How Much Do Product Recalls Really Cost?

 

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Recall…a dreaded word that no manufacturer wants to hear, sparking media attention, hampering your hard earned reputation, and no doubt posing a financial burden on your company.  Thousands of recalls happen every year and the number of cases has been growing.

One of the factors attributing to such increases over recent years is greater “outsourcing and captive offshoring of manufacturing and distribution.”According to an article from NC State University, recalls resulting from outsourcing are due to “poor communication due to geographical distance between customer and supplier, diversity of regulatory standards, socio-cultural diversity, and complexity in coordinating and exchanging information between different actors,” which can lead to poor oversight and an increased risk of incidents.1

Product recalls can wreak havoc on a company, leading many businesses to downsize or even close as they are hit hard by both direct and indirect costs.  Direct costs include the price of the product, quantity recalled, notification costs, as well as transportation costs.Indirect costs also come into play which include lawsuits, stock value declines, fines, lost sales, and reputation hits.2  In fact, according to a consumer poll conducted by Harris Interactive, a market research firm in Rochester, NY, after a product recall, 55% would temporarily use a different brand, almost 15% wouldn’t buy that particular recalled product again, and 21% wouldn’t buy any brand associated with the manufacturer.4

Let’s take a look at the impact of such on the food industry for example.  A study performed by the Food Marketing Institute and Grocery Manufacturers Association indicates the average direct cost to a company per recall is $10 million, while indirect costs can reach hundreds of millions of dollars. 4  So was the case last year when ConAgra agreed to pay $11.2 million dollars in criminal fines and forfeitures to the government for salmonella tainted Peter Pan peanut butter back in 2007.  In fact, food recalls cost an estimated $55.5 billion a year when factoring in medical expenses, productivity loss and mortality, according to a study conducted by Ohio State University’s Robert Scharff.4

Other well-known food recalls include Westland-Hallmark Meats beef recall in 2008 which cost them close to $500 million, the peanut butter recall in 2009 which was tainted with salmonella, costing peanut producers nearly $1 billion, and of course Chipotle, whose food chain experienced six foodborne illness outbreaks starting in July 2015, dropping their stocks from an all-time closing high of $757.77 in Aug. 2015 to under $380 in Dec. 2016.4, 5

But product recalls are certainly not excluded to the food industry.  Let’s take a look at some other substantial recalls that took place over the years.

*In 1982, Johnson & Johnson issued a recall of 31 million bottles of Tylenol that was laced with potassium cyanide, costing the company over $100 million and resulting in 7 deaths. 6

*In 2000, 6.5 million faulty tires were recalled by Bridgestone/Firestone resulting in close to 200 deaths and 3,000 major injuries, costing Bridgestone $440 million and Ford $3 billion along with nearly $600 million in lawsuits. 6

*In 2004, Merck took a loss of $725 million in sales after recalling one of their arthritis drugs due to risk of heart attacks/strokes and paid out $4.85 billion in lawsuits. 6

*In 2006, Dell/Sony paid $400 million after recalling over 4 million laptops due to battery fires. 6

*In 2016, Samsung paid over $5 billion after recalling their Samsung Galaxy Note 7 smartphone due to its batteries catching fire.7  Samsung now also faces class action suits in three states for other phone versions for failing to warn customers of similar battery hazards.8

One of the ways you can you help mitigate your risk of a product recall is by protecting your freight during transport by choosing a safe carrier such as Road Scholar Transport.

Road Scholar Transport cuts back on the handling of your products with dock-to-dock, no transfers, as well as offers 24-hour expedited service.

Cross-contamination/sanitization poses a risk to the integrity of your products, especially for less-than-truckload (LTL) shipments, which carry multiple types of products in a single trailer at the same time.  Wooden pallets, which are very porous, and therefore, absorb fluids that breed bacteria also serve as a means of cross-contamination and that doesn’t even include splinters from the wood that can puncture the products.  Road Scholar Transport, however, operates trucks with aluminum floor trailers to create a more sanitary environment for your products.  We conduct regular sweeps on all trailers to ensure that your freight is being transported in a clean, and therefore safe, environment as well as have record of what has been transported since the last time the trailer was cleaned.

Another way to reduce your risk of a recall is to make sure that you have qualified drivers and well-maintained equipment moving your products.  Unsafe drivers can damage products through speeding, accidents, and not securing the loads properly, while equipment that isn’t maintained, especially reefers, can lead to spoilage or contamination risks if exposed to high temperature conditions.  You don’t have to worry about this when shipping with Road Scholar.  Our trucks are air-ride equipped and driven by experienced and uniformed drivers, providing a safe, smooth ride.  Our reefers are top notch, equipped to handle even the tightest temperature ranges, having imbedded technology that tracks the temperature within and alerts our team in the event that the temperature goes out of range so we can rectify the situation prior to the product losing its integrity.

Stolen products can be resold on the black market and thus, serve as a large concern for manufacturers.  Road Scholar Transport’s self-created “Pentagon Distribution Model” provides 100% accountability and secure transport by focusing on technology, visibility, protocols, equipment, and audit trails.  Here are some of the ways we are protecting your high risk freight:

*Locks:  TS4A-Instantly locks all air breaks, preventing unauthorized movements

               Navalock-U.S. Customs approved

Babco lock  https://www.youtube.com/watch?v=Bv0oUYvL2iI

*Asset-tracking:  Both on the tractor and trailer along with aerial and satellite tracking (down to street level).

*Vivid colors:  Our brightly colored awareness trucks make it harder for anyone to steal our trucks.

*Security gate trailers:  Internal security gates allow us the ability to separate your cargo from other freight, preventing damage concerns by securely locking your freight within a portion of our trailer.

https://www.youtube.com/watch?v=31_ZYxmMc6Y

*Drivers:  Uniformed drivers with toughest driver background checks in the business, constantly trained on the latest cargo transport threats.

*Facility Security:  Around the clock dispatch and operations center.  All facilities are physically fenced and have 24 x 7 x 365 video surveillance.  Road Scholar facilities and customer facilities (upon request) are geofenced.

*Electronic door monitoring

This is part of why we never suffered a full cargo theft in our company’s history!

For more information on the importance of choosing the right carrier, read Road Scholar Transport’s white paper, “Supply Chain Insanity…Would You Use a Baby Sitter You Found on Craigslist?:  A White Paper on Understanding the Risks of Carrier Selection.”

 

1https://scm.ncsu.edu/blog/2017/01/04/is-offshoring-leading-to-increased-numbers-of-product-recalls/

2https://foodsafetytech.com/news_article/trends-real-cost-product-recalls/

3http://fortune.com/food-contamination/

4http://www.fooddive.com/news/more-than-money-what-a-recall-truly-costs/426855/

5http://www.foodsafetynews.com/2017/01/contaminated-food-contaminates-consumers-trust/#.WUFNYNyQyM_

6https://www.bloomberg.com/news/photo-essays/2013-01-17/the-most-expensive-product-recalls

7http://www.sdcexec.com/article/12326953/product-liability-and-recall-claims-challenge-global-supply-chains

8http://appleinsider.com/articles/17/05/24/samsung-galaxy-note-7-battery-fire-lawsuits-spreading-to-galaxy-note-5-s6-s7-models