On the Path to Better Product Recalls

For at-home fitness company Peloton, the years 2020 and 2021 were much like one of their Spartan-inspired workouts: an endorphin-induced high quickly followed by aches, pains, and soreness.

In September 2020, Peloton’s sales surged by 172% as more than one million people signed up for the company’s cult-status streaming fitness classes to stave off pandemic pounds and the lockdown blues. However, in May 2021, Peloton’s Tread+ and Tread treadmills became linked to dozens of injuries and a six-year-old child’s death. In response, Peloton recalled the machines. The company’s CEO apologized and said the company’s initial resistance to government officials’ recall requests was a mistake. It was one in a series of missteps that saw Peloton lose the billions in stock value gains it had realized during the pandemic – and that eventually forced the CEO’s ouster and the layoff of 2,800 employees.

Of course, Peloton isn’t alone. Volkswagen had to recall 11 million cars worldwide after the carmaker was caught cheating on a diesel emissions test in 2015. (Estimated cost: US$18 billion, including legal claims, as The New York Times noted.) In 2016, Samsung spent an estimated $17 billion recalling Galaxy Note 7 smartphones after some caught on fire, as Yahoo News recounts.

But a recall doesn’t have to result in steep fines, brand damage, or business losses. In 1982, Johnson & Johnson famously exhibited strong leadership when a product hazard emerged. After seven people in the Chicago area died from ingesting Tylenol Extra Strength laced with cyanide, the pharmaceutical company spent roughly $100 million (approximately $305 million in 2022 dollars) to pull the product from store shelves.

Johnson & Johnson’s swift response to the evidence of tampering, which included recalling 31 million bottles of the product, is credited with saving the Tylenol brand and setting the standard for how companies should handle such an event. Kaitlin Wowak, associate professor of IT, analytics, and operations at the University of Notre Dame, who researches recalls, notes that Johnson & Johnson’s fortunes (and stock price) suffered during the recall. But the company’s handling of the crisis put its business standing in a stronger position for the future.

Two businesswomen working together on a laptop at office

Why now is the time to get recall-ready

If recalls are opportunities to set problems right, then today’s manufacturers have plenty of them. In 2021, for the second year in the past decade, more than one billion units of food, drugs, medical devices, automobiles, and consumer products have been recalled, according to Sedgwick’s State of the Nation Recall Index report.

But knowing how to address a recall can be challenging, especially for large multinational manufacturers. That’s because the supply chain and production networks they have created to build strong production capabilities are not designed to work in reverse. They have vulnerabilities to shore up when it’s time for a recall.

The global supply chain adaptations that enterprises have been implementing add to the challenge.

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On the plus side: pandemic-induced materials shortages and supply chain disruptions have contributed to the creation of a “smart manufacturing ecosystem” that allows partners “to solve shared challenges and meet shared objectives,” according to a Deloitte report. Most manufacturers see these networks as vital. A joint study by Deloitte and the Manufacturers Alliance for Productivity and Innovation shows that 85% of global respondents agree that smart ecosystems are growing in importance and that 87% believe these ecosystems can help them stay competitive.

But in situations where a company has to find a set of products and change how they are handled (such as stopping their distribution or setting up ways to take them back), these relationships also add complexity. Highly collaborative networks, consisting of multiple partners across numerous regions, can make it more difficult for organizations to pinpoint the source of a defect or alert customers to a recall in a timely and consistent fashion. The more partners in a manufacturing ecosystem, the more varied the sources of parts and raw materials – and the greater the number of potential differences in quality standards and regulatory compliance.

Knowing how to address a recall can be challenging, especially for large multinational manufacturers. That’s because the supply chain and production networks they have created to build strong production capabilities are not designed to work in reverse.

Another obstacle facing manufacturers is an ever-evolving regulatory environment.

As the American Bar Association notes, the recall reporting requirements and timelines with which a manufacturer must notify a regulatory body can vary based on jurisdiction, making it difficult to determine an appropriate plan of action. Even when the actions are designed to help manufacturers reconcile different countries’ rules – as when Health Canada amended its Food and Drug Regulations in June 2022 to improve the oversight of drugs fabricated, packaged, tested, and distributed in Canada solely for export – companies still must track how every change in every jurisdiction where they conduct business affects their processes.

