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Managing recalls in a consumer productsupply chain – root cause analysis andmeasures to mitigate risksSameer Kumar a & Stephanie Schmitz aa Opus College of Business, University of St. Thomas, Mail # TMH343, 1000 LaSalle Avenue, Minneapolis, MN 55403-2005, USA

Available online: 19 Nov 2010

To cite this article: Sameer Kumar & Stephanie Schmitz (2011): Managing recalls in a consumerproduct supply chain – root cause analysis and measures to mitigate risks, International Journal ofProduction Research, 49:1, 235-253

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International Journal of Production ResearchVol. 49, No. 1, 1 January 2011, 235–253

Managing recalls in a consumer product supply chain – root cause

analysis and measures to mitigate risks

Sameer Kumar* and Stephanie Schmitz

Opus College of Business, University of St. Thomas, Mail # TMH 343,1000 LaSalle Avenue, Minneapolis, MN 55403-2005, USA

(Final version received 25 May 2010)

The focus of this study is to analyse the management of recalls in a consumerproducts supply chain, as well as the reasons, costs, and measures to preventrecalls. A Six Sigma DMAIC methodology is used to understand the root causesand management of recalls and also analyse the costs in a consumer productssupply chain. There are many variables in a supply chain, so it is essential formanufacturers to have procedures in place to prevent failures that result in aproduct recall. It is important that companies have traceability capability orcontainment measures for parts, products and processes throughout a globalsupply chain in the event a quality or safety issue arises. Companies in theconsumer products industry need to consider not only the cost to their financialsin an event of a product recall, but also the loss in terms of goodwill andconsumer risk. It is clear from recent Toyota recall and others, companies need toseriously examine their strategic business objectives with their priorities in mind.Which is more critical, rapid business growth and profits or quality design of theirproducts that are less vulnerable to failures?

Keywords: supply chain management; quality management; EDI and trackingsystems; real time product data; RFID; effective manufacturing practices;product quality and reliability; competitive factors; product data management;continuous process monitoring

1. Introduction

Product recalls can present a major crisis for manufacturers, especially those involvingadverse media publicity, and a negative effect on the stock price for publicly heldcompanies (Chu et al. 2005). Further, it can result in permanent damage to the productbrand, reduced profits, and loss of reputation and goodwill with consumers (Choi andLin 2009). The entire global supply chain should have plans in place to ensure thatdefective products are quickly removed from the marketplace and distribution chain inorder to minimise risks. Product recalls interrupt the supply chain and affect players acrossthe entire manufacturing spectrum. Ensuring quality and product liability does not restsolely within manufacturing and operations. As Goodden (2008) notes, product liabilityprevention is multifaceted and spans many different functional roles. The example he givesis in reference to the recent massive toy recalls where poor supplier quality was firstblamed. However, the products had marginal designs from the start, and thus unaware of

*Corresponding author. Email: [email protected]

ISSN 0020–7543 print/ISSN 1366–588X online

� 2011 Taylor & Francis

DOI: 10.1080/00207543.2010.508952

http://www.informaworld.com

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the design issues, the quality department made sure the toys were built consistently perspecification which created a proliferation of consistently bad product. This led to massiverecalls. Goodden offers several components of product recall prevention as illustratedin Figure 1.

The purpose of this study is to show how a Six Sigma DMAIC quality managementapproach can be used to understand the root causes and management of consumerproduct recalls in a global supply chain for a manufacturer, to analyse cost implications,and identify measures to mitigate risks. Based on extensive professional literature reviewand widely publicised news reports on consumer product recalls, the authors weremotivated to examine the following research questions in this study:

. Why do recalls take place with consumer products?

. What measures can be taken in the supply chain to reduce risk to consumers?

. What is the true cost of consumer product recalls?

. What processes are in place to prevent product recalls from recurring?

Most reported product recalls take place with food and pharmaceuticals, making itmore difficult to find articles and data on recalls of general supply chain problems inconsumer products. Companies are disinclined to state why failures happen or how defectsoccurred. There is a tendency to keep this information under wraps.

The next section provides a literature review of related work on product recall andquality management in global supply chain. A Six Sigma DMAIC methodologicalframework is presented to study the management of product recalls in a global supplychain for a manufacturer. This paper ends with lessons learned, managerial implications,final conclusions and recommendations for possible future study.

2. Literature review

In today’s global market, the supply chain presents significant risk managementchallenges. Having an appropriate traceability and recall plan in place is critical tomanaging supply chain risks. Ability to track products through all stages of the supplychain has always been important for companies, but in the event of a product recall,

Figure 1. Concepts of prevention for recalls.

