How to minimise the effect of a product recall crisis

Written by Ashley Prickett – Branch Director.

Product recalls are all too common for manufacturing enterprises and the implications can be widespread. That’s why having a watertight and well-rehearsed recall plan is critical to reduce the possible effects. 

Overseeing and managing a smooth product recall is typically a challenging obstacle for a business to navigate. Without careful handling it may be expensive, present significant threats to customers’ safety, and may even make a permanent dent in a company’s reputation. Here we look more closely at the causes of a product recall and how advance planning can minimise fallout on all fronts.

What are the main causes of a product recall?

Product recalls happen if a potential hazard to human life becomes apparent. This is often caused by a failure on the production line, or perhaps in the case of food or drink, something that happens along the logistics journey from source to sales point. A recall will then be triggered when it’s confirmed the product has a specific issue, or the potential presents a great enough risk to warrant a recall. This could indicate that the product is not safe to eat, drink, or use, and has a possible health and safety risk.

The most common product recall causes are food and drink contamination, manufacturing and production defects, and safety issues such as those in the automotive or component part industries. 

A problem no business wants

No company, regardless of size or how long they’ve been in the market, wants to entertain even the idea of a product recall. The ripple effects may be enormous, with swift investigations into contamination or product failure, and fast answers required as to whether the product needs repairing or replacing. There is also the question of whether, as the manufacturer, the business will be fully investigated and scrutinised by industry regulators. And looking at the more long-term ripples, an issue that will need to be addressed is the cost to brand loyalty, as well as how best to maintain and protect customer and supplier relations. 

The key considerations for most business operators facing a product recall will be financial, alongside the headache caused by potential business and operational stoppages and that reputational black mark that can so quickly become a “bad thing”.  A robust communication strategy and set of agreed procedures needs to be more than a document filed away. In the event of a product recall, this must not only be accessed but shared and implemented swiftly to limit brand reputational harm and protect the bottom line. A recall plan should include clear procedures for identifying and removing products from the market; this helps to mitigate the initial impact whilst communicating with stakeholders. But the expense of this may run beyond the thousands into the millions, which may be the difference between the ongoing survival of a business or ultimate closure.

However, a number of tactical moves and measures will help to limit the trauma and discomfort of product recall. This encompasses pre-and post-incidence planning such as data analysis, constant product testing, supply chain transparency, and of course continuous improvement. If this is part of an existing production process, any issues can be identified and managed much earlier on, and potentially before a product recall is necessary. 

It’s also a good idea to review customer contractual obligations in order to determine non-fulfilment penalties and how insurance covers these. It’s quite common for a business to assume that product recall is already part of their general or product liability policies. However, the reality is that it’s usually an exclusion, causing a coverage gap or exposure, with just a ‘recall expenses only’ claim to be fulfilled. The simple truth is, no matter the size of the business, what is being manufactured, and where it will be sold or used, recall policies and procedures (including insurance) must be well established and understood so operational disruption can be minimised, and finances kept under control.

Avoid issues by including a specialist insurance product

The easiest way to bridge any coverage exposures is to ensure a niche or specialist insurance product is part of your product recall strategy. If you then need to use this in an actual product recall situation, you’ll have the certainty and peace of mind that an expert insurance consultant is ready to help protect your business and get past the crisis with minimum fuss, stoppages, and collateral damage.  If you have an existing relationship with an insurance specialist plus the correct level of cover and protection, you’ll be ready to implement that comms and crisis management strategy without hesitation. It’s not only time, money, and reputation that is ringfenced; you’ll be in a strong position to answer stakeholder queries and reassure customers, so your ‘bouncebackability’ remains intact, as well as your product line – minus the temporary fault or contamination.

At Howden, we’re an insurance specialist that not only provides manufacturing business insurance policies but are experts in product recall solutions. Our authentic appreciation and understanding of the manufacturing sector puts us in the perfect position to deliver tailored business insurance solutions, helping protect you from the expenses related to unforeseen and unwanted disruptions. Our comprehensive programme of risk assessments and tailored insurance plans brings the loud noise of interruptions down to a whisper. 

If you’d like to discover more about how we can stem the flow of a product recall crisis and any other business interruption scenario, visit our dedicated manufacturing web page or tune in to our recent podcast on product recall.