The Multiplier Effect—When Recalls Go Big

When a recall happens, it can often affect multiple products, brands, regulatory bodies and geographies

Todd Harris
Todd Harris

As the global supply chain continues to grow, so too does the risk of potential problems and disruptions. One such disruption is when a recall occurs at the supplier level. Many manufacturers are unaware of the dramatic impact that this type of recall can have on an entire industry.

When a recall happens at the supplier level, it can often expand over time and affect multiple products, brands, regulatory bodies and geographies. This is known as the multiplier effect, a supply chain nightmare that was particularly evident in the first quarter of 2015.

A good example of this type of recall is the cumin spice recall that started in December of 2014 and rippled through the supply chain through the first quarter of 2015. The spice had undeclared peanut allergens, and ended up affecting 100 brands, 153 products and 769 products with different packages. Affected products included everything from taco kits and cajun seasoning to beef and chicken.

It’s easy to see how complicated it can be pulling 769 products off the shelves and removing them from the supply chain. Consumer notification also becomes an issue, as consumers could never keep track of that many recalled labels. The end result is that any products involved in the recall can take a hit as consumers avoid potentially affected products all together.

Unfortunately, there’s no industry that is immune to the multiplier effect, so it’s important that manufacturers across the board look closely at the supply chain when assessing recall risk and prepare for the eventuality of a recall.

The key takeaway is that clear communication is crucial. Consumers are not only dealing with safety concerns with your products, but those of other products as well. It’s simply not enough to issue a press release and call it a day. Organizations must provide up-to-date information and stay vigilant on social media to maintain constant two-way communication with consumers.

Frustrations with recalls can mount quickly. Even more so with the multiplier effect, recalls often lead to widespread product shortages that can leave consumers waiting for longer periods than normal. This can escalate consumer frustration if companies don’t get ahead of the issue and communicate future plans. This is especially true in the pharmaceutical industry in which product shortages can have a direct impact on someone’s health. So while it may not be possible to replace the affected product right away, a somewhat unique step in the recall process is to communicate what consumers can expect in the immediate future so they can plan accordingly, and if possible, find alternatives in the interim.

With supplier-related recalls, it’s also important to remember that the competition is often dealing with the same issue. While that tends to deflect pressure off of any single brand, it also gives consumers a frame of reference on how a company handles a recall. If a brand can manage the recall better than the competition, it can actually leverage that to help build brand loyalty. On the flip side, if it runs into issues, it is more obvious and can lead to a more severe impact to the brand than with the average solitary recall. So it’s a double-edged sword that rewards preparedness and efficiency, but usually punishes those caught off guard.

Before a company is hit with the multiplier effect, they should also assess their reliance on supplier materials and balance that with their recall insurance coverage. Policies vary greatly, especially throughout different industries—so make sure it’s clear who would be accountable for related losses and assess that risk accordingly. It’s also important to incorporate potential supplier-related recalls into the business plan and identify alternative sources, even if they aren’t immediately used.

If caught off guard, being hit by the multiplier effect can be a hard pill for any company to swallow. With high-profile recalls taking place in the auto and food industries on a regular basis, the multiplier effect continues to plague the supply chain. However, by planning ahead, an organization can turn a potentially devastating supplier-related recall into a competitive advantage as it speeds ahead of others caught up in the complexity of a floundering supply chain.