236 S. Kumar and S. Schmitz

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having an efficient system in place is critical. Traceability will help to build trust and the

establishment of long-term relationships among supply chain partners and consumers

(Alfaro and Rabade 2008). Providing information as to what, when, and where the

product is, within a required time frame, demonstrates how a manufacturer can respond

to a situation and protect themselves against litigation if they can show due diligence

to ensure the safety of their products and reduce the cost of a recall (Crichton 2007).Real-time product data is the best resource for dealing with a tainted product situation

(Casper 2007). Wang et al. (2007) propose a conceptual design of a distributed information

system for remote condition monitoring and fault diagnosis of industrial systems that

affect consumers. Such a network information system design can be utilised to track and

retrieve tainted products in the marketplace. In another research study by Li (2006), it is

demonstrated that assisted with advanced information technology, successful collabora-

tion among supply chain echelons does positively impact a firm’s market performance

provided effective communication in the process of decision making is promoted.Advances in track and trace technologies such as RFID is giving companies more

visibility to the supply chain and can be beneficial in a product recall (Philips 2007, Zang

and Fan 2007). New supply chain management initiatives such as e-commerce, electronic

marketplace, web service selection, interoperable electronic product catalogue, collabo-

rative planning, forecasting and replenishment, enterprise integration based X party

material flow, data mining, knowledge management, business intelligence and Q-learning

as a tool for calibrating agent-based supply network models and the SCOR model for the

alignment of business processes and information systems can help develop robust closed

loop supply chains for products (Beheshti et al. 2007, Guo 2007, Hou et al. 2007, Li 2007,

Li and Wang 2007, Wang and Archer 2007, Zhang and Bhattacharyya 2007, D’Mello and

Ananthanarayana 2009, Guo 2009, Millet et al. 2009). For product tracking, particularly

in the case of product recalls, the industrial network flow information integration model

proposed by Hsu and Wallace (2007) can facilitate in developing an effective closed loop

supply chain.Improved product and manufacturing process designs will minimise likelihood of

quality issues and product recalls. Li and Li (2000) point out manufacturers need

to incorporate an integrated manufacturing information systems approach to build

competitive manufacturing capabilities, achieve manufacturing excellence and sustain a

reasonable level of growth. Wang and Xu (2008) recount that manufacturers have felt the

increasing need of integrating manufacturing applications in order to accelerate product

development paces and improve design qualities. They focus on parameter mapping and

data transformation which is of pivotal importance to integrating engineering applica-

tions. Xu et al. (2008) propose an evolutionary approach to support dynamic enterprise

modelling for enterprise process co-operative scheduling and management. They also

discuss various scheduling strategies and process-driven scheduling mechanisms which

may be useful in designing a product recall process. Shu and Wang (2007) propose a

framework to define and represent product lifecycle data and to maintain data

interdependencies. Web-based integration is proposed to support interoperability of

distributed product data sources. Staley and Warfield (2007) suggest how manufacturers

can use a system similar to an enterprise-wide information system known as C3P used by

Ford which is applied to design, engineer and manufacture automobiles and further to

provide product information across and beyond the entire enterprise, extending to the

supplier and customer base.

International Journal of Production Research 237

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Companies should have testing procedures and inspection protocols in place for thematerial or sub-components being received from suppliers. Testing and inspection will helpdetect if the material is adversely affected and will help prevent its introduction into theconsumer product (Mitchell and Gruler 2008).

Effective manufacturing practices can have a significant influence on productionperformance. Li et al. (2008) uncovered companies with successful ERP implementationalready had a TQM focus, based on a study involving 154 manufacturing companies in theUS. Similarly, Zhou et al. (2008) inferred that the strategic business alignment indirectlyaffects enterprise information management to achieve improved business performancefrom a study of 226 manufacturing firms in the US. Karim et al. (2008) found that productquality and reliability are the main competitive factors for manufacturers and pricesurprisingly has become a relatively less important factor. Simultaneous pursuit ofadvanced quality practices can neutralise the potential negative impacts of manufacturingdifficulties and significantly improve product quality and manufacturing performance.Failure mode and effect analysis (FMEA) is shown to be an important tool for improvingproduct quality and on time delivery performance. FMEA practice driven by the intentionto improve customer satisfaction is more effective than that practised to fulfil customerrequirements. Maintaining a supplier rating system and product data management andregularly updating them with field failure and warranty data are important manufacturingpractices. Xu et al. (2005) used polychromatic sets approach in developing conceptualdesign of a variety of products including machine tools. They suggest this technique canalso be applied to design evaluation problems related to manufacturing systems includingprocess planning. Zhao and Li (2009) also used polychromatic sets to build an assemblyinformation model and apply this model for auto body assembly planning which facilitatesassembly sequence optimisation under robust and reliable conditions. Xu et al. (2007)presents a strong case for using a decision support system to facilitate quality productdesign and manufacturing processes as part of concurrent product development process.Li et al. (2005) conducted a large scale study that examined the effects of managementcontrol systems on product development and process decisions. They found that whenpressure for change is coming from the external environment, companies use strategiccontrol which emphasises R&D and new product development and aligns manufacturingstrategies with corporate objectives.

