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Mitigating Recall Risk

As the complexity of supply chains continues to increase, the consequences of recalls have become far more substantial and wide reaching than in years past.

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As the complexity of supply chains continues to increase, the consequences of recalls have become far more substantial and wide reaching than in years past.

Unfortunately, this phenomenon is simply a product of progress. Manufacturers create new technologies and capabilities to solve issues and improve processes, but this inevitably creates new challenges that must be addressed. Pollution in the industrial age is a prime example of this phenomenon. While that may seem like a dramatic comparison, it conveys the point that global recalls can have a severe impact on a company’s well-being and spawn lingering issues that plague it for years to come. This is especially true for organizations that are not prepared and fail to handle a recall properly. Of course, that is all in addition to the focal point of any recall, ensuring public safety.

One way to mitigate risk for a company is to invest in recall insurance. Organizations can never be 100% certain that all of their suppliers and manufacturing facilities will never make a mistake. Even with the best intentions and meticulous supply chain oversight, history has proven that a recall can happen to any company. Often it’s something as simple as one slip up by a person running a labeling machine that processes hundreds of thousands of labels every hour. There is no malicious activity or disregard for public safety involved, it’s just human error in a supply chain moving at top speed. That said, an organization doesn’t have to be left vulnerable to irreparable brand or financial damage from such common mistakes.

At Stericycle, we work closely with an array of insurers that operate in the food and beverage space. With this experience we have identified a number of ways manufacturers should be mitigating recall risk. First off, ensuring access to good data and tracking information is key. This enables the organization to quickly locate and retrieve products affected by a recall. It also enables them to quickly assess the value of that product and make potential dealings with the insurance company faster and infinitely less complex.

Secondly, if the origin of the recall is known, organizations should contact the source to see what damages they will pay and decide if legal action is required. It’s also important to determine these factors ahead of time when finalizing agreements with suppliers to ensure that if the supplier is not obligated to cover recall costs, it is covered by the insurance plan. If neither of those criteria are met, the organization should look at the risk/reward of the business agreement to determine if it’s a worthwhile venture.

Finally, organizations need to be recall-ready with a designated recall team and plan, and an understanding of the supply chain partners’ recall protocol. Speed and efficiency are the cornerstones of a good recall, just like the supply chain itself. Ensuring that recalls are handled expediently will not only limit the financial loss, but will help prevent lasting damage to the brand, which is very rarely covered in insurance policies. It’s easy for companies to feel secure with their insurance policy firmly in place, but failing to adequately prepare for a recall can still have disastrous effects. Of course, there are limits to any recall policy in terms of total damages covered, but more importantly, resulting brand damage and potential litigation can plague a company for decades to come.

As the recent rash of food recalls has illustrated, increased regulatory oversight (also made more efficient by progress) has caught up to the industry and potential health issues rarely go unnoticed. It’s important for organizations to practice due diligence in this environment when mitigating recall risk to help ensure the long-term health of the company. Recall insurance is a great first step, but not a safety net that should blindly trusted. Only when it is combined with proper recall planning and preparation can the organization feel confident in its ability to navigate a potential recall event effectively.