The recent Takata airbag recall made headlines in the manufacturing industry. Product recalls are prevalent and daunting regardless of what industry is impacted. They happen without warning, disrupt the normal course of business and require extensive time to resolve.
Procurement is usually tasked with the burden of resolving any issues with suppliers because they are the first line of communication with suppliers and have ongoing responsibility for supplier risk. In many cases, procurement must manage through a product recall with whatever information their supplier can provide.
So, how do procurement leaders equip their teams with the necessary tools to proactively and efficiently manage, track and reduce product recalls?
Consider the following as a starting point for discussion to better manage product recalls:
1 Set appropriate expectations:
Suppliers do not like product recalls any more than their customers. It’s costly and time consuming for them to track and communicate recall information. Contract managers should negotiate contract language that sets guidelines and consequent penalties based on common metrics such as:
- Number of product recalls per year or over the lifecycle of the contract
- Formal communication process for recalls
- Required root cause analysis and follow up to ensure necessary steps are being taken to prevent future recalls.
Sure, your suppliers may object to some of these points, and you may not be successful in getting all of your points into the contract – but the more organizations demand excellence from their suppliers, the more suppliers will be forced to invest in increased quality processes.
2 Track supplier performance:
You may be reading this and thinking, “My organization already has contract language in place, but we struggle with capturing the data required to hold our supplier’s accountable.” Tracking supplier performance is a critical step in ensuring suppliers hold up their end of the contract. Start simple: document every recall and the important data surrounding the event including date, supplier name, products affected, severity, root cause information, etc. The more data you track, the more leverage you have when you communicate with your suppliers. You can start with a simple program like Microsoft Excel and later decide to upgrade to a specialized tool intended to track this information automatically and provide reporting and data analytics. Your existing e-procurement tool may even have options available to help your team track and report on these events.
3 Improve communication and follow-up :
Any event requiring collaboration between multiple companies and a quick reaction is further complicated by untimely or lack of information. As suppliers are gathering purchase order data from their systems to determine which customers are impacted by a recall, they may be slow to communicate or may even provide unclear or wrong information. E-mails or letters may get sent to the wrong resources or missed altogether due to heavy workloads or vacations. In a previous job, I remember finding product recall notices from suppliers on the fax machine. It took our team a lot of time and effort to search different systems to determine who ordered the product, where the product got shipped, which department or which business unit was using it. There wasn’t one place we could go to determine the overall impact of the supplier recall.
Best in class e-procurement tools will allow users to track product recalls against contracts, purchase orders, receipts and invoices; allowing procurement teams to quickly understand which departments are impacted by the recall and how widespread it is. In addition, when product recall data is housed in the same system as transactional and contract data, the system can provide the necessary tracking and analytics to help keep your suppliers compliant. Finally, providing transparency of this data to both your key stakeholders and the suppliers themselves, will ensure all parties are communicating and aware of recent issues and resolution.