Cost of failure: Product recall; every manufacturer’s nightmare

More than just losses are on the line, reputations are at stake.

The worst nightmare for a manufacturer is a product recall. In the case of Toyota, the Japanese car manufacturer in the two years from 2009 to 2011, ended up recalling over nine million vehicles following consumer complaints of “unintended acceleration”.

Apple faced a similar problem with its iPhones which encountered reception issues when held in a particular way, causing reception to drop drastically. However, Apple manoeuvred its way out by giving away free plastic edge casings to mitigate the effect. It also issued some software updates to address the issue, though never fully resolving it.

The cost of failure is the highest once the goods have already been delivered. In the case of Toyota, the estimated losses are valued at $2 billion but the count doesn’t stop there. Toyota announced sizeable job cuts and suffered its biggest blow yet to its brand and goodwill.

The cost of a recall is high because by the time the product has already shipped, the only way to remedy the situation is by either bringing the product back into the company, or to the nearest service centres and providing them the means to remedy the issue. Either way, it’s a dreadful undertaking.

Had Toyota paid close attention to the consumer reports, it could have avoided a nine-million vehicle recall. Or had it done a phased roll-out, it could have naturally avoided the scale of the problem.

Starting March 25, Apple began shipping the iPad2 in 25 new countries with even more planned next month. The changes between the iPad2 and the original iPad boiled down to the addition of a low-quality camera for video conferencing and not much else, from a practical stand-point. However, in doing so, Apple also ensured two things. Firstly, there was little risk of major defects since the first generation iPad was a tried and tested product. Secondly, it wouldn’t leave the rest of the world feel as if they got second-helpings, since the iPad2 is marketed as a new product.

With a phased rollout, manufacturers also need to take care of making small iterations, rather than sweeping changes. Apple’s iPad2 purportedly uses the same camera as the first generation iPhones — another tried and tested component. Apple employees also get to participate in Beta programs where they can test out a new product to detect critical defects before the product goes global. Apple managed to dodge a bullet, owing to phased rollouts, iterative updates and a commendable critical-response.

No matter how thoroughly a product is tested, flaws are inevitable, and the only way to hedge against those flaws is to have a good strategy in place.

The writer is heading Online Strategy and Development at Express Media and can be contacted at [e-mail]

Published in The Express Tribune, March 28^th, 2011.