Product Recalls and How it Effects the Company

Product Recalls and How it Affects the Company

Product Recalls

Traceability

Industry effected

Healthcare Recalls

Food Industry Recalls

Instances of Product recalls

Effects on the Company

Financial Loss

Loss of reputation

Legal and regulatory issues

Handling of Product Recalls

Treatment of Recalled Products

Communications Strategy

Product recalls are one of the sensitive business areas in the operation of any organization. The businesses tend to recall its products due to various reasons including minimizing the risk of injury for consumers, the compliance requirements in legal and regulatory perspective, and to protect the brand image in the market. There are various other reasons that are discussed and elaborated in the later sections. The product recalls are critical for different industries but especially for food chains and healthcare organizations the importance is increased. The businesses also establish well planned and thought out systems to ensure that they have a policy and system in place to perform product recalls in cases of emergency and regular practice for expired shelf life products.

The sections below are mainly address the effects of product recalls on the business however the product recalls, traceability, effected industries, and instances of product recalls will also be addressed. The effects of product recall on a company including financial, legal, and effects on brand image are also elaborated below. Furthermore the handling procedures for product recall, how these products should be treated after recalls and communication strategy of a business to handle product recalls are also discussed.

Product Recalls:

The business decides to recall its products due to various reasons including the expiration of shelf life, identification of a health issue, product malfunctioning, and reports about the miscalculations of ingredients in product manufacturing. The products are also recalled after identification of a legal and regulatory issue is identified. The business is obliged to abide by the standards and legal requirements posed through their licensing system. The business has to perform all these operations swiftly in order to minimize effects on their brand image as well as the cost of recalls should also be maintained within least possible limits (Germann, Grewal, Ross Jr., & Srivastava, 2013).

The product recalls are risks that are associated with the post sales situations. The roots of product recalls might be found in the pre-sales business process however the situations are mostly identified after the sales are completed and products are in the shelves of distributors, retailers, or consumers have bought the products. The cost, damage, and risk of liabilities also increase with the passage of time as well as the completion of stages for product sales. The risks and cost of recall are minimal if recalled from distributors, and retailers. The risk and cost is increased with maximum amount of damages to company reputation in case the products are sold to consumers and they are requested to return (Sodhi, & Tang, 2009).

Traceability:

The traceability of products is an issue associated with all perishable products including the medicine and food products that are liable to comply with the shelflife requirements. The business manufacturing healthcare disposables, medicine, food products, and perishable grocery need to establish a mechanism through which they can recall products. The operations of business are established with a provision to traceproducts that require a recall. The legal and regulatory authorities as well as the notifying bodies also seek an established approach for products traceability. FDA and EU directives are also applicable on products that are sensitive for recall.

The companies establish certain features in their products to increase traceability. These features include a lot number, manufacturing date, product manufacturing codes, and expiry dates. Traditionally bar codes were used to trace products. However the changes in technology also facilitated the businesses to add features to products that help in increasing product traceability. These features are RFIDs added to the individual products. The RFIDs are also used with cartons, pallets, and shipments to trace location of the subjects. The cost of establishing traceability as well as compliance with regulatory requirements is a concern which should be considered while developing traceability features to the products.

Industry effected:

The businesses dealing with retail and consumer products are most affected by the product recalls. The businesses dealing with drugs and food are most vulnerable for product recalls. The baby milk, cosmetics, and products containing chemicals that can directly affect consumers are also recalled after identification of any healthcare issues. It is observed that perishable, pharmaceuticals, and food industries are mostly considered relevant for product recalls. There are three major calluses of recalls that are defined by FDA. The class I recalls are regarded as recalls that are from defected products carrying a periodic potential for health issues. The class II recalls is denoted as products that might cause health related issues e.g. food containing toxins, lifesaving drugs, and defective heart valves. The threat perception of the class II recalls is relatively low in this category as compared with class I. These recalls include the drugs that are not use to treat lifesaving situation or under strengths. The class III product recalls are related to the products carrying a minimal risk for health reactions however they are found to be violating the FDA regulations. The example of such recall can be a misprint on the label in terms of quantity or quality of the product (Granata, Flick Jr., & Martin, 2012).

Healthcare Recalls:

The healthcare products are recalled for containing misprinted labels, ingredients that are not properly used or appearing short of the contents. The drugs including pharmaceuticals, medical devices, and medical devices are major products that should be considered for recalls in case of any identified issue (Thirumalai, & Sinha, 2011). The pharmaceutical companies providing child care products including food are also associated with the industry that is scrutinized for product recalls.

Food Industry Recalls:

The food industry that provides canned food should comply with certain standards that are approved from FDA and other regulatory agencies. The global organizations dealing in food safety also issue directives for compliance. The grocery products containing ingredients with certain shelf life are also considered vulnerable for recalls. The fresh grocery products also have a shelf life and certain handling conditions. The vulnerability is increased in case the handling conditions are not fulfilled completely. Fresh food grocery and canned food has a short shelf life as compared with other retail products.

Instances of Product recalls:

The product recalls are initiated in various situations including the lack of shelf life or vulnerability of the products causing serious issues for health and safety of consumers. The electronics products including medical devices are also recalled due to their potential malfunctioning. The products are tested while manufacturing however it may be the case that a certain material is used in excess of the recommended quantity for lacks certain compliance standards. The products containing fewer amounts of prescribed ingredients are also prone to recalls.

The product recalls are also considered as potential threats for company reputation in case any damaged to the consumer is caused. The misquoting of information on labels also initiates the product recalls under regulatory compliance. The business handles the issues provided on labels and actual ingredients of the products. The companies volunteer to recall products from shelvesas they place a high value on their brand image and reputation in the market. The product recalls are also initiated in case any incidents of consumer health damage are reported.

