Recall Readiness 101: What if you just found out that you need to recall 12,500 tumblers?

Consider this scenario:  For the past five years, your distributorship has been running a high volume online store for Appleton Digital, a global media firm that happens to be your largest client.   Last month, your office received an urgent message from Appleton that a popular item you import directly—a glass tea tumbler you’ve had in the program for three years—shattered when a user filled it with boiling water.  Glass shards were reportedly sent in all directions and the person suffered incisions and lacerations.  Your client is still following up on the details but wants the tumbler out of the program immediately.  He says that he heard there might have been a few other complaints with this product in the past that Appleton never passed on to you.  You’re concerned because in addition to the 2,500 tumblers you’ve sold through Appleton’s portal, you’ve also sold another 10,000 units to other customers as well.

After investigating, you discover that under certain circumstances the tumbler can indeed shatter unexpectedly.  In addition to filing a Section 15(b) report with the Consumer Products Safety Commission (CPSC)—a federal requirement when you learn that one of your items may present a substantial product hazard or unreasonable risk of serious injury—you send samples of the glass tumblers to a third party lab.   Their results indicate a manufacturing flaw—a weakness in the glass—and CPSC staff investigators come to the same conclusion.  The die is cast and within a few weeks you agree to initiate a voluntary product recall of all 12,500 tumblers that you sold.

Recalls are urgent, demanding and all-consuming of time and resources.  Within a tightly compressed timeframe, your team will need to complete a daunting list of complex and detail laden tasks.  In those tense first weeks you will need to make critical decisions at a frenetic pace.  Unless you’re recalling a rocket, none of it will be rocket science, but there is a lot to do and time will be of the essence.  Your company will be under intense pressure to design a comprehensive recall plan, get it approved by CPSC and implement the recall as soon as possible.  As CPSC tells it, the objectives of a recall are “to locate all defective product as quickly as possible, to remove defective products from the distribution chain and from the possession of consumers, and to communicate accurate and understanding information in a timely manner to the public about the product defect, the hazard and the corrective action.”  But accomplishing that and satisfying CPSC that your plan is aggressive enough to motivate consumers to act on the recall can be a challenge.  You will likely experience a nonstop whirlwind of conference calls, meetings and drafts as your team rushes to complete your recall agreement with CPSC, a reverse logistics plan, a joint press release, retail posters, a customer service script, FAQs for your websites, letters and notices to your distribution chain, collection and disposal procedures, launch plans, submission forms, a social media plan, and on and on.  How do you prepare for an urgent project like this?  What should a company do before any product hazard arises to be as well prepared as possible to implement a recall?

The answer can be boiled down to two words:  Prepare and practice.

First Steps

Prepare by learning the recall process, step by step.  CPSC publishes a Recall Handbook that lays out all the elements in plain English.  Study it carefully and plan for how you will handle each requirement.  Consider the information you would need to collect, evaluate and provide to CPSC.  Where is this information stored at your company?  What documents do you have? Who has access?  How easily could you accumulate everything you would need if you had an urgent need to do so?

Good Documentation Helps

If you don’t have a good system for storing all the quality, production and safety data related to your products, now would be a good time to consider one, before an urgent need arises.  It should consolidate access to all relevant production, quality, safety, sales and distribution documents for the products you manufacture, decorate, retail or distribute.  Typical items include sales orders, purchase orders, bills of material, technical files, test reports, risk assessments, inspection reports, customer complaints, return authorizations, warranty claims, corrective actions, and production issues.  The specific documents you will need may depend on your company’s role in the distribution chain – supplier or distributor, importer or retailer – but they are all similar in their purpose: to quickly understand how extensive the problem is, how many defective products you’ve distributed, where the defective products are, how you can identify them, why the problem occurred in the first place and so forth.

How efficient are your systems now?  Would you be able to easily identify which purchase orders or production runs involved the affected products?  Do the defective products have tracking labels, date codes, lot numbers or other distinguishing characteristics?  Could you identify the owners or recipients of these defective products?  Do you have shipping records for all the locations where you’ve shipped these products and production records for all the logos you’ve imprinted on the product?  These recordkeeping details might even be the key to negotiating the scope of the recall with the CPSC and limiting the recall to a smaller batch or lot.  CPSC will want you to be as specific as possible with each example of defective product and ideally have an image of each logoed version to help consumers identify whether the product they have is included in the recall.  You may even need to reach out to your clients to determine the specific dates and events at which the product was distributed to determine how you can reach that audience.

Who Will Manage?

Another consideration is your chain of command.  Who will be authorized to make decisions and approve agreements for your company?  Who will coordinate the recall and have overall management responsibility?  Which managers will be responsible for specific tasks?   Who will guide and advise these managers?  Who will be authorized to speak with customers, consumers and the media on your behalf?  What talking points will be used for those communications?  Will you use outside counsel to advise you in your communications and negotiations with CPSC regulators, in getting your recall plan written and approved, and in advising you throughout the recall?  If so—in my view, highly advisable—it is best to establish a relationship with an expert product safety attorney in advance so he or she understands your business and can respond to your situation immediately.  In the middle of a crisis is not the time to be vetting attorneys, comparing fees and waiting for law firms to conduct conflict checks.

Nothing is More Important than the Recall Agreement

One of the most critical milestones your team will need to accomplish is to successfully negotiate an agreement with CPSC staff over all the salient details of your recall:  How will consumers who have defective products be notified?   How soon and by what method?   Who distributed the product?  How will you notify those parties?  By when?  What will you offer to consumers who have defective products?  A replacement product?  A repair?   A refund?  Will the funds be escrowed?  How will you collect, account for and dispose of the defective products in coordination with CPSC?   All of this and more will be spelled out in your agreement with CPSC.  This agreement is the one item in particular where you would be well advised to work with a seasoned product safety attorney who has had many previous successes in negotiating these corrective action agreements with CPSC.  Its importance cannot be overstated.

