When Maclaren, the British baby buggy maker, announced recently it was recalling a million “strollers” sold in the US, because of safety concerns, the company turned out to be far from unique.
Maclaren’s announcement joins a steady stream of recalls that is currently running at a rate of three or four per day on the other side of the Atlantic, according to Mike Bernon, a senior lecturer specialising in reverse logistics at Cranfield University’s School of Management.
In the event, Maclaren did not have to actually receive any goods. The company solved the problem of dangerous hinges on its buggies by distributing a kit that prevents babies from getting their digits trapped by the hinges.
Other companies have faced much more problematic recalls. Toymaker Mattel took back 21m toys because lead had been used in their paint, while Firestone, the tyre company, and car maker Ford became locked in a bitter legal battle over who was to blame for tyre failures on Ford’s SUVs.
A major product recall – especially one on health and safety grounds – can have a big downside for a company. On average a recall in Europe wipes 14 per cent off shareholder value, according to research by Cranfield.
“It can be very serious,” acknowledges Bernon. “Part of the problem is a loss of control over the supply chain and also over the design aspect of products.”
Prudent companies draw up contingency plans and take out insurance against the cost of a recall. However, some sectors are better than others in dealing with recalls.
In the automotive industry, problems with complex products such as cars are commonplace and manufacturers have tried and tested procedures. Because most new cars are serviced annually, manufacturers can also enrol their networks of service agents to carry out modifications.
While there’s no such thing as recall software, companies can use supply chain intelligence – reporting and analysis functions included in enterprise resource planning applications – to extract key factory and distribution data about products that have gone awry.
Warehouse management systems can also be used to record batch numbers, track the progress of goods through a distribution centre and log their final destination, providing an audit trail that can help identify products for recall.
Other steps that supply chain managers can take to mitigate the effect of a recall is to set up multi-disciplinary teams in advance to deal with returns and study market leaders, such as pharmaceutical and aerospace companies that can trace the origin of every component in their products. It is also vital to use the web to communicate directly with customers and cut through rumour and exaggeration, say experts.
The continuing high level of product recalls is part of a trend towards greater responsibility by manufacturers and retailers for products after they are sold. Tighter health and safety regulations, the rise of online retailing and more liberal attitudes to refunds and exchanges have increased pressure on reverse logistics systems.
In some retail sectors, as much as a third of all goods sold are sent back to their supplier. The total cost of returns for the UK retail sector is over £500 million per annum, according to a survey called Efficiency of Reverse Logistics carried out by Cranfield University Management School for the Department of Transport.
Retailers could be wasting as much as £200m per annum, according to the survey, by failing to run their reverse logistics operations efficiently. The situation has not been helped by a dramatic increase in the number of channels to market.
Supermarket chains are now selling clothes and consumer durables, as well as grocery items, both in store and online. Initially, some struggled to get processes in place to deal with goods coming back.
Running a returns centre efficiently can be a challenge. Companies must inspect goods; make decisions about what to do with them and then carry The continuing high level of product recalls is part of a trend towards greater responsibility by manufacturers and retailers for products after they are sold.out a variety of repair or disposal activities, all as quickly as possible.
“An integrated returns process is vital to minimising the cost of reverse logistics, improving customer service and getting maximum recovery of the value of returned goods,” says Mark Mearns, head of e-fulfilment and reverse logistics at Unipart Logistics.”Reverse logistics is one area where retailers have an opportunity to make considerable cost savings by taking a holistic supply chain management approach to the issue,” he adds. “But they need to be taking proactive action now.”
Some online retailers are making it easier for customers to return goods by setting up areas on their web sites to log returns, providing barcoded packaging to send goods back and automation at their returns centres to log returns, approve refunds and assign disposition codes.
Retailers and manufacturers are beginning to get tougher on returns. Processes that require store managers, for example, to document their returns and explain why items are being sent back bring more discipline to reverse logistics.
Some retailers have developed scripts for sales staff so that they question customers about why they are returning goods. Customers are also being asked to return all the parts of a product for a full refund.
“We’ve got to get the balance right,” says Bernon. “The gate is open, the horses have bolted, we have liberal returns policies, but that doesn’t mean that customers can just chuck it at us.”