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.

What the Promotional Products Industry Can Learn from Williams-Sonoma

Staying Silent Can Cost You

In the Fall of 2002, Ann Brown, head of the U.S. Consumer Products Safety Commission (CPSC), proclaimed that San Francisco-based Williams-Sonoma was “leading the way on recall effectiveness” as she honored the company with her prestigious Chairman’s Commendation.  “Williams-Sonoma has demonstrated their commitment to consumer safety, by ensuring that customers were properly notified of a dangerous recalled product.”  Unfortunately for this upscale retailer, Ms. Brown is no longer at the Commission and it is not 2002.  This May, in a stunning reversal of fortune, CPSC has smacked Williams-Sonoma with a whopping $987,500 civil penalty for failure to timely report a product defect. Draconian as it seems, this stunning and eye-popping penalty may soon seem modest.  Well-informed sources predict it is only a precursor of much larger penalties in the works.  The message of the 2013 Commission is clear: Follow the letter of the law or be prepared to pay an astronomical penalty and then be compelled to follow the law with a costly CPSC-imposed mandatory compliance program.

So what can distributors and suppliers in the promotional industry learn from this case that they can use to protect their businesses?

Williams-Sonoma ran afoul of the critical Section 15(b) reporting requirements of the Consumer Product Safety Act.  Among other obligations, Section 15 requires manufacturers, importers, distributors and retailers of consumer products to notify the Commission immediately whenever the company has information that one of its products contains a defect which could create a substantial hazard or creates an unreasonable risk of serious injury or death.   Strategy #1: Assign a senior person in your company to learn the Section 15 reporting requirements.

Change a few details and the story of what happened to Williams-Sonoma could have happened to any company in our industry – promotional products suppliers who import product and distributors who sell it.  In this case, William-Sonoma did both.  In 2003 they began importing wooden hammock stands to sell through their Pottery Barn division.  From 2003–2008, Pottery Barn sold 30,000 units.  According to CPSC, when the hammock stand is used outdoors its metal brackets can trap moisture causing the wooden beams to rot over time behind the bracket and giving no outward sign until someone sits in the hammock and the beam breaks.   During this five-year span the company received 45 complaints of which 12 incidents required some medical attention.  The Commission claims that Williams-Sonoma knew by late 2006 – after it had received eight complaints – that the product had a defect which created a substantial product hazard, however Williams-Sonoma did not file a Section 15 report with CPSC until September 2008 – two years later!

If this case was typical, Williams-Sonoma most likely learned about the defective hammocks through a variety of customer interactions that may not have been passed on to one central repository.  Some customers might have placed warranty claims and only mentioned the bumps and bruises in passing.  Others might have come in to a store for a refund, written a letter, called an 800 number, complained via a Web contact form or even posted on CPSC’s new “Safer Products” site.  Whether a company is large or small, information – even bad news – can permanently reside in silos when the people receiving the information don’t appreciate its implication or aren’t aware of related incidents.  Without specific training and a robust initiative, employees in the field might receive a customer complaint—perhaps over the phone or in passing during an unrelated conversation—and dismiss it as insignificant, not their responsibility or not serious enough to report.   Teach your team that every product complaint is potentially significant.  Every complaint, claim, or incident report should be relayed to a central repository, logged and followed-up on thoroughly.  Be sure to have a trained individual call the consumer to discuss what happened and to make sure your incident report is accurate and that no details have been sugarcoated.  Ask for the product to be returned so you can see for yourself what went wrong and determine whether the issue constitutes a substantial product hazard.   Strategy #2: Educate employees to communicate every product related complaint to one person or department knowledgeable about Section 15 requirements, who has the authority to report to CPSC or to quickly raise the reporting issue to someone who does.  Investigate every incident thoroughly and get first-hand information about what happened whenever you can.  Ask for the product back to carefully evaluate what went wrong and whether further action is required. 

