How Much Does a Recall Really Cost?
There are many costs associated with recall management. These costs vary depending on factors such as scale, scope, and type of recall. Out-of-pocket expenses can also quickly add up.
Companies obviously want to minimize their recall cost burden. Not just recall insurance, but a sound product recall plan and recall preparedness training for key employees also can alleviate that burden.
For starters, you need to understand the factors that drive total product recall costs. They include:
- the relative seriousness of the threat to public health or safety
- the number of affected product units
- consumer demographics of the population affected by the recall
- retail value of the affected product
- how long the product has been in the marketplace
- the remedy offered to consumers
Some of these recall-related costs are predictable. In other cases, unanticipated contingencies can exceed estimated expenditures. In any event, you are responsible for those costs at every stage of the recall process.
In assessing the cost impact of the recall on your business, consider:
Recall Notification. Companies are required to inform the public so that everyone affected is aware of the recall. Costs here include media slots for radio or television announcements, newspaper advertising, telephone call volume, and direct mail fulfillment and shipping outlays.
Product Retrieval. Companies are responsible for retrieving the recalled product and properly managing the recall logistics. Costs here include shipping or collecting the product, effectively destroying or recycling it, and replacing it.
Product Liability. There are, finally, potential litigation costs as product failures, threats to health or safety, or mismanagement of the recall process itself can lead to multiple lawsuits.
Add to this list increased labor expenses for regular employees who may be required to manage or implement the recall. In many instances, the cost of an outside recall agency to support recall management must also be taken into account.
All these recall costs, predictable or not, underscore the need for a recall plan that includes options the company may responsibly pursue to minimize some costs and eliminate others.