Effects on the Company:

The effects of product recalls on a business have various dimensions. The products carrying potential damage for consumer health are considered vulnerable and they are recalled to save financial loss to the company. The business incurs a loss of reputation in cases of product recalls. The business also faces damage of brand image as well as the brand value in the market. The legal and regulatory issues are also an effect on business carrying potential claims and damages. The degree to which a business is vulnerable to the effects of products recalls is varying to a large extent. The product recall effects are measured in terms of their loss to the credibility and effects on the business standing of a company. Therefore the product recalls are also treated as per the industry requirements. The automobile product recalls are considered as carrying less vulnerability to the business however the products directly consumed by the customers' causes a direct damage to customers. Hence they are regarded as carrying a great deal of relevance for causing above mentioned damages to the business. The procedures and practices are also placed in the business considering the relevant amount of importance in business operations. The supply chains of a business are also affected through the product recalls.

Financial Loss:

The financial loss for product recalls is considered in multiple dimensions in case of a product recall for business. The business incurs a cost to produce products, the cost of materials, labor, and other marketing and sales overheads are incurred to place the products in the market. The product recalls also cause a financial damage to the business in case of recalling the products. Thecost of obtaining the product recalls is an additional financial loss. The cost incurred to retrieve the products from distributors, retailers, and consumers also causes the business to loose finances.

The financial loss for recalling products is also observed in terms of the share value for the company. The business value loss is in addition to the direct loss incurred from product recalls. There are also some potential moderators as well that can reduce the impact of financial loss to a company. The business has to take care of various factors that can amplify or reduce the financial loss to the business. The moderators of financial loss are event specific as well as firm specific. The firm specific moderators are regarded as business reputation, size, diversified portfolio, and long terms liabilities of the business. The share price of a business is affected from these factors and at the same time the corporations with stable business portfolio and financial conditions are more likely to absorb the product recall financial backlash (Ganesan, 2012).

Loss of reputation:

According to Ganesan (2012) the strategy adopted by the business is relevant for handling the business related loss observed due to product recalls. The business is likely to incurheartyexpenses due to a large number of product recalls. Additionally the strategy adopted before the incident is as applicable in handling these issues as the event, and after event strategy to handle brand value. The presentation of the event and its handling strategy is also considered relevant in most cases. The business executives and higher management of a business prepares a crisis strategy to handle situations of product recalls.

There are preventative and preparations for product recalls should be considered central in handling the business effects. The responsibility of product recalls should be fully designated to a dedicated person in the business. The broad range of tasks for product recalls includes quality control processes safety issues, new product development, testing, traceability, and supply chain solutions for distribution channels is also important. The getting ready strategy carries a huge potential and capability to handle issue soft product recalls for a corporation. The effectiveness of different strategies in a particular business scenario should be considered in advance and nominal changes can be made according to the event requirements. The preventive strategies should also be given their due weightage in order to handle the negative effects on business reputation and value (Ganesan, 2012).

Legal and regulatory issues:

The legal and regulatory issues arising from the product recalls are also a considerable threat for the company. The first impact of the product recalls is to comply with the legal and regulatory issues. The authorities require a business to recall its damaged or potentially vulnerable products. The business ensures that the products are recalled and retrieved back in order to satisfy the legal requirements. The second most relevant issue is the potential threat of law suits in case the product has caused damage to any consumer. The legal claims also pose a financial loss as well as threat to the reputation of the business.

The business often tries to conclude the legal claims to be settled out of court. The court hearings as well as the media coverage of issue pose an increased damage to the business. In certain cases the companies contest these claims and appear to defend their position in law courts. However the regulatory agencies also get involved and ensure that a maximum protection is provided to consumers under legal jurisdiction. The consumer response as well as the investor's response to crisis situations such as product recalls is similar and these issues pose a threat to the business.

Handling of Product Recalls:

The product recalls are a routine case for pharmaceutical and food products companies. Additionally the large number of case studies in the market also provides an insight to handle such issues. The business develops a strategy for handling product recalls and as a result they prepare themselves for handling such situations. The technological advances have also enabled the business to incorporate techniques for maintaining data and necessary product information to help in cases of product recalls. The business is also likely to establish a crisis response teams. These teams are fully authorized to handle such situations. The supply chain networks are initiated to bring the faulty products back in events of such crisis. The crisis situation also demands a transparent operational strategy to facilitate in carrying out product recalls. The corporations compensate consumers, retailers, and distributors with various initiatives. The compensations given in response to the product recalls also tend to maintain the business position in the market.

Treatment of Recalled Products:

The recalled products should be handled efficiently and it should be ensured that the business incorporates a strategy to facilitate the business. The business crisis is increased in case the authorities investigate and find out that the business did not incorporated appropriate strategy to recall and dispose-off these products the fines and penalties imposed become one of the additional costs. The drugs and foods recalled according to class I segment should be incinerated according to the directive guidelines. However the class II, and class III recalls can be treated and sent back to shelves after the resolution of issues. The food business should take in consideration that the product recall is handled through efficient strategy. The recalled drugs are handled according to the company as well as regulatory procedures. The requirements for handling drugs and foods that are recalled are different to other recalls e.g. motor industry or electronics recalls. The product recalls are often a business initiative or an FDA request. The rare cases of FDA issuing an order to recall products are observed. FDA is required to issue and order under certain cases to recall products that not in compliance with the requirements. The medical devices facing recall are also considered a threat to the consumer's health. Therefore vigilance should be observed to address issues of incinerating these products.