The good news is that manufacturers can overcome regulatory and supply chain hurdles by embracing recall management strategies that prioritize access to real-time data, smart sourcing practices, strong leadership, and organizational support. Here’s how.

Collect accurate and real-time supply chain data to accelerate the recall process. Access to accurate supply chain data is critical to handling a recall as swiftly as possible. Most large manufacturers rely on enterprise resource planning (ERP) systems with built-in lot-tracking capabilities to keep tabs on product lots – batches of products typically created in the same place and time frame – along the entire supply chain. With tracking software, companies can record and trace the quantities, values, and locations of goods as they move from manufacturer through supplier and distributor to the end customer, all in real time.

Uncertainties wrought by a global pandemic and climate change are prompting fresh thinking in supply chain management

But while an ERP system allows manufacturers to quickly retrieve data about any group of products along the supply chain in the event of a recall, additional technologies are emerging to advance this capability. For example, with cloud-based track-and-trace systems, manufacturers can track where items are now, who has them in their possession, and what condition they’re in. These systems can also help determine where the items have been, who has had them, and whether they were handled appropriately. Such granular insights can provide manufacturers with greater visibility into where an error might have occurred and potentially contributed to a recall. This reduces the risk that a previously undetected problem – an event worthy of a recall – grows in scope before a company can remediate it.

Another technology gaining traction among manufacturers is blockchain, which brings manufacturers, suppliers, and distributors together on a single distributed ledger. With encryption algorithms, information stored on the blockchain is verifiable and immutable and can be accessed by all members of the supply chain.

Blockchain’s structure offers several benefits in the event of a recall. For starters, because blockchain gathers and stores information in groups, or blocks, if a product defect is detected, a manufacturer can isolate the source of the affected product and trace its path through the supply chain. Unlike traditional tracking systems, every participant on a blockchain has a secured copy of all records at all times.

Manufacturers can overcome regulatory and supply chain hurdles by embracing recall management strategies that prioritize access to real-time data, smart sourcing practices, strong leadership, and organizational support.

And because manufacturers, suppliers, and distributors share the same ledger, each party can be notified of any defects so that they, too, can investigate a defect’s root cause and take remedial action, such as notifying affected customers.

Even technologies not necessarily designed for recall management are emerging as potential assets. For example, apparel company Pangaia recently introduced digital passports in its garments. These product-specific QR codes allow Pangaia customers to scan clothing items and access information such as the amount of water used to manufacture a particular item. However, future use cases could include helping manufacturers quickly inform consumers of a recall.

Rows of shelves with boxes in warehouse

Mitigate the risk of recalls by reviewing sourcing practices. Labor shortages and logistic bottlenecks aren’t the only reasons manufacturers are reexamining the overall value of a global supply chain. Globalization can also contribute to inconsistencies in quality control and standards – which can increase the likelihood of a recall.

A recall process should cause leaders to reflect on past practices, says Teresa Murray, director of the consumer watchdog group at the U.S. Public Interest Research Group. Murray says, “Companies that have been affected by recalls need to look at what their manufacturing processes are and go back and say, ‘Are we doing things in the safest way possible?’”

Shifting the mix of suppliers to reduce distances that materials travel is one way to mitigate risks. For example, by limiting the sourcing of raw materials to a set of domestic suppliers, manufacturers can narrow the scope and scale of potential risks as well as accelerate the speed at which manufacturers can notify partners of an emerging issue.

“Mock recalls are a great way for companies to practice how prepared they are for a product recall.”

Kaitlin Wowak, Associate Professor of IT, Analytics, and Operations, University of Notre Dame

A company could consider consolidating more operations in its home base market. “Bringing suppliers and manufacturing processes back to the United States [or any domestic location] eliminates a lot of the uncertainty, specifically around logistics and the safety of products,” says Wowak, the recalls researcher. “It gives you more control over your operations and really helps with track and trace because you don’t have to worry about tracking products from a foreign country to the United States. There’s less space to track.”

This consolidation has another potential benefit: by doing business in fewer jurisdictions, a company can focus on fewer regulatory regimes, thus simplifying its compliance efforts.

Be proactive when a recall might be in order. Unlike a mandatory recall, which is carried out following a government order, a voluntary recall can help preserve consumer trust and protect a manufacturer’s brand reputation. But to reap these benefits, a manufacturer must first ensure that the proper voluntary recall policies and procedures are in place.

