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roduct recalls are increasing in size and number,
predominantly driven by the increasing complexity
of global supply chains and concentration of certain
components or ingredients on a smaller number of
suppliers, as well as tougher regulation. Global companies
now sell their products to millions of consumers. For example,
since launching the iPhone in 2007, Apple has sold over a
billion units. Meanwhile carmakers VW and Toyota produced
over 10 million vehicles apiece in 2016.
At the same time, many manufacturers are sourcing their
components, ingredients or raw materials from fewer suppliers,
as supply chains become leaner and more global. This has
seen huge increases in values at risk and the emergence of
a multiplier or ‘ripple eff ect’, where a single recall can impact
numerous manufacturers, brands and countries, causing
reputational damage and large fi nancial losses. This ‘ripple
eff ect’ has contributed to many large product recalls recently,
most notably in the food and automotive sectors.The extent of supply chains in the food sector was revealed by
the 2008 Peanut Corporation of America (PCA) recall – one of
the largest ever – which was sparked by a salmonella outbreak.
The recall was estimated to have cost the food industry some
$1bn after an industry-wide 24 percent reduction in peanut
sales. Some leading brands saw sales almost halve, even
though they were not implicated. The company had to fi le for
bankruptcy. In the automotive sector, large airbag and ignition
switch recalls have rippled through the supply chain, aff ecting
millions of units across multiple brands and countries.“Today the automotive supply chain is totally diff erent to 15
or 20 years ago. Consolidation in the automotive industry
has brought effi ciencies but it has also increased product
recall risk,” says Christof Bentele, head of Global Crisis
Management, AGCS. “In the automotive segment we see
an increasing number of recalls with higher units,” says
Carsten Krieglstein, regional head Liability Central & Eastern
Europe, AGCS. “This is driven by factors such as automotive
engineering becoming more complex, faster speed-to-market,
leaving less time for product testing, outsourcing of research
and development to fi rst and second tier suppliers, as well
as increasing cost pressures. Modular strategies of original
equipment manufacturers (OEM) means the number of recalled
units is likely to increase further. The technological shift in the
automotive industry towards electric and autonomous mobility
will create further recall risks.”
“A previously innocuous product can result in billions of
fi nancial losses for a sector without any recourse,” says John
Turner, director of Crisis Management at McLarens, a global
loss adjusting company. “Companies are usually confi dent in
their ability to manage their own risks but it’s a diff erent story
when it comes to suppliers. You just can’t manage a complex
global supply chain 24/7/365. That is a big driver for buying
protection such as product recall insurance.”Danger of Product
Recall ‘Ripple Effect’
Large product recalls, especially in the food and auto
industries, seem to be on the rise – and this could have
a catastrophic effect on those involvedWHAT’S THE BUZZ