A product recall is done by a company when it finds a faulty product / production batch being released in the market. The same product is called back, the defect removed and then the product has to be replaced or a completely new unit given to the customer. A major Reason for timely product recalls is to limit the damage which might be caused to the brand, product or company image.
Besides damage to intangible assets of the company, the company is also liable to face legal actions if its products are found faulty. These legal actions may be done from the government against the company or may also be done by a consumer or industrial buyer under the consumer protection act. The bottomline is that a discovery of faulty product demands an immediate product recall. Thus many companies make it a point to recall a faulty product themselves to avoid any penalties – legal or otherwise.
Increasing rate of product recalls in Automobiles and Pharmaceuticals
If you look at the data of the past few years, you will find that there have been increasing number of product recalls for automobiles, food industry as well as pharmaceutical sectors. I have done a study taking news articles on economictimes.com as a basis and have found that the major product recalls to be done in the past year have been from the automobile sector
Example of Automobile sector product recalls for first half of 2011
Honda Recalls 58,000 Faulty cars because of faulty engine components.
Saab recalls around 4000 units to fix engine stalling and other problems
Toyota recalls 139000 units of prious and IQ for defects in power steering and brakes
Maruti Suzuki recalls 13157 diesel cars across three models for faulty engines
Chrysler recalls 11000 vehicles for steering issues
Mercedes Benz recalls 136000 cars for speed controls
Product recall Procedure
A product recall generally has a huge cost component involved and one of the major cost over here is of logistics as well as material costing (Bring the machine back, correcting defects, sending the machine back or replacing it altogether)
1) The first step generally involves the consumer informing the company or the proper authority (channel dealers, selling agents) of the fault. There are consumer hotlines for the same. If there are not, then it also reflects an improper standard set by the company.
2) The documentation is completed by taking down the proper invoice numbers, machine serial numbers, production batches and sent for approval to the recall authority
3) Once the product recall is approved, the customer is notified and the faulty machine is picked up and a replacement machine given at the same time.
4) Depending on the type of fault, this machine can also be repaired or be sold at a discount rate to second hand vendors who sell it ahead.
5) If these steps are not taken for a confirmed faulty machine, the consumer can go to consumer court and complaint against the company. If approved, the customer is liable to receive compensation from the company.
Thus in the end, Product recall is not only a legal process, but is also socially and commercially important for the company. Mercedes, Honda, Ranbaxy, Glenmark are brands in their sector mainly because they knew the importance of timely product recalls and did the same for their consumers in a disciplined and responsible manner such that even a faulty product helped them build a brand of “Safety and reliability”. In essence, you might be good in good times but how you behave in bad times is what defines you as a brand.
Other sources – Product recall by Prof RK Gupta