What Does a Recall Really Cost?

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When it comes to recalls, manufacturers stand to lose a lot more than just money.

If it seems like recalls are getting more common nowadays, that’s probably because they are. On average, we experience 10% more recalls today than a a few years ago in 2013. This may seem alarming, but it doesn’t reflect sloppier processors or more danger at the grocery, but rather the opposite. As regulations get stricter and testing methods get more advanced, we’re able to catch more problems, quicker, and hold our manufacturers to a higher standard. While this is great news for the average person, meeting these ever-increasing standards can be a big challenge for those in the food processing space. The unpredictability of manufacturing means that most food processors will deal with a recall at some point, and the costs of such an event cannot always be measured in dollars and cents.

On average, a food recall causes direct costs to the manufacturer upwards of $10 million. This is a huge number for any business, but it can be devastating to mid-sized or smaller companies that can struggle to survive through that much lost revenue. Along with having current product pulled from shelves at a loss, depending on how deep the recall issue runs into the supply chain, the processor may also face having to dispose of any possibly defective product or raw materials in storage.

There are many things that can be lost in a recall that are just as devastating, and often, harder to replace than money. Take for example consumer trust: over half of consumers report that they cease purchasing a product completely after it has been recalled, and studies have shown that a brand’s stock price will typically drop as much as 22% following a recall. Trust is one of the hardest things to rebuild, and in many cases, once it’s gone, it’s gone, impacting sales far into the future. On top of this, many of the largest retailers have very strict standards for their suppliers, and if a recall happens and the producer can’t react in time, they risk having their contract terminated. Once the effects of these losses begin piling up, that initial $10 million can seem like a drop in the bucket.

What can processors do to minimize these risks? The most crucial step is to ensure that you have a robust and reliable lot tracing system in place. Digitizing these processes is essential, as tracking on paper is not only slow and inefficient, but also introduces numerous chances for error into the process. Processors who can identify and react to problems quickly, with accurate data, suffer far fewer losses than those who cannot.

Ready to automate your lot tracing and recall management? ParityFactory can help! Reach out to us today and we’ll show you how our system can help take the fear out of recalls.

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