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Product recalls to cost MNCs dear

August 17, 2007 14:01 IST
In 2006, Dell recalled 4.1 million notebook computer batteries made by Sony because of overheating and fire risks. It was the largest recall in the company's history.

Then, Apple recalled 1.8 million iBook and PowerBook laptop batteries that were also made by Sony.

A couple of days ago, Nokia issued a 'product advisory' (the company does not call it a recall) for the BL-5C battery manufactured by Matsushita Battery Industrial. On the first day of the opening of its centre (August 16) for advice on the faulty batteries, Nokia India answered 20,000 calls and received 1.45 lakh SMSes , according to Devinder Kishore, director, marketing, customer and marketing operations.

A product recall is a request to return to the maker, a batch or an entire production run of a product, usually over safety concerns.

Whatever the term one may use, replacing a product highlights one aspect of the supply chain called "reverse logistics", which simply means the product distribution process is traced backward from the consumer to the manufacturer.

The logistics and information systems have to be in place to facilitate an efficient product recall.

In Nokia's case, Kishore says: "Our networking logistics is good, as Nokia has a good penetration in India. However, we have tied up with several courier services so that customers get products in time. The maximum time taken for delivery will be 10 days."

In Mattel's case, China makes nearly 80 per cent of the toys that come into the US, and is a leading exporter of products from electronics to apparel, to auto parts. One will have to, therefore, monitor the complex supply chain that links them to low-cost production facilities in China.

The cost of reverse logistics itself equals about half of one per cent of the US gross domestic product. In the US alone, the cost is an annual $100 billion. Third party logistics providers (firms that provide outsourced or 'third party' logistics services to companies) see that up to 7 per cent of an enterprise's gross sales are captured by return costs.

Almost all reverse logistics contracts are customised. The 3PLs realise anywhere between 12-15 per cent of the profits on this business.

US-based Newgistics Inc, for instance, employs the Newgistics' intelligent returns management technology, used by leading retailers like Neiman Marcus, Aerosoles, J Crew and Road Runner Sports.

"With consumer safety and brand perception on the line, timely action and customer convenience are of the utmost importance," says Bill Razzouk, CEO of Newgistics.

Once a company has developed the product recall message in conjunction with the Consumer Products Safety Commission (CPSC), Newgistics works closely with the company to deliver customised recall information to impacted consumers via email or postcard communication.

In India, players like DHL India use 'reverse logistics' solutions for returns and parts management. AFL chief executive (Logistics), V V Rao, said Indian companies are increasingly looking at the reverse logistics business, though it isn't considered profitable.

Indian players are now setting up distribution centres and warehouses for this purpose. For instance, AFL, which handles transportation for Ericsson, is taking the help of its service centre.

Another technology that helps with traceability is radio frequency identification.

It allows the supply chain market to streamline its information and assist with product recall.

By capturing information that is instantly processed and stored, everything needed to locate and facilitate a product recall is at the company's fingertips.

(With inputs by Shivani Shinde and P R Sanjai)

Leslie D' Monte in Mumbai