Total recall: financial risk and ruin
Over 6.6 million individual products are currently listed for recall across Australia, according to the Australian Competition and Consumer Commission (ACCC).
About half of these products are still likely to be found in people’s homes, and the number of product recalls issued is steadily rising.
The ACCC’s Product Safety Australia website lists hundreds of current recalls across various subsectors ranging from health, general merchandise, motor vehicles, food and food-related products.
A cursory glance over the list of the latest notices includes a host of Australia’s largest retail names including David Jones, Priceline and Costco.
Retailers and suppliers are at risk of financial ruin and reputational brand damage if product recalls are poorly managed. Retailers need to know that their suppliers are fully equipped to manage a product recall in the best possible way. If suppliers aren’t properly prepared, this is when the real damage is done.
Product recalls and withdrawals are not typically something that organisations plan for, says Peter Chambers, head of supply chain improvement services at global standards and solutions organisation, GS1 Australia. When a product recall is on the cards, procedures to deal with the highly stressful event are usually not deeply embedded within a business.
“Knowledge about what to do and when is limited at best among many suppliers and smaller retailers,” says Chambers, adding that procedure manuals are typically either out of date or non-existent.
“A product recall or withdrawal not only affects the organisation conducting the notice, but all of the trading partners downstream, as well as the consumers of the affected product,” he says.
“So apart from the quantity of recall and withdrawal events, the effect of poorly managed recalls can be enormous.”
The impact of a product recall can depend on a range of factors, including business size, magnitude of problem and volume of sold products.
There are different demands on suppliers and retailers depending on the product involved.
Enduring consumer goods like washing machines might be resold online, meaning an action may need to be revisited at a time after the original documentation has been actioned.
Therapeutic goods that do not have a substitute may cause issues for consumers where their ongoing wellbeing is dependent on that product. Food recalls often gather significant media interest, particularly where there has been demonstrated harm to consumers.
At the maximum end of the spectrum, a poorly managed recall can be disastrous for any organisation and potentially put it out of business. “There are many recent examples in Australia where the consequential brand damage has run into millions of dollars,” says Chambers.
“Added to that there can also be related category damage where non-affected products, in the eyes of the consumer, are tainted by the recall event.”
Effective recall measures should aim to quarantine the offending product from sale or distribution and then manage the disposal or return of goods. When conducted successfully, a recall procedure will minimise the impact on the supply chain and the end consumer, therefore minimising the actual costs of recall management.
“When a supplier organisation decides to conduct a recall or withdrawal, typically this involves most, if not all functions within a business,” says Chambers.
“A cross functional crisis team is formed to manage the issuance and ongoing maintenance of a recall notice.”
Recalls are often very stressful and time critical procedures, which can affect thought-processes, decisions and actions.
“Many stakeholders in the process do the right thing, but then a number do not. This creates a management issue that takes resource, time and effort,” adds Chambers.
When a well-known Australian food firm became embroiled in a high-profile recall for frozen berries containing hepatitis, the impact had serious ramifications for the entire food industry, not just the companies involved. Recent product recalls for strawberries and rockmelons impacted all growers, not just the producers of these products.
“Not only did this recall generate significant cross category sales impacts domestically but was disastrous for the export market of a number of growers, despite not even trading in the affected products,” says Chambers.
If an organisation fails to effectively comply with recall regulations, the financial and legal repercussions can be costly. The ACCC can issue fines of up to $500,000 for individuals. For a body corporate, companies can cop $10 000 000, three times the value of the benefit received, or 10 per cent of annual turnover in the preceding 12 months, if a court cannot determine the benefit obtained from the offence.
Given the vast costs for failure to comply, retailers are now better placed to understand the issues and impacts of product recalls. But as larger retailers list a wide range of thousands of products from lots of suppliers, they are exposed to more incidents than individual suppliers.
“At the top end of town, the very large retailers have very efficient and capable systems that can effectively block sales with the push of a single button at the counter, based on the product identifier [barcode],” says Chambers. GS1 Australia built the industry Recall portal platform at the request of, and with the input of industry representatives and regulators.
The online portal aims to minimise the impact and cost of product recalls and withdrawals by enabling the fast and effective removal of products across the supply chain through better communication, visibility and action. Regulators are integrated within the Recall portal ensuring compliance in the construction and management of notices.
“However, while retailers have extensive back end supply chain and distribution systems, these are less capable of single touch management and require an element of human process to execute the recall withdrawal fully”.
“As we move down through the tiers of retailers the capability drops off relatively quickly and many parts of the recall and withdrawal process rely on human input to manage.”
Most large corporate retailers pay due attention to how they manage recalls and to their regulatory obligations, says Chambers. But many smaller organisations rely on procedure manuals and non-integrated systems and processes. While these procedures and systems can manage a recall to conclusion, technology has the added benefit of expediating the process ensuring a better, more efficient and timely result.
“Where retailers might be able to improve is the visibility of supplier readiness to respond to a product safety incident and communicate the appropriate actions,” he adds.
Most large bricks and mortar retailers in Australia have extensive disaster recovery plans, Chambers says.
“Less evident is the attentiveness of some online retailers to the issue of product safety, the receipt of product recall notices and their communication,” he says.
Where this may be problematic is when a product is sold in Australia from overseas markets, particularly where a supplier does not supply that product directly in Australia.
In managing effective recalls, Chambers says the system of Australian regulators is by and large willing to work with organisations to get results.
“Organisations that include product recall as part of their regular review for crisis or business continuity planning and secure up to date assets for their business will be better prepared,” he adds.
Find out more about how industry leaders are tackling the issue of product recalls.
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