The Big Recall

It is difficult for any company to admit that it could have sent faulty products to the market. But doing so when necessary will earn it the consumer's trust

Published: Mar 25, 2010

The truth of life is that recalls happen. That’s because no product is perfect when it is introduced in the market. There are always some loose ends and manufacturers attend to them as and when complaints come in from customers. And recalls are true for a whole range of products; from bulky cars to puny little toys.

To get an idea, take a look at all the major recalls of the last decade. In 2000-01, Ford, then the second largest auto maker in the world, had to recall almost 13 million tyres manufactured by US tyre maker Firestone at a cost of approximately $2.1 billion. Then, in 2006, Dell, recalled close to 4.1 million batteries fitted in its laptops, manufactured by Sony. And in 2007, Mattel toys, America’s largest toymaker recalled more than 20 million toys that had been manufactured in China. Then again in 2007, Nokia recalled close to 46 million BL-5C batteries in its cell phones around the world, manufactured by Matsushita, a Japanese corporation which manufactures several electronic goods under the brand name Panasonic.

These are all big ticket recalls and have cost those involved a lot of stress, dilution of brand equity and of course sizeable amounts of money. But, in most cases, a recall assumes the status of a crisis only when a manufacturer tends to procrastinate finding a solution for the problem at hand. There are just two golden rules to avoid a recall crisis. One; accept the problem because the consumer knows best. Second; fix it as soon as possible.

STEP 1
Accept the Problem

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This is the most critical step in the process of a recall. A company can identify the problem in two ways; first, based on the frequency of complaints from customers or when it does a feedback/evaluation survey all by itself. In Maruti Suzuki’s case the company found out the fuel pump problem in the A-Star when it conducted an internal audit. However, Toyota Motor Corporation announced a recall only when customers increasingly complained about a stuck accelerator problem that had led to accidents and loss of many lives.

 

 

 

 

STEP 2
Identify the Culprit

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Find out which part has the fault and tabulate all production batches that have been fitted with that defective part. This helps to focus all the company’s attention on the corer problem and speed up the recall process.

 

 

 

 

 

STEP 3
Isolate the Problem Batch

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Prepare a list of the chassis numbers of cars in the affected production batch.

Delays mean larger numbers of production batches which are fitted with the problem part. So, the longer the time gap between manufacturing and recall the larger are the volumes and greater the complexity. For instance, Toyota announced the recall only in January 2010, even though the  first complaints of unintended acceleration came from customers as early as 2005. Toyota had to recall almost 2.3 million vehicles and suspende sales of the eight models.

 

 

STEP 4
Alert the System

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And at the same time, start negotiations with the vendor who supplied the faulty part. If the company that has the primary responsibility lives in denial, it only encourages its vendors to push the problem under the carpet.






STEP 5
Trace the Route Map

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Look up the online dealer management system to locate the various dealers to whom the cars have been shipped by feeding in the chassis numbers of vehicles.

Dealers are intimated and alerted to call the owners of the affected vehicles.
If the recall affects a lot of vehicles as is the case with Toyota, the manufacturers’ job becomes very difficult. It is likely that many faulty vehicles also enter the used vehicles chain and then it gets very difficult to trace the actual owner as his name isn’t there in the company records.





STEP 6
Work Out the Costs

 


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While all this is happening, the manufacturer works out the cost of recall with the vendor. The customer bears no cost and the overall cost of the recall is shared between the manufacturer and vendor. For instance, in the case of Maruti Suzuki, the total cost of the recall is expected to be around Rs. 30 crore and the company is bearing 40 percent while the vendor will bear the rest 60 percent. Once this cost sharing agreement is concluded, the vendor begins delivery of fresh parts to the various dealers. The manufacturer on the other hand, prepares a workshop manual which is dispatched to every dealer.




STEP 7
Handle the Logistics

 

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Make sure the system allows the customers to drop their vehicles, at their convenience, at the service station to carry out the required service. Any person who is in charge of internal management like a territory service manager takes charge as the recall coordinator.







STEP 8
Replace

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As the fresh parts start coming in, service the vehicles and replace the faulty parts. The customer collects the vehicle and in most cases, there is no monetary compensation. It’s pretty much “sorry for the inconvenience”.










The Maruti Suzuki Recall
Earlier this year, Maruti Suzuki announced that it had recalled nearly 100,000 units of the A-Star hatchback that it manufactured in India and had sold both in the domestic and export market. The company claims that it found out in an internal audit that cars manufactured between November 2008 and August 2009 had a faulty fuel pump gasket and O-ring, which could leak when the fuel tank is full. The A-Star is sold by Nissan as the Pixo in Europe and close to 65,000 units are expected to be affected by the recall. The logistics of recalling vehicles in several markets is a much more complicated affair than doing it in only India. Maruti’s example should encourage more companies to boldly go in for the short-term trouble to build long-term reputation.


The Toyota Recall

Earlier this year, Toyota Motor Corporation has recalled about eight million vehicles because of reports of a stuck accelerator problem and unintended acceleration. Several models across Toyota and Lexus brands have been affected by the recall. While Toyota has carried out repairs in quite a few vehicles, customers have complained that the problem of unintended acceleration persists. Toyota has set aside a recall cost of 180 billion yen for this fiscal year. If only it had reacted quickly to early complaints, its cost would have been much lower.
 

(This story appears in the 02 April, 2010 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Sibi John

    Well explained graphically !

    on Mar 25, 2010
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