No business wants to undertake a product recall, but how it is managed can make or break your company’s reputation.
It’s the sort of headline that keeps CEOs awake at night. A defect has been recognized in a market-leading product and millions of units must be recalled. Consumer safety is at stake, shareholders will raise awkward questions and market confidence will take the plunge.
Product recalls are a fact of corporate life. “Increasing regulatory cooperation and stricter regulations has led to a drastic increase in recalls and consumer product safety awareness,” says Steffen Frankenberg, Vice President DHL Solutions & Innovations. In the UK alone the number of recalls rose by 50% in five years to reach 229 in 2010, according to law firm Reynolds, Porter and Chamberlain. Reporting requirements are also becoming increasingly stringent as regulatory bodies monitor products more closely: the EU has initiated its “RAPEX” system to share information across the continent so news of recalls breaks more quickly.
Logistic planning for a recall – which would involve brand owners, retailers and manufacturers – is essential. Frankenberg says early preparation, even before a recall incident takes place, is crucial. “We’ve learned that both companies with or without experience in recalls don’t want to hear the word ‘recall,’” he says. “When it happens, the first thought is about brand protection and liability. The last thing being considered is the logistics capability in handling a product recall.”
The stakes, however, are huge. In 2009, a US baby equipment manufacturer came under fire for recalling one million pushchairs after 12 children lost parts of their fingers. Not being fully prepared led to chaos, the company’s CEO admitted: “We immediately realized we would need more of everything.”
Recalls in the automotive industry can be particularly damaging. One major car manufacturer suffered around €1.46bn in losses and saw its share price plummet 15% in three months after a worldwide recall.
By contrast, handling a recall well can actually improve brand perception. A 2010 study of 1,000 people by Relational Capital Group and Princeton University found that 87% were more willing to purchase from and remain loyal to a company that handles its product recall in an honest and responsible way. “Consumers no longer view product recalls in a negative light. Today, consumers believe they enjoy a safer, better product as a result of a recall conducted responsibly by a company,” says the CPSC (Consumer Product Safety Commission, USA).
DHL is working to help companies manage recalls. It provides a global recall service, and is also launching the ‘Recall Club’ which offers proactive recall planning for customers. DHL will analyze logistic setups and ensure a solution is in place to cope with even the worst case scenario. “The question is not whether a customer will face a recall – the question is when,” says Stefan Buschak, head of DHL’s Recall Competence Centre. “It’s about ensuring the customer is prepared for the worst.”
