Come back without comebacks

When Britvic recalled its Robinsons Fruit Shoot children's drinks, it hit its bottom line hard. Its shares slumped to a three-year low and its eventual costs have been estimated as high as £25 million. The recall appears to have been caused by a new design of spill-proof bottle cap which might come off in use. There were actually only a couple of reported instances and, on the surface, the risk might seem pretty small beer (or juice). Certainly there have been other much more dramatic recalls. Take Toyota: over three disastrous years, it recalled more than 10 million vehicles. The brand suffered hugely, not least because Toyota was previously regarded as a beacon of reliable engineering and production know-how. And there are much quieter product withdrawals whose potential for injury makes Britvic's look minuscule: a Beko fridge freezer whose overheating is currently being blamed for house fires; or a gas cooker that could prove fatal if the grill is used with its door closed. There is one overwhelming reason why Britvic and other household names with product issues move fast and comprehensively: to protect their reputation with customers and, in so doing, maintain the long-term future of the brand. Britvic's product line alone is estimated to be worth £96 million. The OEM or retailer may be beating up sub-contractors and component suppliers in private but in public the best way of getting out of the situation alive is to stick your hand up, pull your products back and, if it is too late to avoid damage, pay the compensation fast. Despite my award of the gold star to Waitrose – for its gammon in parsley sauce which turned out to be haddock – it is a common misconception that recalls mainly happen in the food industry. In fact, they happen across every class of manufactured product. It is the event that all producers dread and none will ever speak about. James Emerton, senior product recall underwriter at Zurich UK, puts it in a nutshell: "It's a sensitive area of the market and no insured [company] will advertise that they have product recall in place." So, perhaps surprisingly, the best insights come from the insurance companies, legal firms and a growing tranche of product recall communication service specialists working in this area. Emerton points out that firms like his get heavily involved with clients right from pre-loss risk engineering – that's identifying risks and controlling potential exposure to you and me – through insurance coverage right the way down to helping to manage the mechanics of product recall. Like several other insurers, Zurich works with a partner to handle crisis communications, in this case Hill & Knowlton Strategies. Zurich believes that the process of risk management starts almost as soon as a new product or service is conceived: "Many of the decisions you take at any of the early phases could impact the outcome of any associated liability claim." For example, identifying potential problems at the design stage can save a lot of grief further on. Clients can even check for emerging risks in new materials or technologies through the insurer. Equally critical are the quality and legal measures put in place to ensure the safety and integrity of the supply chain. Zurich offers some key lessons. Firstly, a good product withdrawal plan starts with a corporate quality policy. Establish quality metrics and monitor both products and suppliers against them to maintain quality and minimise risks. Stay aware of supply chain quality and keep alive to the possibility of new risks emerging. A post-sale monitoring programme that includes tracking customer complaints and trends will help spot quality problems before they escalate. Make sure your product traceability extends along the supply chain all the way to the end-customer. It is a legal obligation in Europe to be able to trace supplies one stage forward and one stage back in your supply chain. Under 2005 legislations, you are also obliged to report product defects and recalls in some jurisdictions. Make sure you have complied with all reporting requirements; otherwise you may be liable for ?nes and penalties. Most of all, be prepared. Design an effective withdrawal plan that includes a crisis communications programme well before you need to use it. And, as part of your recall protocol with suppliers, establish a dispute resolution procedure well ahead of any potential events. As supply chains stretch further and further across the world, the risks increase. A new report by insurance governance expert Mactavish is highly critical of the protection provided by insurers and brokers to today's complex manufacturing industry. It highlights difficulties that would have been unheard of only a decade ago in securing enforcement from unfamiliar legal systems. Take the case of a UK electrical products manufacturer. Although it could prove forensically that a component sourced from the Far East was responsible for the failure of its larger system, it later discovered the supplier had not renewed its product liability insurance, leaving the UK company with no way of subrogating the claim. Mactavish details some alternative approaches made purely to mitigate supply chain risk. One large technology company ordered several of its Asian partners to used established European components, despite widespread local availability. On the surface, it looked like a highly inefficient solution. A second stage, however, of more gradual Asian sourcing focusing on businesses with a European parent not only eased potential quality and production problems but, presumably, also clarified the legal jurisdiction. Emerton points out, however, that a key part of his firm's service is the end-to-end analysis of the supply chain with regard to possible product recalls and this is offered to small and large manufacturers alike. He disputes the view that manufacturers regard product recall only as something that happens to other people: "Manufacturers are very aware of the risks involved and most have complex plans in place. It's a big requirement from our point of view for insurance." He says that the rise of social media means that bad news escalates rapidly across market and Zurich needs to know that its clients have thought through what they will do in the event of an incident, down to actually simulating the actions they will take. Damage limitation Advice from law firm Eversheds on minimising the damage when the worst has happened:

• Take prompt action as soon as any potential problem arises.
• Get your message out early using all media channels including newspapers, social media, news sites, brand/manufacturer's website and all points of sale – particularly important where there is a risk of injury or death.
• Where product values and/or potential liability is higher – for example, with corporate customers – make direct contact to minimise the risks of legal action and to mitigate potential damage.
• Take advice from legal and PR advisors before the problem escalates.
• Protect goodwill by doing the right thing. Make it clear you are taking all steps to remove the product from circulation and to make sure the issue will not arise again.
• Offer replacements or realistic compensation promptly.
• Involve suppliers of, say, faulty components early. If they are alive to the risk of future legal action, they are more likely to help mitigate potential damage by, for example, absorbing some of the immediate costs.