Product recalls need not be a company’s downfall

Attention to logistics and communication can minimize the pain

Mattel and Ford are just the latest in a long line of companies to enact a product recall. Whether it’s lead paint or tainted dog food, every manufacturer faces the risk that its product needs to be taken off the shelf. How a firm handles a recall can make or break a company’s success in the long run.

Professor Narasimhan discusses the important steps companies must take when dealing with a recall.

Two professors at the Olin School of Business at Washington University in St. Louis can provide expert insight into the logistical and marketing challenges that can determine a firm’s future success.

“It’s a difficult balance between legal advice and the need to communicate,” said Chakravarthi Narasimhan, Ph.D., the Philip L. Siteman Professor of Marketing. “A company needs to have open lines of communication assuring all the different constituents about the steps it is planning to take to fix the problem.”

Narasimhan said recalls have the potential of eroding the relationship that consumers have with a certain brand.

“Your brand name tells your customers two things: This is what I promise in terms of quality and image, and trust me to provide it consistently and safely every time. If handled incorrectly, a recall can tear at the bond of trust you have created with your customers,” Narasimhan said.

Of course, even with the right message a company will have a difficult time rebuilding that trust if it can’t back up its products with reliable replacements. The logistics of accomplishing that task is costly, but necessary, said Sergio Chayet, Ph.D., assistant professor of operations and manufacturing management.

“Whether a company is recalling just a component of their product or the entire product, the event is going to put strain on the supply chain,” Chayet said. “There are many costs associated with correcting a defective product. In addition to the cost of replacing the product you also have logistical costs. There are administrative costs and legal costs that most people don’t think of when they think of replacing the product.”

Even if a company has an alternate supplier who can help replace the product, there is always the risk that the new supplier won’t quite meet the same quality standards, he said.

“You have to have contingency plans in place before any actual breakdown occurs,” Chayet said. “You have to have alternate suppliers or distributors. You have to have a plan for how you are going to pay for the cost of taking back or replacing your products.”

Both professors are available for live or taped interviews using Washington University’s free VYVX or ISDN lines.