No Excuses – Product Recalls, Warranty Issues and Quality Issues Can Be Avoided

By Nader Fathi

Ensuring good product quality continues to be a defining issue for many companies these days. Far from being a minor detail in a company's overall strategy for success, it has now taken center stage as the key player in a company's market dominance. Even with good practices in place, many large global manufacturers still ship products that eventually require recall. Some blame quality issues on their suppliers, while others are simply so eager to get their products out the door that they overlook product quality tracking procedures altogether. Regardless of how the degradation in quality occurs, its affect is undeniable – a decline in customer confidence, tarnished reputation for the brand owner and a negative impact on the brand owner's bottom line.

In this new age of consumer empowerment and social networking, consumers have access to information faster than ever before, and that information spreads via the Internet at an astronomical speed. When a problem occurs in a product, the result may be an angry blog or even a bad product review or testimonial. Either way, once the information is on the Internet, it is readily accessible and, with a shelf-life that's virtually infinite. Because the flood of information can bring inquiries from the media, customers and prospective customers, brand owners no longer have the opportunity to delay releasing recall information or details regarding a potential problem to the public. Brand owners are also frequently put in a position of having to respond to an issue before they have a well thought out plan in place.

Of course, for those companies that wisely invest in shipping products with minimal or even zero defects, the future is much rosier. They stand not only to realize a healthy return on their investment, strengthen their brand and create loyal, repeat customers, but also to significantly reduce their warranty department overhead and customer complaints. Luckily, product quality management tools are available today to help companies achieve these goals. By quickly and easily managing product quality throughout the supply chain, from manufacturing through end-of-life cycles, companies can mitigate risk, better manage quality and in turn have satisfied customers.

Why Recalls Happen

To better understand how to address product recalls and quality issues, it's important to understand why recalls happen in the first place. Often times, they are due to one of the following reasons:

  • Design Issue – An issue pertaining to the fundamental design of a product or the components, modules and/or subsystems on which it is based.
  • Component Supplier Issue – An issue that stems from the supplier, such as the 2006 Dell recall of an estimated 4.2-million notebook computer batteries. The problem, which involved the batteries catching fire under certain circumstances, lay with Dell's battery supplier, Sony.
  • Manufacturing Issue – A known or unknown problem that isn't eliminated during manufacturing and that results in the shipment of defective products
  • Product Inconsistencies – An issue arising from a manufacturing inconsistency between the various manufacturing sites (e.g., in-house and a contract manufacturing facility in Singapore).

Aside from these causes of product failure, there are a number of external factors complicating how companies today are dealing with quality issues. One such factor is the troubled global economy, which has forced consumers to think twice about purchases and, beyond that, which brand name will serve them best. This makes consumers more apt to switch vendors if they are dissatisfied with a product. As a result, brand owners simply can't afford to take quality or customers for granted, and customer retention has become all the more critical. The worst thing that could happen to a company in an economy like this would be to face a major recall, as this action literally could mean the company's demise or, at the very least, the closure of facilities.

At the same time, we are now living in a "flat" world where products are designed, developed, manufactured and serviced anywhere, anytime. Today's economic environment has left many companies looking to reduce their capital and travel expenses (e.g., to check on their suppliers). As a result, many are now moving toward lower-cost software solutions, whether software-as-a-service (SaaS) or on-demand software or cloud computing. Adopting such solutions also promises to help companies protect their intellectual property (IP) rights. The IP issue has become more pronounced in recent years due to the great influx of fake and counterfeit products from countries like China into the United States. Some companies have also been "burned" by their dealings with suppliers in China. Others wonder how long it will take before their suppliers steal their design, start making their own product variants and begin competing against them on the open market. Such worries have some companies looking to bring manufacturing back to the United States or Mexico.

