Calculating the Cost of a Recall

Posted by Digital Manager on Wed, Jun 18, 2014 @ 09:36 AM

As of June 18, the FDA will be increasing fines for regulatory noncompliance. The 2014 update will be the first since 2008, and will be based on inflation rates as determined by the Consumer Price Index (CPI). Adjustments may not exceed 10% of the total penalty and will range from $200 to $11 million depending on the offense.

Calculating_Cost_Recall

FDA monetary penalties are just one cost that companies must factor in when calculating the total cost of a product recall.

Recall management costs vary depending on factors such as scale, scope, and type of recall. Unexpected expenses can quickly add up. For starters, companies need to understand the factors that drive total
product recall costs. They include:

  1. The relative seriousness of the threat to public health or safety
  2. The number of affected product units
  3. Consumer demographics of the population affected by recall
  4. Retail value of the affected product
  5. How long the product has been in the marketplace
  6. The remedy offered to consumers

In assessing the cost impact of the recall on the business, consider these areas:

Recall Notification

Companies are required to inform the public so that everyone affected is aware of the recall. Costs here include media slots for radio or television announcements, newspaper advertising, telephone call volume, and direct mail fulfillment and shipping outlays.

Product Retrieval

Companies are responsible for retrieving the recalled product and properly managing the recall logistics.  costs include shipping or collecting the product, effectively destroying or recycling it, and replacing it.

Product Liability

There are, finally, potential litigation costs as product failures, threats to health or safety, or mismanagement of the recall process itself can lead to multiple lawsuits.

Add to this list increased labor expenses for regular employees who may be required to manage or implement the recall. In many instances, the cost of an outside recall agency to support recall management must also be taken into account. To minimize recall cost burden, organizations should seek recall insurance as well as a sound product recall plan and preparedness training for key employees. Being ready for a recall can speed up the remediation process and help companies get back to business quickly.

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Topics: Recall Risk Management, Product Recall Process, ExpertRecall, recall news, cost of a recall

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