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Recalls


In a political climate influenced by heightened consumer safety concerns, the unwanted attention that accompanies a product recall cannot be ignored.

A focused investment in preventive measures, a product recall team and quality control procedures can reduce the risk of—and perhaps even prevent—major product recall expenditures, including the lawsuits that typically follow.

But, if a recall does occur, having taken these steps can help a manufacturer to not only weather that recall, but also emerge from the situation on the positive side of the ledger. It’s possible to avoid product recalls by engineering safety into all products and training all employees to value safety above everything else.

By instituting first-rate quality controls throughout the manufacturing process, testing for safety in all products and trying to anticipate common product misuse, a manufacturer may be able to minimize—if not eliminate—complaints.

Providing comprehensive product warnings and instructions can also help protect consumers from their own actions and neglect, thus saving valuable corporate assets and resources. Should a recall be required, however, a manufacturer can turn a dreaded development into a positive corporate milestone with proper preparation, commitment, consideration and implementation of these suggestions.

Risks of a Recall

While not desired, a product recall should be seen by an organization and its employees as a potentially positive opportunity to eliminate or reduce personal injury, property damage and harm to the reputation of the company and its products.

It need not necessarily result in the loss of market share, in either the short or long run, and it may serve to build public trust in the organization and its products. A manufacturer should remind its constituents it is doing the right thing by calling for the recall and that everyone will benefit in the long run.

Possible risk exposure emanating from a product recall includes product liability claims and governmental prosecution—civil and criminal. For this reason, the product recall team should begin to document its recall actions, including customer, distributor, user and public communications—oral and written.

Those communications may become important in defending against current or future lawsuits, as well as prosecutions by the Consumer Product Safety Commission (CPSC) and other bodies, such as state attorneys general or state agencies.

If suppliers or component manufacturers are responsible for the recall, notify them you are holding them responsible for the costs of the recall and the damage done to your company’s reputation. You should also tell them you expect them to indemnify, defend and hold your company harmless from the effects of the recall.

It is wise to track all recall-related costs using a separate accounting number to facilitate future insurance claims and claims against responsible suppliers and component manufacturers.

In conjunction with government regulators, send follow-up recall notices to customers, distributors and users, keeping copies of those notices. If appropriate, post notices on public bulletin boards of major retailers and on your company’s website.

Remember, the more people who receive your message and act accordingly, the fewer who will be injured or damaged by the product being recalled.

If hit with a large number of lawsuits, whether in the form of class actions or otherwise, look for creative ways to resolve those claims, such as collecting the cases into a single state or federal court or using a mass alternative dispute mechanism, such as a highly regarded arbitrator or mediator who can listen to the respective contentions and interests of the parties and can provide a workable solution.

Excerpted from David G. Klaber and Jared S. Hawk, “Be Prepared: What every company should do to weather a product recall,” Quality Progress, May 2010, pages 16-21.

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