3. Analytical framework

The DMAIC approach is an acronym for a Six Sigma problem solving methodologywith similar traits to a plan-do-check-act approach using the stages of ‘Define, Measure,Analyse, Improve and Control’. The DMAIC model uses the theory that y¼ f(x), orthe output y is a function of all the inputs or x. By knowing and controlling x, variabilityin y is reduced. Controlling variation in the supply chain, whether common causeor special cause, is the key to consistent, defect-free products and processes deliveredto consumers.

Using the DMAIC quality management approach for the purpose of this study, the‘Define’ step will outline the current consumer product recall problem definition.The ‘Measure’ step will determine the current baseline and address what data is currentlycollected regarding recalls of consumer products. The ‘Analyse’ step will review anexample of how a current state can be scrutinised using a fault tree approach to get to root


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cause, and how to verify the cause-and-effect relationships, cost implications and gapelimination techniques. During the ‘Improve’ stage, recommendations will be made as toavoiding recalls in the future. And finally, during the ‘Control’ stage ideas on sustainingpositive results will be made.

3.1 Define phase

The first phase of the DMAIC process is to understand and document the project’sproblem definition, scope, goal, and expected benefits. The charter for this study is:

. Problem definition: Millions of consumer products being recalled each yearcosting companies millions and putting consumers at risk.

. Scope: Consumer products, non-food and non-pharmaceutical items, with specialinterest on products manufactured outside the United States.

. Goal: Illustrate how companies need to re-think supply chain controls andimplement processes that would result in fewer recalls and improved consumersafety.

. Financial benefit: An improved bottom line since recall is costly.

. Non-financial benefit: Improved company reputation and goodwill.

3.2 Measure phase

The US Consumer Product Safety Commission (CPSC) has jurisdiction over productssuch as toys, cribs, power tools, automotives and household chemicals. According toCPSC, there were 465 voluntary product recalls involving 229.6 million product units in2009, the largest number of recalls in the last 10 years. These recalls included over 320,000wooden cribs with slats and spindles that could break, resulting in an entrapment andstrangulation hazard to infants. Additionally, recalls of children’s toys or productscontaining lead and in violation of the lead paint requirements were high. Recent four yearstatistics on voluntary product recalls and number of product units involved are shown inTable 1 and illustrated in Figure 2.

The CPSC reports an annual average of 28,200 deaths and 33.6 million injuries relatedto (not necessarily caused by) products under its jurisdiction in recent years, costing theAmerican public over $800 billion each year. The average cost of a product recallis $540,000 according to a study by Washington State University (Levick StrategicCommunications 2006). Significant product recalls cost much more. For example, in 2007,

Table 1. Four-year statistics on voluntary product recalls andnumber of product units involved (Source: CPSC 2009).

YearNumber of voluntary

recallsProduct units recalled

(in millions)

2006 471 124.02007 472 110.02008 563 60.82009 465 229.6


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Mattel Inc. recalled 1.5 million toys due to excessive lead levels and saw its gross profitreduced by $71 million as a result. The costs included lost sales (53%), recall relatedexpenses (29%) and inventory (18%) (Mattel Annual Report 2008).

Recalls have several costs associated with them, both direct and indirect. Table 2 listsdirect and indirect cost drivers adapted from an article on the consequences of recalls(Gomer 2009).

In tough economic times it would be easy for companies to analyse the cost of goodssold and cut expenses wherever possible. However, ignoring the potential costs of a recallthat could be attributed to cutting corners would be detrimental to the long term success ofa business. Understanding what recalls have cost other companies and learning from theirmistakes is important in supply chain management. We provide a business case of aToyota recall to illustrate how the direct costs of recall can become sizable.

