Can Your Company Survive a Product Recall?

by Rex Miller, CPA | Partner, Team Member of the Manufacturing & Distribution Services Group

The steady flow of headlines about recalls should be a warning to manufacturers large and small, in every industry. Recalls — and particularly the mishandling of them — can cost manufacturers millions of dollars. These are dollars most companies can ill afford to waste.

The cost of a recall — including the time and money spent tracking down recalled products, issuing news of the recall, and refunding customers or fixing the problem — is just the beginning. Even when recalls are handled well, damage to a company’s reputation and brand can last for months or even years, resulting in decreased sales and profits.

Manufacturers can reduce the chance of a recall by maintaining quality control processes. Be particularly diligent about quality control after a round of layoffs, when employees must take on additional responsibilities.

Communication throughout all levels of a manufacturing company — from design to production to marketing and sales — is also crucial. In many situations, several departments must come together to help prevent and resolve recall issues.

Another critical aspect of avoiding recalls is the supplier-manufacturer relationship. Manufacturers should vet suppliers thoroughly before deciding to work with them. Suppliers must understand how their components will be used, as well as the ramifications that may occur if their parts result in faulty products.

Foreign supplier relationships are especially vulnerable to costly miscommunications that can lead to recalls. For example, if certain environmental or safety standards that apply to the products in question are different in suppliers’ countries, manufacturers must establish protocols to ensure those suppliers’ parts are up to par.

Your company can prepare for potential recalls by using data management and automation systems to track outgoing products. So, if a recall is necessary, you have the means to pinpoint where, for example, a specific batch of a defective product was shipped.

Also bear in mind that, if a recall occurs, honesty and timeliness are the best policies. Executing voluntary recalls early on after the discovery of a problem — even if no injuries or mishaps have occurred — can help build trust in your products and help avoid steeper costs.

It goes without saying, it takes careful, but quick, planning to launch a recall. If you find yourself in a recall situation and you need someone to help walk through the process, surround yourself with a team of professionals (including financial and legal).