Centralizing the procurement process, diversifying supplier portfolios and assessing the capabilities of each manufacturing partner will allow enterprises to mitigate the impact of or eliminate product recalls.
The expenses at hand
Recalls aren't a laughing matter. Bloomberg Businessweek listed some of the most expensive requests for returns throughout history:
- In 1982, 31 million bottles of Johnson & Johnson's Tylenol were recalled, costing the company more than $100 million. An order for the bottles to be returned was incited after seven people around in the Greater Chicago area were killed after consuming tablets laced with potassium cyanide.
- Bridgestone/Firestone recalled an estimated 6.5 million tires after Ford Explorers and Mercury Mountaineers equipped with those tires experienced tread separation. Not only did Bridgestone spend $440 million on the ordeal, Ford's bill amounted to a whopping $3 billion, not including the $600 million in lawsuits incited by individuals who either sustained major injuries themselves as a result of the tires or were taking legal action on behalf of deceased relatives.
- In 2004, Merck, a pharmaceutical company, recalled arthritis drug Vioxx after research discovered that people who had been taking the drug for at least 18 months were likely to suffer heart attacks and strokes. First, Merck lost $725 million in potential Vioxx sales. Then, three years later, the company paid $4.85 billion in settlements, resolving a whopping 27,000 lawsuits.
As one can see, the human and monetary costs associated with recalls can be quite ugly. From what can be gleaned by these two incidents, purchasing management professionals should not only assess what materials are going into the products they're selling, but how item design can impact customer safety.
Keurig making a reassessment
Coffee machine manufacturers aren't exempt from request for returns, either. According to IndustryWeek, Keurig Green Mountain is recalling an estimated 7.2 million single-serve hot coffee brewing units due to a previously unnoticed burn risk. Apparently, users have reported being scalded because of a malfunction that causes the machines to spray hot water. The recall requests owners return their Keurig MINI Plus Brewing Systems, model number K10, with serial numbers beginning with 31.
What can be learned from this incident? While the parts used to assemble these machines should have been scrutinized more carefully by designers and procurement specialists, the construction of the units should also come into question. Blueprinting may not be a direct concern of the purchasing department, but it's a phase that should never be taken for granted.