3.3 Toyota case

The relevancy of this study has come to the forefront in the wake of recent massive Toyotarecalls. A company whose reputation and brand image have been built around quality and

Figure 2. Voluntary product recalls and product units (in millions) recalled during the period 2006to 2009 (Source: CPSC 2009).

Table 2. Direct and indirect costs of recalls.

Direct costs of a recall Indirect costs of a recall

Communication costs Loss of market shareLoss of sales Subsequent loss of salesCost to maintain business interruption Negative impact to brand imageInventory losses Cost to rehabilitate imageCost of refund/compensation Cost to rehabilitate reputationLogistics costs Collapse of organisationFines/lawsuits Negative impact to morale


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dependability; a firm revered as the gold standard for Lean and Six Sigma practices nowfinds itself at the centre of the biggest product recall since the Firestone tyre fiasco in 2000.It started with a car crash in August 2009 in California that took the lives of an off-dutypolice officer and his family and has now led to the recall of almost 8 million vehicles and asuspension of sales (MacKenzie and Evans 2010). So, what went wrong for the auto giant?In Toyota’s case its just-in-time processes and its kaizen philosophy of continuousimprovements had hidden flaws. Aaron Bragman, Research Analyst at IHS Global Insightthought it was Toyota’s ambitious goal to capture 15% of the global market share that ledto a focus on growth at the expense of quality. It is reported that a drive for efficiency mayhave led Toyota to cut corners and they may have stretched their resources of engineering,marketing and manufacturing too thin (Haq 2010). In Toyota’s quest for efficiencyanother failure mode may have been in choosing to use common parts in several differentmodels proliferating the inventory so exposure to defects is widespread (Haq 2010).

A timeline of events published on motortrend.com shows Toyota began recallingvehicles in late November 2009 for an accelerator pedal issue. Since then, it’s been reportedthat nearly 4.3 million vehicles have been recalled for a risk that the accelerator pedalcould become trapped by the floor mat, according to the National Highway TrafficSafety Administration. In January 2010, another recall for 2.3 million vehicles in theUnited States due to the risk that the accelerator pedals might stick (MacKenzieand Evans 2010).

3.4 Cost of Toyota recall

It may take Toyota years to realise the full financial impact of the recalls since indirectcosts like loss of market share and negative impact to future sales are yet to be determined.Several online news journals have estimated that the price tag for the recalls of floor matentrapment and sticking accelerator pedals is upwards of $2 billion, including warrantyrepair costs and lost sales (Fisk 2010). In the following paragraphs, the direct costs(listed in Table 2) of Toyota’s recalls are quantified.

3.4.1 Communication costs

Toyota has launched a recall advertising campaign across radio, television, print andonline seeking consumers’ forgiveness and patience as the company works through thesafety issues. As a company whose reputation was built on quality and loyal customers,some think Toyota needs a large amount of their advertising budget dedicated to this issue.A review of the auto industry’s advertising spend from 2008 (excluding dealer advertising)shows Toyota spent just over one billion dollars in media (Ad Age 2009). A formerautomotive advertising and marketing executive, Peter DeLorenzo estimated thatToyota would have to spend up to 50% of its advertising budget – or almost half abilion dollars – ‘just to move the needle back in the right direction’ (Ad Age 2010).

3.4.2 Loss of sales

Toyota suspended sales of eight models including its top-selling Camry and Corolla on26 January 2010, saying the accelerator pedals could get stuck and cause runawayacceleration. The company estimates it will lose about $880 million in lost vehicle sales(Hirsch 2010).


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3.4.3 Cost to maintain business interruption

Toyota has made a commitment to get warranty repairs done quickly and has stated thatmany dealers will be open 24 hours a day, 7 days a week. For this study, it was assumedthat the roughly 1200 Toyota dealers across the United States would be compensated$75,000 by Toyota for their added staff and support, a cost of $90 million.

3.4.4 Inventory losses

For the purpose of this study, inventory loss was assumed to be the decreased value ofToyota’s inventory due to the drop in market value as consumers’ willingness to paydecreases. Varying news sources have estimated that due to the recall a Toyota’s value willdrop up to 6%. Assuming a normal distribution, the average value decrease used is 3.5%.If we assume 1200 North American dealers all have 250 vehicles in stock and 50% of thoseare affected by the recall, at an average value of $20,000 – then a 3.5% drop is $105million.