There are models to follow. For one, the U.S. Food and Drug Administration (FDA) released a playbook that offers advice on the training, planning, and record-keeping required for voluntary recalls of FDA-regulated products. Recommendations include designating a recall oversight team, initiating a recall while an investigation is ongoing as a proactive measure, ensuring proper product coding, and maintaining distribution records to facilitate a faster recall response. For example, prescription drugs must use a product identifier, whereas medical devices typically bear a unique device identifier on their labels and device packages.

Other authorities offer advice on how to properly manage a recall. The Organisation for Economic Co-operation and Development (OECD), for example, recommends that companies offer remedies that are practical and convenient for customers to access in the event of a recall. And the European Commission advises that enterprises secure the appropriate financing and workforce to ensure that recalls and other corrective actions are carried out effectively.

Hands together

Communicate recall plans with consumers and supply chain partners. Coordinated communications efforts can help manufacturers comply with reporting requirements. Executed properly, a communications plan can also help rebuild consumer trust in the wake of a recall.

While a communications strategy can vary based on a manufacturer’s size and industry, the FDA recommends that all manufacturers identify specific points of contact within a supply chain network ahead of time. Maintaining draft templates, such as press releases and notification letters to distributors, can also ensure that recall communications are delivered promptly and accurately. And while electronic methods are critical for conveying communications promptly, the OECD recommends using all available communication channels, including a company’s Web site and its social media channels, to ensure that all parties are made aware of a recall.

Companies also should keep communicating after swiftly disseminating information to supply chain partners and consumers. Wowak warns that many manufacturers mistakenly drop the ball once a recall has been issued. “Companies don’t… close the loop by saying, ‘Okay, this product is safe again,’” she says.

This is a missed opportunity. By educating consumers on the steps the company is taking to prevent the problem from occurring again, manufacturers can parlay a recall event into a chance to strengthen its customer relationships and brand reputation.

Consolidate recall expertise and embed it in an organizational structure. Before a crisis ensues, it pays to pick a leadership team to set up processes for how to manage a recall.

Every company should have a recall management team, says Wowak. But the size and composition of the team can vary depending on a manufacturer’s organizational structure and leadership style.

For example, some manufacturers may opt to establish a center of excellence with representatives from various departments, including procurement and supply chain operations. Others may prefer the presence of a recall response team governed by a recall coordinator with the decision-making authority to initiate a product recall.

Either way, there are some fundamental rules that manufacturers should bear in mind when creating a recall management team.

For one, Wowak says team members must “know who to communicate with, what to communicate, and how to work with supply chain partners” in the event of a recall. Expertise in crisis management and customer experience can help ensure that a recall event is communicated properly to both suppliers and consumers. It’s also important to record, store, and share recall processes and policies across the organization. This will avoid information silos and ensure that knowledge isn’t lost if there are staff changes.

Group of coworkers having a meeting

Practice mock recalls. Put response strategies and communications plans to the test. A mock recall can help gauge a manufacturer’s ability to handle the strain of an actual event.

“Mock recalls are a great way for companies to practice how prepared they are for a product recall,” says Wowak. “When you have a mock recall, you discover things that can go wrong that you didn’t foresee. Having a plan in place and testing that plan can help you improve for when you have an actual product recall.”

Practicing communications with supply chain partners, filing a notification with a federal agency, testing for product traceability, sourcing product replacement parts – these are all ways for manufacturers to gauge the effectiveness of recall management strategies without real-life repercussions.

Making a recall right

As history demonstrates, a recall can have a disastrous impact on a company’s hard-earned reputation, financial well-being, and ability to recruit talent for years to come. But a recall also can cement valuable relationships.

“It’s not necessarily a bad thing if a company has a recall,” says Murray, the consumer watchdog. “We encourage companies to just do the right thing. Consumers respect companies that have their interests in mind.”

Things can, and will, go wrong. The key is to mitigate the risk of faults in the process elevating quality and to have processes in place to manage problems that arise. By ensuring easy access to real-time data, adopting smart sourcing practices, taking a proactive stance, developing a communications plan, and establishing a recall SWAT team, manufacturers can satisfy consumers’ need for honest and straightforward communication while building credibility within a supply chain network.