A common myth, and why some companies may not report, is the fear that Section 15 reports will automatically result in a costly “corrective action”, a term CPSC uses to refer to any remedial action taken by a firm, including recalls.  CPSC denies this myth in an FAQ on its website:  “Reporting a product to the Commission under section 15 of the CPSA does not mean that the Commission automatically will conclude that the product creates a substantial product hazard or that corrective action is necessary.”  Instead, CPSC contends that aside from helping the Commission to identify substantial product hazards that Congress established the Section 15 reporting requirements to encourage “widespread reporting…. to help identify risks that the Commission could address through voluntary or mandatory standards, or information and education.”   I posed this myth question to a prominent product safety attorney who regularly practices before the Commission.  He confirmed that many Section 15 reports result in no action and advised that companies should err on the side of “over-reporting.”   Indeed, the risks inherent in a Williams-Sonoma-sized civil penalty alone should inform any company’s consideration of whether or not to report.  Strategy #3: Err on the side of “over-reporting” when you learn of a product defect that could create a substantial hazard.  If the risk is not substantial, CPSC will not likely take action.  If the risk is substantial and you do not report, the potential civil penalties can be massive.  This Commission has already shown in the Williams-Sonoma and Kolcraft [1]matters that it will not hesitate to invoke stiff penalties for late reporting.

CPSC allows Section 15 reports to be filed through it’s SaferProducts.gov website, by mail, or by telephone, and can be submitted by the reporting company or its attorney.  The most important thing is to file the report timely, however it is always advisable when dealing with regulatory agencies to do so with the advice of an experienced attorney who specializes in that area of the law.  Reporting companies should be prepared with the information that CPSC staff will need to evaluate the product hazard and determine if further action is required.   The more organized and complete a company’s records are, the easier time it will have responding to Commission staff queries.  The initial questions are what you would expect: What is the product?  Who is the manufacturer or importer?  Where is the product sold?  What is the defect, injury or risk?   How many units have been sold?  How many complaints or incidents involving the product have been reported?  Were there any injuries reported?  If the investigation continues beyond an initial stage, the information requested by CPSC can get much more detailed.  Strategy #4: Keep complete and accurate records about the products you sell.  This should include such product related items as sales and purchasing records, test reports, history of complaints, warranty claims, returns, and any other relevant information you may have.  The information should be stored in a database and easily searchable by the individual you empower to evaluate product defects and make Section 15 reports.

It is very easy – actually tempting – to read about someone else’s misfortune and assume for one reason or another that it can’t happen to you.  But if you sell consumer products – and our entire industry does – it can happen to you and maybe easier than you think.  Product defects that that have the potential to cause injury can happen to any company that makes or sells products.  Consider this: Williams-Sonoma has a long history of managing recalls – so much so that CPSC recognized its outstanding systems a decade ago.  Yet even with a compliance staff, a sophisticated database tracking system and a history of managing recalls effectively, a serious product defect fell through the cracks and cost the company dearly.  Take the time to evaluate your company’s system for evaluating products, for logging and monitoring complaints, returns and claims, and for determining whether any product related issue has the potential to create a product hazard substantial enough to warrant a Section 15 report.  Strategy #5: Just as you would monitor any other Key Performance Indicator, establish KPIs for monitoring your systems for tracking product related issues to ensure that no potential product hazard falls through the cracks to later become an albatross for your company.


[1] In March 2013, two months before the Williams-Sonoma civil penalty, Kolcraft Enterprises Inc. of Chicago agreed to pay a $400,000 civil penalty for failure to timely report defects involving faulty latches on the sides of several of the play yard products it manufactured for Carter’s, Sesame Street and others.  In both the Kolcraft and Williams-Sonoma Settlement Agreements CPSC imposed mandatory compliance programs.

This article appears in the August 2013 issue of PPB Magazine

CPSC Press Release – Williams Sonoma Civil Penalty and Links to Commissioner Statements

Settlement Agreement Between CPSC and Williams-Sonoma