3.4.5 Cost of refund/compensation

Two major recalls are the focus of this study. Approximately 4.2 million vehicles are beingrecalled for the first, and 2.3 million for the latter. In the case of the floor mat entrapmentrecall, the Toyota website states that the shape of the accelerator pedal will be reconfiguredto address the risk of floor mat entrapment. For the Camry and Avalon models involved,the shape of the floor surface underneath will also be reconfigured to increase the spacebetween the accelerator pedal and the floor. New floor mats may also be installed. Partcost for this repair is assumed to be $125. For the accelerator or pedal recall, the frictionconcerns in the pedal design are being ‘fixed’ by adding a steel shim, roughly the size ofa postage stamp. Part cost for this repair is assumed to be $5.

The authors contacted several local Toyota dealers to collect repair cost information.The responses indicated the time ranged from 30minutes to one hour and standard servicefee was $120/hour. Based on that information an estimate of the repair cost to Toyota wascalculated in Table 3. The total warranty cost for both recalls is $1.1 billion dollars.

3.4.6 Logistic costs

This category encompasses costs like deploying human resources; ordering, manufacturingand overnight freight costs of replacement parts. It may also include costs to notifycustomers and to track which vehicles have been repaired. Logistics costs are difficult to

Table 3. Cost to repair Toyota vehicles.

Floor mat recall Accelerator recall Total

Number of cars 4,200,000 2,300,000 6,500,000Price of part $125 $5 $83Labour cost per hour $120 $120 $120Required hours 0.75 0.75 0.75Total cost (in millions) $903 $219 $1122


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estimate, so for the purpose of this study, they are assumed to be $45 million, or 50% ofthe cost to maintain business interruptions.

3.4.7 Fines/lawsuits

One of the largest costs of consumer goods recalls can be the fines and lawsuits filedagainst a company. It is inevitable Toyota will be faced with individual lawsuits based onthe reported accidents and deaths in which these accelerator pedal defects have allegedlyplayed a role. Putting a price tag on a life is difficult at best but usually reaches into themillions. In addition, the number of class action lawsuits against Toyota is mounting.As of February 2010, a reported 39 class action suits have been filed (Fisk 2010).

Based on an article in Business Week, class actions claiming product defects rarely goto trial in the US, usually settling for cash or coupons or some combination of both, courtrecords show. In 2007 Ford settled a class action suit for its Explorer tyre problem,offering $500 discounts to owners of the Explorer sport-utility vehicles (Fisk 2010). Forthis study, an analytical approach was used to estimate the costs Toyota may be faced withfor the class action suits, under the premise that Toyota would be required to pay lostsuggested market value to vehicle owners in a form of coupon payment.

The first step in the analysis was to collect the affected models of the two major recallsreferenced earlier from www.toyota.com/recall. Although models can be sold in yearsother than when they were manufactured it was assumed that a year’s sales roughlymatched the number of models affected. Sales data by year and by model were collectedfrom theautochannel.com. 2010 data was for the month of January only. For this analysis,‘certain models’ was interpreted at an 80% affected rate. Next, the value of the model andyear was researched from kellybluebook.com. A table was generated to calculate thesuggested market value of the cars affected (see Table 4). As in the cost of inventoryanalysis, it was assumed that a Toyota will lose 3.5% of its value due to the stigma of therecalls. The total reimbursement per owner is calculated by taking the lost suggested retailvalue and dividing it across the number of affected owners. Since some models overlapboth recalls, adding just the unique models, RAV4 and Sequoia, from the accelerationrecall to the floor mat recall, the estimated settlement is $601 per owner. This settlementmultiplied across 4.3 million vehicles creates a $2.6 billion price tag for Toyota.

Based on this study, Figure 3 gives a Pareto chart of the direct costs Toyota can expectfrom two major recalls.

3.5 Analyse phase

Product recalls can occur for a multitude of reasons and the majority of the time the recallis voluntarily initiated by the company. Most companies aim to find defects beforeshipment of the product to customers, but often it is the consumer feedback that informsthe company of the problem. Figure 4 illustrates several reasons why a recall might beinitiated. Methods like planned inspections, reliability or life testing, continuous processmonitoring with trend analysis and supplier feedback are common ways defects are found.Recalls are also initiated when enough common complaints from customers contact thecompany to take action.

Looking at the value chain map of a typical consumer products supply chain shown inFigure 5, one can see the challenges companies face to control quality while maintaininglow cost. In this example, the parent company is based in the US and the products are


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being manufactured in China with different raw materials (plastic, woods, textile, andmetal) coming from other countries in Southeast Asia. Manufacturing of thesecomponents usually requires manual assembly processes; therefore outsourcing to low-cost regions is a common strategy. While outsourcing typically lowers the direct costs forthe company, it creates a larger supply chain, thus more difficulty maintaining reliablerelationships and communication across participants, and country borders. Differences inlaws and regulations along with language barriers can jeopardise a company’s ability tomaintain quality control in a global supply chain.

