The product recall in mid-January when equine DNA was found in supermarket burgers has rapidly turned into an international scandal exposing complex cross-border supply chains.
Supermarkets, hospitals, schools, prisons and pubs are all recipients of food products containing horsemeat and as this latest debacle continues to evolve , it highlights the need to have the right recall plans and insurance in place.
No matter where in the supply chain, it’s vital product recall, business continuity and crisis communication strategies are ready for use at short notice. Similarly, you should know if your insurance cover meets your recall and associated costs, plus recompenses for lost profits.
Without these, your financial and reputational well-being is at stake, particularly as a product recall can go global within minutes. A poor response may cause irreparable damage. What to include in a product recall plan?
Seven factors are key: risk management, quality management, monitoring, business continuity, clarity, crisis communication and decisive action.
- Risk management: are you exposed to any liabilities at the outset of your supply chain relationship? Understand your role in the supply chain, identify others and be aware of what they do and who they’re reliant upon.
- Quality management: ensure you and your suppliers implement quality management programmes and verify them with personal visits. Suppliers, particularly when handling overseas imports, should have contracts covering product specification, compliance, costs, logistics, quality inspections, guarantees and protocols for recalls, returns and warranties.
- Monitoring: introduce processes to remove products from the supply chain and continuously monitor, so you will be aware of any emerging risks. Implement a product tracing system to identify batch numbers and know where they are. Track products and post-sales issues, such as customer complaints. Without adequate traceability, quality control and recall planning is wasted.
- Business continuity: test, review and update your recall plan and link to business continuity management. Establish an organisation to oversee the recall with defined roles and responsibilities, include external as well as internal resources. Have people running the business, while others deal with crisis containment.
- Clarity: be clear about the recall decision process: is it a recall, withdrawal or quality issue?
- Crisis communications: devise a strategy, establish a team and designated spokesman, ensure they’re known within your organisation, train ‘front-line’ staff to ensure the right message gets to the right people and gain suppliers’ ‘buy-in’.
- Don’t dither: Talk to your insurance providers early. They can advise and guide you through the recall process and help with training.
Product recall insurance covers defective consumer goods and contaminated products. It meets the cost of physically withdrawing a product from store shelves, customers, warehousing or other distribution channels and associated transportation.
It covers the advertising, marketing and public relations costs necessary to regain or recover market share, overtime, hiring additional staff or storage space, replacement, disposal costs, defence costs for litigation caused as a result of the recall and lost profits.
The policy also contributes to the cost of engaging specialist consultants for loss management or prevention, reviewing recall plans, quality assurance audits, traceability testing, simulating recalls and helping to manage communications.
If you have product liability cover this is not sufficient, it will only cover you if something enters the supply chain and causes physical damage or bodily injury.
Product recall insurance protects your revenue, balance sheet and relationship with stakeholders. It supports your reputation and brand.
Analysts estimate the cost of this supply chain collapse could run into millions of pounds . Let’s hope those involved are working with their insurance providers to help them through this crisis. We’re here to help.
*Richard Barker is a food and drink insurance specialist with independent insurance and risk management provider Sutton Winson.
- Risk management
- Quality management
- Business continuity
- Crisis communications
- Don’t dither