Are your operations recall-ready? The costs of a food product recall are considerable, not only for the recovery operations of the recall itself, but also the potential long-term damage to reputations and market share.
Knowing how to prepare for a recall, particularly in light of the new federal Food Safety Modernization Act requirements, helps companies be responsive. The savings to bottom lines and reputations are considerable.
As noted in the article “The 4-step guide to food supply chain traceability“, a strong enterprise resource planning (ERP) solution that integrates data and systems can ensure that companies are ready in the case of a recall.
Measuring the costs
To appreciate the need for recall-readiness, consider the costs. A study by Ernst & Young of Grocery Manufacturers Association members showed that 81 percent of respondents characterized the financial risk of a recall as “significant” to “catastrophic.”
Seventy-seven percent of survey respondents estimated the cost of recalls at up to $30 million, with 23 percent reporting higher estimated costs.
A 2012 study by the Public Interest Research Group (PIRG) estimated the cost of food recalls and foodborne illnesses at $77 billion in the United States alone.
Obstacles to overcome
Recalls are not pleasant events for anyone involved. There are considerable challenges that companies face in dealing with planning for recalls and executing them, including:
- Protecting the brand. Primary efforts during a recall need to focus on public safety. However, companies also need to be mindful of the risks associated with a brand affected by a recall.
- Recall costs and time. In addition to planning for a recall, companies need to have the resources available – financial, personnel, and communication – in order to be hyper-responsive.
- Supplier relationships. Product recalls can affect an entire supply chain, making recall processes difficult. Many of the new FSMA rules are designed to ensure that companies have the right processes in place within their supply chain for track and trace activities.
- Lack of experience. Fortunately, most companies have never had to experience a product recall. However, that means that considerable training and preparation is necessary to be ready.
- Cost recovery. Many companies take out insurance policies to protect against the costs associated with recalls. In the case of a recall, multiple insurance policies and carriers, for property, liability, and specialty cases, may apply. Coordinating the cost-recovery efforts can be challenging and requires proactive planning to be effective.
How to prepare for recalls
In order to be ready for a product recall requires a focus on three areas:
- Planning, including cross-functional company teams, documentation and accountability
- Supply chain management, including FSMA compliance documentation, strong relationships and transparency
- Tracking technology that harnesses an ERP solution to coordinate activity
Here are key steps a company can take to prepare for a recall:
- Create the recovery team. Representatives from legal, operations, customer service, and corporate communications need to be involved in order to create a broad plan that involves core areas.
- Establish recovery goals. Establish the company’s legal responsibilities, risk tolerance, and decision-making structure to ensure that everyone is on the same page for when an issue arises. Be sure the recovery team is clear on those goals.
- Use estimation tools and forecasts. Companies should have detailed estimates of the costs and losses during early, mid-range, and long-term phases of a recall. What will be the likely scope of losses and costs and how will those costs be addressed at the time of recall?
- Make sure records are in order. Your ERP needs to include recordkeeping on a range of issues including food brand and generic names, ingredients, sourcing, order and lot numbers, packaging descriptions, distribution schedules, and shelf lives.
- Write it down. Create a written recovery plan and be sure that the plan is vetted by legal and regulatory officials to ensure compliance and to mitigate legal risk.
- Find a technology partner. Identify the right ERP solution for your company.
NexTec partners with expert ERP providers to create solutions that help with recall-readiness. Sage X3 is one such solution that brings together core functionality for food and beverage manufacturers, including finance and accounting, operations, supply chain, warehouse, inventory, HR and payroll, sales and marketing, and customer service.
To learn more about how NexTec can help your company to become recall-ready, download the NexTec Food Brochure.