Disasters happen. Two years ago, for example, Dell was one of several laptop makers faced with a serious product recall caused by the supply of faulty batteries. Ruari McCallion finds out how some of the best companies put procedures in place so that, should the worst happen, a product recall can be managed effectively and efficiently
Every school, hospital and workplace has – or should have – a well-established protocol for the occasions when the fire alarm goes off. Get everyone out of the building in an orderly fashion; second, call the fire brigade. Health and safety people should be in place to take the rollcall, if appropriate. Only when everything is determined to be safe is everyone allowed back in. But those actions take place after the fire has been discovered and an emergency identified.
The fire started small. If a waste bucket has begun smouldering, you don’t immediately hit the alarm and evacuate the whole building; the people in the immediate vicinity deal with it. If something is wisping out of a ventilation grille, someone has to decide whether it’s a full-blown emergency or a bit of dust being blown through the ventilation system after it’s been switched on for the first time in months. If smoke is seeping heavily out of the stationery cupboard it’s probably best to get everyone out, quickly. There’s a process of analysis going on leading to proportionate response.
The same principles apply if someone comes into a retailer and complains that their iron is damaged. That isn’t automatically the signal to recall all the irons of the same make and model, from all the stores in all the counties of the UK.
It’s worth asking some questions: how was it damaged? Was it accidentally dropped, either in the store before it was taken away or inside the home? Or was it used as a weapon in a domestic argument? If so, then clearly there isn’t any need to hit the panic button. If it went pop and flames stroked the cable where it meets the handle, then further investigation is required. There has to be a structure in place; people assigned to take responsibility and make appropriate decisions, from the most minor of incidents all the way to management decision for full recall.
“Even now, despite all the publicity about product recalls, people haven’t spent time thinking issues through,” said Andrew Masterson of commercial lawyers Pinsent Masons LLP. “One large plc we know of doesn’t have any recall plans in place; they rely on the quality of their products.
That ability to rely on suppliers becomes diluted as companies outsource [production and supply].”
While that’s a bit more prevention than cure, it’s a very reasonable note of concern to strike.
Hester Shaw, of Marsh Risk Consultancy, advises on recall structures: “We review [clients’ risk management protocols] against 14 elements,” she said. “They cover issue identification – when is it identified: by consumers phoning a helpline; by retailers; at the factory? Once identified, how is the issue escalated? Companies need teams in place to deal with problems; they need to ensure they have the right people available who are appropriately trained.”
Recall protocols start at the consumer interface. If just one customer finds fault with just one product, the people at the interface have to be aware of what to do; how to analyse the risk, who to communicate to and how. Sending a letter won’t do if you’re dealing with food, a critical safety issue in a car, or a fault with an electrical product. Communications have to be fast, so that the source and extent of the problem can be identified. Crisis management teams must have the power to do things, quickly – so that means senior staff have to be involved. Staff, customers, possibly the authorities and shareholders and the wider community have to be kept informed, but at the appropriate level.
“PR is one of the things good crisis managers cater for,” said Masterson. “They will identify what will be said in certain circumstances, and what to say.” Communication may be necessary to fulfil legal obligations and it can help to reassure the wider community that the issue is under control. Perception of failure to manage a crisis effectively is a quick way of losing trust and confidence.
While it’s not possible to foresee every eventuality, it is possible to put in place processes that will be sufficiently adaptable to deal with pretty much anything.
“Training is important, so that the first time the team sees the crisis protocol isn’t when all hell is breaking loose,” he said. “Every reasonable sized producer should sit down, assign individual responsibility for planning and undertake it end to- end. Put in place data capture structures, and know how much information you have to have before you need to notify the authorities. If you start behind the game, if you don’t know what’s happening, the response will be less good.”
If the planning, structure and protocols are in place, then the shop assistant knows which supervisor to contact; s/he knows the appropriate manager to alert, who knows the senior people who have the responsibility to put recall plans into action. Relationships with business partners – distributors and logistics providers, as well as suppliers – become important when the shelves have to be cleared.
“A retailer has its own level of nervousness – for example, with an electrical product,” said Rod Freeman, a product liability lawyer with Lovells.
“The retailer wants a recall and the authorities alerted; the manufacturer may disagree and want to undertake more investigation. It can get out of control if the manufacturer isn’t ready for it.” It isn’t a matter of placing the blame, it’s about responsibility for action. Who will collect the products? Where will they be brought back to?
How will they be destroyed, recycled or refitted? Can it be done locally or is the problem so complex that it has to come back to the manufacturer?
How many items are involved? What are the logistical challenges in getting them back to base?
Purchasing, design, sales (for records of customer purchases), supply chain, logistics and design all have to be involved, as well as corporate communications.
The people who negotiated contracts with partners have to be able to advise on who will take responsibility for what and when; delay is damaging and expensive.
When Mercedes’ problem with its original A-Class – tipping over during sharp cornering – became inescapably apparent, the company ordered a recall and retro-fitted new suspension units. All owners were contacted and advised of where to return their cars. Fewer than 5,000 were involved because, after some initial apparent dithering, the company moved fast to sort it out.
Costs were saved because the numbers were still manageable. Effective communications, both through official channels and through the media, got across two messages: owners were alerted and the broader audience was reassured that the problem was being fixed. In contrast, Perrier in the early 1980s took a while to accept that it had benzene in its water supply. When faced with irrefutable evidence, it recalled millions of bottles and was out of production for a year. The redeeming feature was the ‘Helleau’ advertising and PR campaign when supplies were restored; it regained and exceeded market share within three months. Solving the problem was always going to cost millions, but perhaps a few of those millions could have been saved by more effective action, sooner.
“A lot of lessons have been learned from recent experiences,” said Freeman, who pointed out that levels of enforcement have increased over the past few years. Legislation is all the more reason to ensure effective protocols are in place. “
The shape of the [crisis management] system depends on the market and the way the distribution chain is shaped. A lot is about having the right contracts in place when dealing with supply chain partners.” Mattel is actually a good example; it undertook a series of recalls once it identified the problems. “Companies rely on their distributors to get products back. While retailers may be first to alert manufacturers to a problem, the producer is in the best position to determine what needs to happen.” He believes the supermarkets have got very good at managing recalls.
“They’re up front and make no bones about it. They say ‘this product is being recalled, bring it back for a refund and we’ll deal with it’. But it’s easier for them to demonstrate they’re not the people primarily responsible for the problem – they’re selling closed receptacle products.” They may be the ones who ordered the items in the first place but their systems are so effective that a recall reinforces customer trust.
Ms Shaw believes manufacturers can learn from the EU’s food traceability directive. “It’s a good model – people need to take responsibility for what they’re selling,” she said. That responsibility applies at all stages, throughout the supply chain. When a recall happens, the paper trail is clear and easy to follow. “It’s early days yet but it will become effective – but it requires everyone having systems in place.”