Quality product supply chains are difficult to maintain with inadequate productspecifications, poor assumptions, and the pressure to maintain production and delivery

Table 4. Calculation of average reimbursement per owner for the two Toyota recalls.

2004 2005 2006 2007 2008 2009 2010 Total2005-2010 Avalon N/A 95318 88,938 72,945 42,790 26,935 944 327,870 KBB Sugg Retail value N/A 13,500$ 14,900$ 16,795$ 19,300$ 24,700$ 26,973$ 5,353,684,487$

2007-2010 Camry N/A N/A N/A 473,108 436,617 356,824 15,794 1,282,343 KBB Sugg Retail value N/A N/A N/A 14,715$ 16,250$ 18,085$ 19,923$ 20,824,636,372$

2009-2010 Corolla N/A N/A N/A N/A N/A 296,874 17,121 313,995 KBB Sugg Retail value N/A N/A N/A N/A N/A 13,830$ 16,421$ 4,386,911,361$

2008-2010 Highlander N/A N/A N/A N/A 104,661 83,118 4,478 192,257 KBB Sugg Retail value N/A N/A N/A N/A 27,230$ 28,059$ 31,335$ 5,322,445,122$

2009-2010 Matrix N/A N/A N/A N/A N/A Not Available Not Available

2004-2009 Prius 53,991 107,897 106,971 181,221 158,884 139,682 8,484 757,130 KBB Sugg Retail value 12,800$ 14,285$ 15,970$ 17,580$ 19,250$ 21,570$ 24,500$ 13,405,901,235$

2005-2010 Tacoma N/A 168,831 178,351 173,238 144,655 111,824 6,747 783,646 KBB Sugg Retail value N/A 10,860$ 11,580$ 12,965$ 14,695$ 16,704$ 17,545$ 10,256,829,346$

2007-2010 Tundra N/A N/A N/A 196,555 137,249 79,385 3,904 417,093 KBB Sugg Retail value N/A N/A N/A 17,700$ 19,630$ 22,830$ 23,841$ 8,078,656,184$

2009-2010 VENZA N/A N/A N/A N/A N/A 54,410 3,664 58,074 KBB Sugg Retail value N/A N/A N/A N/A N/A 29,100$ 27,907$ 1,685,582,248$

Floor Mat Recall Total Cars Affected 4,132,408 Total Value 69,314,646,355$

Lost Retail Value 2,416,770,670$ Reimbursment/owner 585$

2004 2005 2006 2007 2008 2009 2010 Total

2005-2010 Avalon N/A 95318 88,938 72,945 42,790 26,935 944 327870KBB Sugg Retail value N/A 13,500$ 14,900$ 16,795$ 19,300$ 24,700$ 26,973$ 5,353,684,487$

Certain 2007-2010 Camry N/A N/A N/A 378,486 349,294 285,459 12,635 1,025,874 KBB Sugg Retail value N/A N/A N/A 14,715$ 16,250$ 18,085$ 19,923$ 16,659,709,098$

Certain 2009-2010 Corolla N/A N/A N/A N/A N/A 237,499 13,697 251,196 KBB Sugg Retail value N/A N/A N/A N/A N/A 13,830$ 16,421$ 3,509,529,089$

Certain 2010 Highlander N/A N/A N/A N/A N/A N/A 3,582 3,582 KBB Sugg Retail value N/A N/A N/A N/A N/A N/A 31,335$ 112,254,504$

2009-2010 Matrix N/A N/A N/A N/A N/A Not Available Not Available 0

2007-2010 Tundra N/A N/A N/A 196,555 137,249 79,385 3,904 417,093 KBB Sugg Retail value N/A N/A N/A 17,700$ 19,630$ 22,830$ 23,841$ 8,078,656,184$

Certain 2009-2010 RAV4 N/A N/A N/A N/A N/A 119,206 6,315 125,522 KBB Sugg Retail value N/A N/A N/A N/A N/A 24,070$ 22,515$ 3,011,484,776$

2008-2010 Sequoia N/A N/A N/A N/A 30,693 16,387 644 47,724 KBB Sugg Retail value N/A N/A N/A N/A 38,195$ 42,535$ 39,716$ 1,894,917,284$

