�ݺ�ߣ

Product recall riskCollin Shaw, Jonathan Ritchie,Phillip Coddington

TakeawaysWhat is Product Recall Risk?How can firms measure recall risk?When in the product lifecycle should firms hedge this risk?What strategies can firms take to hedge recall risk?

AgendaMethods for measuring product recall riskQuantitative strategiesQualitative strategiesRecommended risk mitigation strategiesProduct recall insuranceProduct recall effects on…Brand value and equity and consumer loyaltyStock PriceConclusions

BackgroundThe 1980’s Tylenol recall changed the game for recall risk.Toyota’s recent troubles have renewed attention on the risk.

Product Design RiskRisk is a givenRisk is measureable but manageableRisk can be hiddenRisk management requires collective understandingDisciplined execution enables risk mitigationFocused diversity is highly desirableSystemic risk is significantExperience enables economic risk managementToo little risk, just like too much requires correctionRisk mitigation is best addressed at project start

Quantitative recall measurementsCheck sheetsHistogramsScatter diagramsPareto diagramsFlow chartsCause-and-effect diagramsControl charts

Qualitative recall measurementsAffinity diagramTree diagramProcess decision program chart (PDPC)Matrix diagramInterrelationship diagraphPrioritization matricesActivity network diagrams

Deming Quality ModelConsistently improveAdopt new philosophyCease mass inspectionDon’t reward on just price aloneFind the problemsModern job trainingModern supervision, quality over quantityDrive out fearNo barriersEliminate gimmicksEliminate numerical quotasGive hourly workers ability to take prideVigorous education & trainingManagement must push all above points

Product recall insuranceExpense coveragePre-recall expensesIdentifying & isolating problem, public relations consultants, planning & managing recallRecall expensesTransportation, storage, staffing, quarantining of affected productData captureAccounting accurately for the directly attributable costs associated with the recallLoss of profitTime period for sales to re-stabilize at pre-recall levels

Product recall insurance -cont’dDirect vs. Indirect liabilityDirect:Recalls associated with own-productsIndirectRecalls for products where you are the supplier and the recall is as a result of your component failingCan include coverage to rehabilitate third-party brand

Product recall effect on brand & loyaltyDenying the defect has a strong negative effect on a manufacturer’s image;The impact on image is significant and positive when a product is recalled voluntarily;An even greater positive impact results when the manufacturer embarks on an improvement campaign;Both image and loyalty positively impact on consumer purchase intention towards a manufacturer with past or potential experience of a product crisis situation; andContrary to expectation, involuntary recall has no substantial effect on image.

Financial Value & RecallUnder results A the -0.59% abnormal returns for a proactive recall are statistically significant with a t-statistic of -2.31 whereas the passive abnormal return are not significant.When compared together using a two-sample test (test B) proactive recalls have significantly more negative abnormal returns than do passive recalls with a statistically significant t-statistic of -2.24.Investors may see proactive strategies product recall strategies different from consumers:Investors may see a proactive recall strategy as a signal that something serious is wrong, and then therefore drive down the stock priceConsumers as mentioned earlier may appreciate the forthrightness of a proactive product recall strategyAlso noted was that less reputable firms used more proactive strategies, and firms with strong brands used passive recall strategies

Toyota Stock Price ExampleToyota took a proactive recall strategyFrom a high of $90.42 to $71.78 during recall. Now $80.33

ConclusionsRecalls represent HUGE financial liabilitiesFirms can take steps to reduce recall risk before, during, and after productionHedging this risk is often expensive, but rarely as costly as the price of the recallIf a recall occurs, firm response should be enacted in coordination with pre-determined goals

�ݺ�ߣ

Product Recall Risk

Recommended

More Related Content

What's hot (20)

Viewers also liked (14)

Similar to Product Recall Risk (20)

Product Recall Risk