Any business is at risk of experiencing a product recall. No matter what products you sell or who you sell them to, various factors can cause a product recall to happen. Sometimes those factors are out of your control, such as weather conditions that unknowingly damage a product in transit. Other times, we make mistakes and must recall our products.
No matter the cause, you should financially plan for a product recall. Knowing how to make those plans is necessary since recalls are expensive.
Invest in Preventative Measures
The best way to plan for a product recall is to invest in preventative measures so you hopefully never experience one. Some of these investments are more expensive than others, but they are all worth the extra financial effort. For example, you should perform regular internal testing on your products to ensure they meet quality standards. While you will need to pay extra employees to perform these tests and testing may slow down your manufacturing, the investment is worth it if it catches a problem before a product recall can occur.
Buy Recall Insurance Before One Happens
Recall insurance won’t prevent a product recall from happening, but it can help protect your finances if one occurs. Most business insurance policies do not include recall insurance, so you should request this extra policy as soon as possible. A quick product recall guide for manufacturers reminds us that while this does cost money upfront, it saves money, in the long run, should a recall occur. Without recall insurance, you’ll have to absorb all the costs of a recall without assistance.
Conduct a Mock Recall
No plan is perfect. Conducting a mock recall to test both your financial plan and response plan is a great way to ensure you are prepared if a recall were to ever happen. Treat the mock recall as if it were real. Do not pause the test to make corrections or change procedures. Do everything in the mock recall as if it were real. Write down your observations so you know where your weak spots are, financially or elsewhere. Once you’ve evaluated the mock recall, strengthen these weak spots, and run another mock recall later to make sure you haven’t missed anything. Knowing how to financially plan for a product recall is an important step in protecting your business. While a recall may never happen, proper preparation is better than a hectic response.