N/A = Not Affected by RecallAcceleration Recall Total Cars Affected 2,198,861

Total Value 38,620,235,421$ Lost Retail Value 2,317,214,125$

Reimbursment/owner 1,054$ Sources

Affected Models - www.toyota.com/recall Total Cars Affected 4305654Yearly Sales by Model - www.theautochannel.com/news/2010/02/02/464237.html Total Value 74,221,048,415$ Suggested Retail Value - www.kbb.com/ Lost Retail Value 2,587,840,555$

Reimbursment/owner 601$

Acceleration Recall

Floor Mat Recall

Non-overlap


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schedules at all costs. Potential for quality defects increases substantially for products thatare subject to demand peaks. This results in a situation in which suppliers must producea large amount of product that must be shipped in a relatively short amount of time. In theend, a quality assurance system may be so overloaded that it cannot check for defectsamong all of the units (Brandt 2008).

Once a company becomes aware of a problem, management must assess the risk;including the nature of the potential defects, the level of risk to the health and safety of the

Consumer products recall

Company initiated recall Government regulation

And / Or

Company finds defect

Protect goodwill

Consumer complaint

OutbreakAudit /

inspection finding

Planned inspection

Reliability / life testing

Production testing

Trend analysis

Supplier feedback

And / Or

Figure 4. Reasons for consumer products recall.

Figure 3. Pareto chart of direct costs of Toyota recalls.


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consumers and the potential of the total product population affected by the defects. Thefollowing fault tree (Figure 6) illustrates typical failure modes that may result in a recall.Examining these failure modes early in the design phase and during pre-production maydrive preventive action and countermeasures to reduce risk.

Exploring these failure modes a level deeper and continuing to ask the question ‘Why?’is essential to identifying and isolating the true root cause. Further analysis of likely failuremodes is necessary to establish the cause effect relationships. For multiple failure modeoccurrences, the product recalls should be evaluated in aggregate to determine what thereal causes of recalls are and then focus on those issues. Possible causes for different failuremodes can be found by establishing separate cause–effect relationships for each failuremode similar to the one shown in Figure 7 for contamination.

3.6 Improve phase

Six Sigma tools can help companies identify the source of a problem and more importantlyhelp identify sources of variation before it turns into a problem. Once a company identifiespotential failure points and sources of variation from the cause and effect diagram, afailure modes effect analysis (FMEA) can be performed to identify the highest priorityissues and assign actions. Prioritisation of where to take action and assign resources iscrucial for the toy industry where it is not cost effective to require 100% inspection at alllevels of the supply chain. Having a risk assessment done beforehand is proactive, andshould a recall occur the company is in a better position to react quickly and effectively,helping to minimise the negative reputation and financial impact (Wix and Mone 2007).Since the massive recalls of toys in 2007 for lead paint, several companies have madeimprovements to their processes. Mattel Inc. has taken action to audit and control sub-tiersuppliers and end relationships with those that were unable to control quality. The retailer

Figure 5. Global value chain for consumer products.


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modes

associatedwithconsumer

productsrecall.


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contamination.


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Toys _ Us has increased its quality assurance budget by 25%. McDonald’s, which usesChinese suppliers for its promotional toys, has developed a system to monitor paint all theway through the supply chain back to the paint suppliers. The company requires itsChinese toy makers to agree to use only those suppliers (Supply Chain Digest 2007).

3.7 Control phase

The control phase of Six Sigma is intended to create a plan that will ensure results will besustained and lessons learned will be integrated into other processes.

Due to cultural and legal disparities in a global supply chain, companies must alsoensure such business documentation and procedures are well understood and validated byall stakeholders prior to being adapted in a coordinated supply chain operation.

4. Lessons learned

It is important to ensure that manufacturers are in a position to implement correctivemeasures as quickly and effectively as possible. Before a safety issue arises, companiesshould plan for a global product recall as a contingency. A product recall campaigntypically is implemented quickly, and notification to the appropriate authorities is requiredwhen a significant safety issue becomes known (Wix and Mone 2007).

Companies need to have quick access to product information to have efficient recalls.Examples include full details of the affected product, number of products involved, dateswhen affected products were manufactured, distributed, or sold to customers, and adescription of the potential defect and possible injures that may be caused (Wix andMone 2007).

Speed is one of the keys to removing defective products effectively from themarketplace. The Toyota recall example amply demonstrates the implications of delayedcompany action. If a company delays or suggests a potential safety risk is isolated, it maybe in breach of its duty to notify, and could be fined or exposed to criminal sanctions (Wixand Mone 2007).

