Product Recall in Food Manufacturing

At a glance

• Business interruption for any sized enterprise impact cash flow and reputation
• Product recalls for SMEs can relatively do more damage than with larger brands
• Reduced accountability and traceability in global supply chains opens the doors to fraud
• Investigating your supply chain can help to identify potential exposure

When a big industry name is shamed with a product scandal followed by a mass recall, other businesses often take stock of how their work would be impacted if they were faced with a similar situation. Product recall isn’t a concern limited to the big brands, as a business interruption of this sort for any sized enterprise can put a significant dent in cash flow and reputation. In 2015, there were 71 recalls of food products in the UK according to foodmanufacture.co.uk. Not only that, it also brings processes and the supply chain into question. During one week in February 2016, 25% of recalls were due to some kind of contamination. In those cases investigations need to take place to determine where in the supply chain the contamination took place.

It’s normally small and medium-sized food manufacturers that have the biggest reactions to product recall scares. This isn’t surprising, since a recall for an SME food manufacturer can relatively do considerably more damage than would be experienced by the larger brands. There are four key reasons for this:

• SMEs tend to have a narrower range of products than bigger brands, so a product recall is more likely to affect a greater proportion of their products and customers, if not all of them.
• SMEs have a smaller catchment, often being limited to national or even regional distributions. As a result, the total customer base is more likely to react to a product loss or reputational loss purely because number of customers is so much lower.
• SMEs are at greater risk when it comes to reputational harm. Whereas a consumer may forgive a well-known brand for a product scandal, they’ll likely be less forgiving with a small or medium sized name.
• SMEs normally have a lower profit margin, so there is less cash available to pay for the losses of a product recall. This can often be the case if the business is dealing with larger supermarket chains, who will often insist on PR cover so the supplier can recover and continue trading.

Not all dangers are exclusive to small and medium sized businesses: due to the increasing globalisation of supply chains, accountability can become divided and this opens the doors to fraud and closes them to responsibility. Therefore it becomes increasingly difficult for manufacturers to understand how vulnerable they are.

With all this in mind, it’s easy to see why a product recall could prove fatal to a small or medium-sized business. That’s why having adequate cover in place to avoid serious financial loss, or in some cases the loss of the business altogether.

• Secure adequate product recall cover to protect your business as well as your profit margin in the event of a recall.
• Investigate your supply chain at every level to get a full overview of your potential exposure and tackle potential risks in advance.
• Understand your potential for exposure to avoid under-insurance. This will also help you prepare should a recall be required.

Find out more about Kerry London’s experience sourcing tailored Brand Reputation insurance.

Categories: Small Business,