effort remains underway and questions about corporate practices remain unanswered.



"Multicolored sidewalk chalk was recalled by the CPSC in response to a report from the Wisconsin Department of Health who found high levels of lead, which pose a risk of poisoning to young children."
Consumer Product Safety Commission #04-032

An organization's product recall methodology must be based on best practices — whether or not those best practices are found within one's industry. Building a methodology around best practices ensures that an organization can gain a competitive edge in its marketplace by preventing a recall in the first place, and managing one effectively when it happens. Best practices can include regular reviews and improvements to product development processes. Many product defects can be anticipated and prevented during the product design and/or product development phases of a product life cycle, thereby reducing the chance of a recall.

As executives begin to focus on their companies' product recall policies and procedures, they should be asking themselves these questions:

• How can I protect my brand from a product recall?
• Does my company understand federal, state, and international regulations regarding product recalls?
• Do I have a protocol in place for managing a product recall? Do we have a trained product recall team? Do my employees know what to do?
• Is my company able to quickly respond to the media, shareholders, employees, and regulators in the event of a product recall?
• Has my company included the product design and development teams in product recall development initiative?
• If a product is recalled, how will my company's business continuity plans be put into action?
• Has my company made adequate allowances for a negative impact to its supply chain if a product is recalled?
• Does my company have the necessary technology tools to manage a product recall?
• In the event of a product recall, has my company identified the necessary tools to help mitigate the financial impact of the recall?
• Am I prepared to handle any product recall-related litigation?
• How can I determine when a recall effort is complete?

Product recalls present a complex array of issues, ranging from accurately determining the scope, nature, and extent of the loss, to the applicability of insurance policies, to dealing with regulators and the consuming public. However, best-in-class organizations have the tools and procedures in place to successfully avoid, as well as deal with, product recalls, minimizing their financial and reputational impact.



"[Bob] Kurilko, of Edmunds.com, said Toyota set the industry standard in recalls when it was forced to repair all 8,000 of its then-fledgling luxury brand, Lexus, in 1989. The company found a problem with the cruise control, and in the course of fixing the problem, it went and picked up the cars from each owner and gave him or her a car to drive during the repair process. 'It's not necessarily what happens,' he said. 'It's how you handle it.'"
Dow Jones News Service, 3/1/2004

A company should view the product recall management as a three-phase process: assessment, implementation, and recovery.

In the assessment stage, companies should analyze their preparedness for a product recall, as well as the vulnerabilities that could lead to a product recall. This would include reviewing product development processes to determine where potential product failure issues can be eliminated. Evaluations also should be undertaken of insurance and risk management, quality assurance, product loss accounting procedures, regulatory compliance, supply/distribution chain, and the legal and communications resources available to the company. Following the assessment, a series of measures for improving product recall readiness should be implemented.

In the midst of a product recall, companies need to quickly overcome the challenges they are facing and move ahead with their regular course of business. A company needs to identify the affected product, investigate the cause of the problem, and assess the scope of the recall. It should review relevant insurance policies and assess its compliance with government regulations — for the company and its suppliers. There needs to be a timely management of recall and replacement efforts, especially its communications with key audiences. Accounting for lost sales and the total cost of the recall in order to facilitate recovery is critical. Depending on the nature of the recall, a company also should consider preparing for product liability suits, identifying expert witnesses, and preparing other resources needed to support any cases going forward.

Recovery from a product recall entails not just the immediate action of removing a product from the market, but ensuring that its reintroduction meets with the expectations of regulators, shareholders, the media, and the consuming public. During this stage, companies need to complete all reports required by regulatory authorities; monitor and assess the product's reintroduction, making strategy adjustments as needed; communicate with all stakeholders; notify all concerned parties when the recall has been completed; continue to manage any resulting litigation; and apply the lessons learned from the recall.



"The amount of meat subject to recall from the nation's first case of mad cow disease was nearly four times larger than previously reported and as much as 17,000 pounds may have been eaten, the U.S. Agriculture Department said. The beef recall expanded to 38,000 pounds from the initial recall of 10,400 pounds issued Dec. 23, the day a Yakima County Holstein was diagnosed with bovine spongiform encephalopathy, or BSE… Government authorities have said repeatedly that the beef recall was issued out of an 'abundance of caution' and that the meat posed relatively low risk to human health."
Seattle Post-Intelligence, 3/3/2004

Any company that does not have a product recall methodology in place, is contemplating a review of its current methodology, or is in the process of managing a product recall should consider the following services:

• Product Recall Consulting
• Business Continuity Planning
• Emergency Response Planning
• Critical Incident Prevention and Planning
• Supply Chain Risk Consulting
• Strategic Communications
• Claims Consulting
• Risk Technologies