By the time you actually announce the recall and put a well-designed plan into place, much of the heavy lifting will be done.  To be sure, there is still a great deal of work to do but it should largely be an operations and logistics issue at this point—work that your team is probably very good at already. Some companies choose to handle this “fulfillment” part of the recall with their own staff – collecting and disposing of the defective merchandise, processing refunds and claims forms, coordinating between all of the parties involved, reporting to CPSC – and some outsource the work to a recall management firm.  Either way, the important objective at this point is for your recall coordinator to make sure the trains run on time, that you do exactly what you told CPSC you would do, that every step is documented carefully and that you do it as quickly and expeditiously as possible.

What Went Wrong?  What Should You Do About It?

Once the crisis stage of the recall has passed, it is always prudent to conduct a post-mortem to determine what went wrong, who, if anyone, was at fault and what you should do better in the future to avoid similar defects.  Did you fail to test something thoroughly or fail to ask enough questions?  Did the manufacturer fail in some way or make a change without telling you?   Product safety experts have long advocated that the surest path to product safety is by designing defects out of products to begin with.   The more you understand about what went wrong with the defective product the better job you can do with future products.  The post-mortem is also the time to consider whether you may be able to recover some or all of your recall related costs.  Are you insured for any portion?  Do you have any indemnification agreements in place that may be applicable?  Should you consider litigation to recover your damages?  There are many such questions to ask at this point and you are wise to consider each one.

Product recalls can happen to any company of any size.  It doesn’t matter whether you are a supplier or distributor, whether you import directly or retail products that you buy from others.  Under the Consumer Products Safety Act, everyone who manufactures, distributes, or sells defective products can be held responsible. No company is immune no matter how expert its engineering or how vigilant its compliance.  If you need to be convinced, just type “BMW” or “Mercedes” and “Recall” into a Google search and see how many hits you get.  Do the same for the names Disney, McDonald’s, Fisher-Price, Lululemon, Nike, UnderArmour, Kellogg’s, General Mills, Schwinn, Cannondale – almost any respected brand you can think of – and you will discover recalls.  And so it could be with you.  But if you take steps in advance to prepare—even small steps—you can greatly diminish the pain and anguish a recall could cause your organization and you can reduce your costs significantly.  Keep in mind the two most important takeaways from this brief overview – prepare and practice – and they could make all the difference.

Recall Readiness Checklist

  • Plan For It.  Assume it will happen sooner or later.  Learn the recall process, step by step, and teach it to your key managers.  Go through CPSC’s Recall Handbook carefully and periodically review it with your management team.
  • Learn What The CPSC Requires.  Learn or review the Section 15(b) reporting requirements of the Consumer Products Safety Act.  Among other things, these well-establish consumer product safety rules require you to report to CPSC immediately whenever you learn of a substantial product hazard or a product that doesn’t meet a CPSC standard.  Late reporting can generate seven figure civil penalties.   While you’re at it, also learn about the Section 37 and Section 102 reports.  It’s all in CPSC’s Recall Handbook.
  • Centralize Incident Reporting.  To ensure you are aware of all incidents that could require a Section 15(b) report to CPSC, be sure to centralize the review of all customer complaints, product returns, defects, accidents, incidents and other leading indicators that may indicate a quality problem or a safety hazard.
  • Get The Product Back.  Whenever you receive a product-related complaint, claim or injury report, always ask for the product in question to be returned to you.  If the product is later deemed to be defective such that it leads to a recall, any batch, lot or tracking numbers on the product may help you limit the scope of the recall.
  • Distributor: You Report If Supplier Doesn’t.  What if you purchased the tumbler in this example through an industry supplier rather than importing it directly?   How would the scenario change?  When reporting the complaint and injury to the supplier you could request that the supplier immediately file the Section 15(b) report with CPSC.  If the supplier refuses or delays, you can file the Section 15(b) report as a “retailer or distributor report” and request that CPSC contact your supplier directly for more information.  Remember that under the Consumer Products Safety Act, everyone who manufactures, distributes, or sells defective products can be held responsible.
  • Notification Tools.  Study the material on CPSC’s website as examples of the posters, scripts, FAQs, social medial plans and other processes you’ll have to go through in a recall.
  • Get Documents In Order.  Review your systems for documenting and storing key product information you would need in a recall.  Be sure it is easily accessible.
  • Appoint Recall Coordinator.  Assign a manager to act as your recall coordinator.  Provide continuous training and stay abreast of best practices.
  • Line Up Outsider Experts.  Interview expert product safety lawyers about the role a lawyer would play in a real recall.  Establish a relationship in advance so you could move quickly in an actual recall.  Interview firms that provide recall management or consulting services to be aware of what’s available.  Speak to your insurance company about recall insurance.  Cover all the bases and decide what’s best for you based on your budget and risk tolerance.
  • Start At Product Development.  Review your product development and selection process to be sure you’re being as careful as you should in evaluating, testing and overseeing the production of the products you make or sell.   Perform a risk assessment for each product and consider what could go wrong.  Where applicable, enlist a third party lab to perform product integrity tests as well as use and abuse tests.
  • Put ID Marks On Your Products.  Mark your products whenever possible with lot, batch or tracking numbers that you can tie back to the production run.  If only a portion of your products have the defect these numbers may help you limit the scope of a future recall.
  • Use Mock Recalls For Training.  Periodically test your systems and management training by conducting a mock recall.

CPSC Recall Handbook:        www.cpsc.gov/PageFiles/106141/8002.pdf

This article also appears in the September 2013 issue of PPAI’s PPB Magazine.