The Inevitable Problem

Regardless of why they happen, and despite the manufacturer's best efforts, problems are an inevitable part of the lifecycle of any product. In fact, much to the chagrin of the companies involved, problems occur frequently. Where most companies feel the pain of those problems is in their warranty reserves. These days warranty reserves should only be about 1.5 percent of a company's sales, but some companies pay as much as 5 percent. According to 2008 Securities and Exchange Commission (SEC) data, the total amount of warranty accruals reported by the top 100 warranty providers was a staggering $27 billion. The amount of claims paid was $28.6 billion.

Not only do companies feel the brunt of any problems from a financial perspective, but they also feel it from a public relations perspective as well. After all, warranty recalls very rarely go unnoticed or unpublicized. The recent peanut product recall is a prime example, but there are others. Microsoft, for example, launched the Xbox gaming system with unacceptably high failure rates and took a corresponding financial hit of more than $1 billion to fix the problems. Last year, Research In Motion (RIM) was forced to recall its Blackberry Bold product in Japan and only recently recalled its BlackBerry Bold 9000 smartphone due to a keypad overheating issue during recharging.

This past March, Maytag voluntarily recalled 1.6 million refrigerators due to an electrical problem that caused overheating, creating a fire hazard. Thus far, the problem has led to 16 incidents ranging from smoke damage to major kitchen damage. The apparent cause of the problem was an electrical failure in the relay component that turns on the refrigerator's compressor.

If a cell phone or a refrigerator doesn't work properly that's a bad thing, but what if the device not functioning properly were a pacemaker or a defibrillator? In the medical arena there is simply no room for error, but that's exactly the scenario Guidant faced in 2005 when it recalled pacemaker and defibrillator products.

Solutions Ahead

The cases identified above illustrate how quickly poor product quality can result in a tarnished image for a well-respected brand and why the right product quality management tool is so critical. First-generation product quality management solutions relied on manual data collection tabulated in Excel spreadsheets. Issues over latency, data cleansing and a lack of visibility made the collected data questionable at best. With second-generation solutions, companies built their own client-server software solutions, but they were not easily scaled and proved both difficult and costly to maintain. The key to avoiding situations like those detailed above is for companies to better manage their component suppliers and product quality throughout the lifecycle via the use of a third-generation product quality management solution that is on-demand and scalable (Figure 1). It must provide automated data collection and be backed by a powerful root-cause analysis engine that helps find and fix problems, predict and avoid problems, and improve and innovate the design, manufacturing and service processes.

Utilizing such a tool, companies like Maytag, Dell and others could have kept a closer watch on their component suppliers and on the quality of their products during design and manufacturing. More important, potential problems could have been found and fixed prior to shipping, when it was less costly and risky to do so.

Next-generation product quality management tools offer a number of compelling features, including:

  • SaaS (on-demand) technology that allows product quality management tools to be hosted as a service provided to customers via the Internet. SaaS is lower-cost and scalable, requires little infrastructure, has a lower investment risk and enables easier collaboration. These benefits are ideal for companies today with suppliers located at dispersed locations around the world. Since sufficient quality information/data can be obtained securely via the Internet, travel costs can be significantly reduced. And with a "pay-as-you-go" pricing model, costs can be kept relatively low – a key factor given today's changing economy.
  • Real-time dashboards, analytics and alerts that provide insight and analysis of data, alerting the manufacturer or supplier to any potential problem and possible fixes (Figure 2).
  • A 360-degree, holistic view of product quality, which allows a company to enter the product quality ecosystem from different angles (Figure 3). It also ensures manufacturers have access to an automated collection of globally dispersed data for a 360-degree view of their complete design and manufacturing process.

Final Word

Adopting an approach that effectively utilizes third-generation product quality management tools to better manage product performance is the primary way companies can avoid the cost and public disgrace of product recalls. These tools provide companies real-time insight into the design, manufacturing and service process without having to wade through long, hard-to-interpret reports. With access to the right quality information and data, companies can now better ensure on-time shipment of only the highest quality products and protect their brand.

About the Author: Nader Fathi is the CEO and co-founder of SigmaQuest, a provider of on-demand solutions for product quality management. He brings 25 years of general management, business development, sales and marketing experience in the software and electronics industry to this position. More information on SigmaQuest is available at www.sigmaquest.com.

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