Product Recall

1

• Product Recall
• Your Reputation And Your Balance Sheet
• David Palmer - Crisis Management

2
Agenda

• Causes and contaminants
• Current environment
• Industry sector stats
• Brand damage corporate reputation
• The supply chain
• Case studies
• Solutions Risk Transfer Risk Management

3
Recalls Are Increasing, But Why ?

• In EU recalls have risen steadily from 2,300 in
  03 to 3,100 in 08
• Increased recall legislation
• Silent recalls outlawed!
• Improved testing
• More sophisticated products
• Consumers more willing to complain
• Manufacturers keen to protect their brand
• Retail pressure

4
What Causes A Product Recall?

• Hygiene
• Manufacturing problem
• Process error
• Cross contamination
• Raw materials (supplier)
• Mislabelling
• Human error
• Product tampering

5
Contaminants

• Microbiological
• Salmonella
• E.Coli 0157
• Listeria..etc
• Foreign bodies
• Heavy metals
• Food additives
• Chemical migration
• Toxins
• Banned substances

6
Product Recall For Manufactures

• Contaminated Products
• Food beverage
• Cosmetics and beauty products
• Pharmaceutical
• Tobacco
• Consumer Products
• Childrens toys
• Sports equipment
• Automotive
• Component manufacturers
• Restaurants
• Corporate chains

• Growers
• Distributors
• Packaging companies
• Retailers
• Pet food
• Electrical goods
• Electronics
• Tools hardware
• White goods
• Aftermarket
• Franchise groups

7
FSA Food Supply Chain
FORK !
8
UK Incidents in the Supply Chain (FSA)
9
GPSD (2001/95/EC) 15th Jan 04(Replaces 92/59/EEC
following 4 year review)

• Applies to any product supplied in course of a
  commercial activity
• Must be able to demonstrate absolute
  trace-ability
• Obligation on producers to have adequate recall
  systems in place
• Obligation on producers to advise authorities
  immediately
• Local authorities have powers to enforce
  mandatory recalls

10
FDA Recall Role

• FDA role in recall misunderstood !
• The Federal Food, drug and Cosmetic Act (Law)
  does not generally authorize the FDA to order a
  recall
• The FDA can request and most recalls are
  voluntary
• However if a manufacturer does not recall the FDA
  can
• Seek legal action under the FDC act
• Seize products
• Obtain an injunction
• Make a court request

11
Salinas Valley California

• 200 sick, across 21 states, 16 with kidney
  damage, 3 dead !
• FDA warns the public not to eat ANY fresh spinach
  or salad blends
• Over 30 brands named by the FDA
• Generic E.coli in the Salinas valley waterways
  used to irrigate crops
• Entire Salina Valley farming community struggling
  to recover

12
Spotlight on

• Sanlu China
• Saturday, 2nd August 2008
• BEIJING
• Suppliers are believed to have added melamine, a
  banned chemical normally used in plastics, to
  diluted milk to make it appear higher in protein.
  
• Melamine was first found in baby milk powder made
  by the Sanlu Group.
• In total, melamine has been found in products
  made by 22 companies.
• 13,000 babies in hospital
• 53, 000 people affected and milk recalled around
  the world.

13
Electronics Industry

• Sony - Dell laptop recall
• Nintendo Wii

14
Counterfeit Food

• EU customs seized over 75 million counterfeit
  goods in 06
• Over 5 million were foodstuffs, drinks and
  alcohol
• EU and US authorities have taken a joint
  initiative against counterfeit and intellectual
  property theft
• Initial efforts focused on Russia and China
• Some 40 of all alcoholic beverages, and 36 of
  all foodstuffs on sales in Russia were
  counterfeit (est cost to Moscow 1bn)
• Although low compared to DVDs (80) tobacco and
  other items

15
Landmark Incidents

• Walkers Crisps
• Source Press-Association 96
• Perrier
• Source Press-Association 90
• Sudafed
• Source New York Times 93
• Coca-Cola
• Source - BBC June 99

16
Counterfeit Goods

• 21 people die after drinking counterfeit Raki
• 200 times amount of methyl alcohol
• Labels stolen, and used on fake product
• Millions of bottles withdrawn from shops and
  markets

17
Recall Costs - Perception Vs Reality
18
Reputation

• What Is Reputation ?
• What Is The Value Of Your Reputation ?
• Counting The Cost
• Share price drops
• Loss of customer confidence
• Brand value reduces
• Employee morale sinks
• Management in the spotlight
• Buildings age and become dilapidated.
  Machines wear out. Cars rust. But what lives on
  are brands
• Source Confederation of British industry

19
Restaurants

• How does a restaurant deal with contamination
• Corporate sales
• National Internationally recognised brands
• Suppliers coverage

20
Wendys The Headlines

• Diner Puts a Finger on What's Wrong with the
  Chilli !
• Finger Food ! Leaves Diner with Really Bad
  Taste Chilli had a Human Touch !
• Wendy's "Finger" Has a Chilli Effect on Sales
  !
• Finger in Chilli Not Getting Any Easier to
  Digest !
• Police Aiming to Point Finger at the Owner
  of Missing Digit !
• Six-Digit Reward for Origin of Wendy's
  "Chilli Finger" !
• Woman Bites Off More than She Can Chew ! 

21
Wendys

• Anne Ayala - Theres no words to describe what I
  felt. Its sick, its disgusting, just knowing
  there was a human remain in my mouth
• Hoax always suspected
• Infact, a Wendys employee Plancencia conspired
  with Ayala
• Placencia bought finger tip from a friend (for
  100) who severed it at a paving co.
• Wendys lost 2.5m in sales, dozens of workers
  laid off

22
Malicious Product Tampering Product Extortion

• Disgruntled employees / ex-employees
• Special interest groups
• Criminals
• Cranks !

23
Coverage

• Recall Costs
• Business interruption
• Loss Of Gross Profit
• Rehabilitation
• Mislabeling
• Third Party Recall
• Extortion Costs
• Consultant Costs
• CCC

24
Trigger

• Accidental Contamination
• Any accidental or unintentional contamination,
  impairment or mislabelling of an Insured
  Product(s), which occurs during or as a result of
  its production, preparation, manufacture,
  packaging or distribution provided that the use
  or consumption of such Insured Product(s)
•  
• (i) has resulted in or would result in clearly
  identifiable internal or external physical
  symptoms of bodily injury, sickness, disease or
  death of any person(s) within three hundred and
  sixty five days (365) days following such
  consumption or use or

25
Insured Product(s) means

• (i) all topical and ingestible products for
  human consumption or any of their ingredients or
  components, that are identical with or similar to
  and requiring the same manufacturing processes
  and infrastructure as products reported to the
  Insurers on the Application on file with the
  Insurers or by addendum to such Application and
  which are specified as Specified Insured
  Product(s) in the Schedule AND are
•  
• a. in production by the Insured or
• b. have been manufactured, handled or distributed
  by the Insured or
• c. manufactured by any contract manufacturer for
  the Insured or
• d. are being prepared by the Insured for or are
  available for sale,
•  
• (ii) any product(s) which are newly introduced or
  newly developed by the Insured provided that

26
Key Definitions

• Claims made
• Each every loss / annual aggregate
• Worldwide (manufacture and sales)
• reasonable and necessary

27
Endorsements

• Third party loss of GP
• Adverse Publicity
• Re-instatement
• Governmental Recall

28
Risk Management Services

• Recall planning
• Recall simulations
• Crisis management planning
• Quality control audit
• Legislation compliance audit
• Third party suppliers audit
• Crisis communications / PR planning
• HACCP training
• Production line security