Counting the cost of a recall

cost of a recall

As Dimmeys counts the cost of recalling more unsafe products this month, it begs the question: do you know the cost of a recall to your business? The next question is: do you have the right systems in place to deal with it?

It’s difficult to calculate the true cost of a recall; no incident is the same as the next, and many factors come into play. You need to consider the scale of the recall (how many customers?); the stage at which the item is recalled (has it reached store-level?); and add in any fines or penalties incurred.

Next, consider the recall-execution costs. The need to store, transport or destroy products can be extremely high. In most cases, you, as the recalling company, will need to place a newspaper advertisement announcing the recall and may face a fine — as happened to Dimmeys. Then there’s the cost of supplying replacements to customers, and, if it’s a labelling or packaging issue, add on the cost of printing new labels and repackaging the products.

Business interruption

In reality, business interruption can contribute the highest costs to a recall. This includes the drain on resources, time and labour plus any production that is delayed or stopped while the recall is being carried out.

Business interruption is not only the time to get production back up and running, it is also the time to get the customer to buy the product again.

Indeed, the true cost of a recall extends far beyond the manufacturing plant. A recall can impact your brand reputation with both trading partners and consumers, leading to a reduction in sales and, worse still, a loss in brand loyalty.

The pits

Consider IKEA. In March, the Swedish furniture giant had to withdraw its almond and butterscotch cake from its in-store restaurants in 23 countries, including Australia, after samples were found to contain a kind of bacteria normally found in faeces. This came just days after the company pulled hundreds of thousands of its meatballs from European store shelves because they were contaminated with horsemeat. The publicity was scathing.

It doesn’t matter whether you count repackaging, business interruption or a damaged brand reputation…the truth of the matter is Australian manufacturers shouldn’t need to face these costs at all.

Between January 2003 and December 2012, the Food Standards Australia New Zealand agency (FSANZ) was notified of 658 food recalls. Of those, more than one third was as a result of incorrect labelling. Overall, undeclared allergens was the second most common reason for food recalls with 206 recalls in Australia during this period — just four recalls less than microbial contamination.

Undeclared allergens and incorrect labelling is a very real threat to consumers, and manufacturers have a responsibility to protect consumers and customers from products that might cause them harm. However these labelling faults can be avoided with the right technologies and processes.

counting the cost of a recall

The right technology: machine vision

Machine vision, or machine vision inspection, uses camera and computer technologies to provide imaging-based automatic inspection, process control and robot guidance in manufacturing applications. The concept is simple: quality data is collected every time a product passes through for inspection. The data is then sent into product management systems for process control.

By automatically conducting appearance, character and defect inspections, without the need for human intervention, vision inspection systems can reduce staffing costs as well as decrease the risk of an unfit or faulty product leaving your plant. It can check labels, barcodes, use-by dates, product formation and much more. The best thing is that the system will notify you of a problem immediately — meaning the problem can be rectified before the whole batch is produced and definitely before the product is shipped. (See here for nine ways label inspection systems ensure zero-defect labels.)

For food and beverage manufacturers, this has significant advantages. The system can be used to demonstrate to quality assurance inspectors that you have reliable QA processes in place. More importantly, it also empowers you to improve the overall quality of your goods.

For the affordable price of a vision inspection system, food and beverage manufacturers can reduce the very real risks of a recall. A basic vision inspection system from iQVision can start from just $2,500 to $3,000 — a sound investment when you consider the costs incurred in one recall alone.

The right process: GS1 Recallnet

 No matter how reliable your manufacturing processes are, it’s critical to have a formal recall plan in place to ensure the safety of your customers and the reputation of your brand. That’s why many suppliers are implementing GS1 Australia’s web-based portal for recall and withdrawal notifications into their business process.

GS1 Recallnet is designed to enable faster, more complete pull back of unsafe or unsuitable products from the supply chain. It does this by simplifying and automating the exchange of information between suppliers, distributors and retailers as well as government agencies such as FSANZ and the ACCC.

For suppliers, the online portal makes it easier to accurately issue these notifications to customers in a timely manner, speeding up the information flow, eliminating confusion and saving money. It is supported by key retailers including Coles, Metcash, Woolworths and Costco.

Cheaper not to wait for disaster

So before you count the cost of a recall, consider the low-cost improvements you can make to your manufacturing processes. The chances are they will pay for themselves sooner than you realise.

For more on recalls, download the Matthews white paper, “Avoiding Recalls”. This article  explains how traceability helps with recalls.

Did you know there are 5 different types of inspection equipment manufacturers can use?

iQVision is Australia’s first dedicated national vision-inspection solutions company, bringing together Matthews Australasia’s systems with vision solutions.

GS1 Recallnet is an online portal that enables companies to create, approve and issue recall and withdrawal notifications to their customers and government agencies efficiently and securely.

Ken Razga
Ken is the Managing Director of iQVision and has over 20 years of experience in vision technology and integration. Incorporated in July 2011, iQVision’s mission is to provide reliable, robust vision-inspection solutions to Australian manufacturing industries, by establishing, then automating, objective quality processes.

by Ken Razga

Ken is the Managing Director of iQVision and has over 20 years of experience in vision technology and integration. Incorporated in July 2011, iQVision’s mission is to provide reliable, robust vision-inspection solutions to Australian manufacturing industries, by establishing, then automating, objective quality processes.

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