Companies need to understand the risk and be prepared to defend their decisionwhether or not to recall the product. The choice of communicating the product risk andthe method used to communicate to its customers depends on the type of product, volumeof products involved, location, and how the company sells the product to its endcustomers. In addition to selecting the most appropriate method of communicating withconsumers, the company must also decide on the method for actually recalling, retrieving,and replacing the products. Also, if a notification to a government agency is required, it isimportant to ensure the notification satisfies the appropriate legal requirements (Wix andMone 2007).

Companies need to adopt a proactive approach for preventing recalls. Proactiveactivities may be grouped into four basic types of learning – study, listen, test and track.These activities begin at product design and follow all the way through to customerfeedback (Smith et al. 1996, Bapuji and Beamish 2008).

Manufacturers may face a product recall at some point in time; therefore, ensuring aneffective and tested product recall plan is in place before a product recall takes place isessential. Also, implementing an efficient plan when a recall occurs can minimise the


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effects a product recall can have on a company’s profits, product’s brand name, and thecompany’s goodwill and reputation with its customers.

5. Managerial implications

Companies within the consumer products industry, participating in the global supplychain need to improve their product recall processes. This can be achieved through the useof technology which will track parts throughout the entire global supply chain and morediligence with the analysis of failure modes that result in a product recall. Using the SixSigma DMAIC approach to identify root causes of product failures and identify potentialimprovements that can be made, will ultimately reduce the number of recalls and the riskto consumers when a recall takes place.

Companies need to rethink if cost is their ultimate goal when manufacturing consumerproducts by considering the quality that is provided to their parts and products whenmanufactured in low cost regions and look beyond direct material and labour costs whenmaking outsourcing decisions. If goals compete, companies need to consider which is moreimportant; cost and rapid business growth or quality design of their products that are not(or at least less) susceptible to failures.

6. Conclusions

This study would be of interest to those within the consumer products industry. During thecourse of this study, cost implications of product recalls were analysed using the Toyotarecall example and examples of major failure points in a consumer product supply chainwere highlighted and broken down using fault tree, cause and effect diagram, and globalvalue chain map. The fault tree showed that there are many failure modes such ascontamination, mishandling and mislabelling, package defects, and defective componentsthat might result in product recalls. This study further broke down the failure modes tounderstand the reasons for failures. The cause and effect diagram allowed details ofpossible causes that would lead to a product recall due to contamination. The global valuechain map shows the complexity that takes place to produce consumer products.

This study also highlighted ways to mitigate consumer risk in a product recall.Traceability is essential for quick containment and to minimise financial exposure.Effective traceability through complex supply chains should include components andsubassemblies. Also, final products need to be traced to distributors and retailers so theaffected product can be removed from the shelves.

Overall, an effective supply chain uses traceability such as RFID to trace the rawmaterial to the final product, as well as incorporating real time data. An effective supplychain also expects high quality products from their suppliers and takes an active approachin audits and inspections. Lastly, they have systems in place to detect defective productand hopefully remove these products before they reach the consumer.

7. Recommendations for future work

It would be interesting to research the implications of the latest Toyota recall and how itmay influence the auto industry as a whole, to enable companies such as Toyota, Ford,


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General Motors and others to focus on the quality of product design instead of focusingon rapid growth in market share and profits.

In researching the topic of traceability within the consumer products supply chains, wefound that while some pilot programs exist in the use of RFID, it was difficult to find anydata regarding companies who have successfully implemented it. The cost of RFID tagsrepresents a significant limiting factor. In effect, only products with high added value arecurrently able to absorb the impact of RFID cost; consequently, the application ofRFID in the consumer products sector remains limited. Once RFID costs do reach areasonable level, product traceability using RFID will be very attractive. Another hurdleto consider in implementing RFID is the disputes that are likely to arise amongmanufacturers, logistics providers, distributors, and retailers over how to share the costs.Finally, the use of RFID will require a change in culture, process, and technology withinsupply chains.

Another area of future research is implementing the concept of effective, simplified andaccelerated communication where we identify the key stakeholders in the supply chain andexplicitly state their roles and responsibilities in the event of a recall. The consumerproducts industry, as a whole, has to recognise the importance of communication with thecreation of the Product Recall Web Portal. Its design is to foster a forum for informationsharing and tracking between producers and retailers in the event of a recall. The portalwill act as a notification mechanism to those participating members at a reasonable price.One must recognise this is not an absolute solution. The information that goes into thenotifications generated must be compiled in a timely manner in order to announce thepending recall. If the work behind the scenes is not done in a timely and efficient manner,the proposed portal will not be able to perform to its fullest potential.

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