Monday 7 August 2017
Companies whose products cater to end-consumers – especially in industries such as Consumer Electronics, Pharmaceuticals, Cosmetics, Food & Beverage, Consumer Packaged Goods and Automotive – run the risk of having their profits and reputations damaged due to poorly executed product recalls. Whether the original defect came about due to pressures of shortening product lifecycles in the High-Tech industry, variations in local supply chains in the Food & Beverage industry, or challenges of integrating new technologies in the Automotive industry, consumers are often ready to forgive the original mistake. However, reputations are reinforced or squandered by the perception of how swiftly, transparently and fairly – or not – companies handle the recall process.
The pervasiveness of recent recall incidents – including airbags, burritos, furniture products, etc. – suggests that large global companies that have not invested in recall systems and processes, are exposed to existential risks as catastrophic as major environmental or political upheaval. As an example, Samsung is expected to have lost $17B in projected Galaxy Note7 sales, over and above the costs of conducting the recall, and loss of future sales due to erosion of brand value.1
What Happened at Samsung
- A relatively small number of incidents were reported originally: There were 96 reports of batteries in Note7 phones overheating in the U.S. in the first three months after launch.2
- The problem may indeed have been small: Executives estimated early on that 0.01% of all phones, or in the thousands out of 2.5 million sold, were impacted.3
- A quick assessment was made in an attempt to localize the problem: Samsung issued the first recall assuming that the problems were localized to one supplier.4
- That assessment was incorrect: Replacement phones also started burning up – in effect, the problem had not been successfully localized.5
- This led to the worst possible outcome: Samsung had to recall more than 2.5 million phones sold worldwide.6
By now, Samsung has figured out the root cause of fires.7 What is significant is that they were not able to localize the problem in time to avert a worldwide recall. So what are the lessons here for large enterprises that are similarly exposed, but hope to do things differently?
Four Capabilities that Enterprises Need to Survive Recall Events
- Data Readiness
Ironically, the first capability that’s crucial to better handling recall events, comes from the words ‘Total Recall’ – Merriam-Webster: Total Recall, ‘the faculty of remembering with complete clarity and in complete detail’. Tracking sourcing, production, logistics and distribution operations in granular detail, and persisting that information for future review in rich data structures that represent the true complexity of modern supply chains, are the technological foundations of enterprise-grade preparedness. In order to deal with large volumes and rapid growth in data, the technology architecture needs to address issues of scale and latency right at the outset – data needs to be captured in near-real time by a variety of means, put in the context of the business process as it comes in, and stored in multi-enterprise traceability and genealogy databases.
- Commonality Analysis
The example of Samsung’s troubles shows us that sometimes it can be very hard to establish a proximate cause even as reports of defects or contamination keep rolling in. There could be more than one type of symptoms that appear similar upon cursory review. Even for the primary defect, there could be multiple causal factors that only become problematic when they interact. There could even be situations where the root problem occurred at a supply chain stage that was not being monitored. Systematic analysis is therefore needed to reveal common ingredients and manufacturing or distribution steps that may have caused the problem. Iterative analysis can tie contaminated lots or defective batches to likely causes, and those causal factors to other lots or batches that are in the field, even if defects haven’t yet been found in them. Further stress testing can be focused on these candidate batches to expose and isolate the problem. More importantly, any recall can be localized around these batches, thereby containing the financial impact to the enterprise.
- Preconfigured Recall Workflows
Multiple business units and functions need to be geared to perform complex recall activities in a short timeframe. This can only be done if critical business workflows and approval steps have been thought through in advance and configured as standard operating procedures.8 This includes gathering samples, conducting analysis, approving results and mitigating actions, executing the reverse flow of materials, and disposition of returned products. A flexible workflow management system is needed to formalize these business processes, so that these may be tested and refined over time.
- Practice Runs to Execute Targeted Recalls
Annual practice runs are needed to ensure that the recall process will stand up to real-world stresses.9 Recalls must be enabled by the same multi-enterprise technology platform that is used for the forward-moving supply chain.10 This ensures that enterprise and partner teams are not having to learn to use a new system in a time-crunch. More importantly, this would help maintain traceability of potentially defective products over the reverse flow, in case these products or their components re-enter the supply chain after passing through Quality Assurance, as well as to ensure that incorrect handling does not introduce new contaminants into recalled batches.
In the complex and high-stakes world that is already upon us, enterprises can reduce their risk of poor recall response by performing rapid commonality analysis upon deep genealogy databases, and by conducting annual practice drills using preconfigured recall workflows that exercise the same supply chain operating network that enables the forward flow of products. We are better prepared for the fire when we know where the exits are.