Manufacturers must equate auto recalls to risk factors, liability and branding
Rox B, from Associated Content, reports “Honda recalls 646,000 cars worldwide, Honda said that this recall was to fix a defective master switch, which could cause water to enter the power window switch, cause a short-circuit and could ultimately cause fire.”
Dale Wickell, on About.com, reports “GM Recalling 824,000 cars, GM is recalling these cars to repair a lower pinion bearing condition in the power steering gear assembly. Of the total, about 750,000 of the vehicles are in the U.S. and approximately 55,000 are in Canada”.
Toyota is having similar problems, as Ryan Deval, on Associated content, reports in the article, “January 2010 Toyota recall includes 2.3 vehicles“. This newest Toyota recall is intended to cover gas pedal problems that that the company fears could lead to a safety hazard” If you recall, last year Toyota was blaming the problem on sticking floor mats.
Why are these companies not fixing these problems before they hit the consumers?
The truth is complicated, and relates to multiple, sometimes conflicting initiatives called profit, loss and liability. It also relates to how big companies are structured, and the fact that often times operations or production and aftermarket are managed separately.
What are the steps that a company goes through to determine a recall?
While not all companies are exactly alike, the following steps detail my general experience with how the recall process works, as it is related to the airline industry, and a company that is traded on the stock exchange.
1. The product is designed and proofed out with suppliers, and then production begins.
2. Occasionally changes are made on the operations floor to fix design problems, sometimes these changes don’t ever make it back to the blue prints.
3. Product goes into service, after going through testing. Blue prints are often used from production only to be found out later, they were never correct in the first place.
4. Testing anomalies are investigated and resolved, for the production line. Once a unit or design is cleared for production, there is a separate group of folks, often operating under a different business umbrella, called the aftermarket. Their job it is to support service, and in times when they find massive failures, it is up to them to work with the original equipment manufacturer (OEM) design team, to work out product fixes. Sometimes designs or parts of the design, are outsourced, and product liability must be shared. If there is a large risk, there is usually a cross functional team that supports the analysis and recommendations for fix.
5. There is a cost associated with success and with failure and normally production needs take precedence over aftermarket needs. Under normal circumstances, it is felt that the aftermarket can deal with design issues on their own so there typically is no funding to fix in service problems, unless there is considerable risk.
6. If there are safety issues, the information is gathered and analyzed by the after-market in a formalized process. They are required to come up with a solution, and a risk factor to provide the design engineers with a reason to redesign. Potential loss of life and potential product liability are factored into the total cost equation. If there is only a minor potential for loss of life, the manufacturer may choose to contact those consumers directly and work with them for a “special service” recall, or they may choose to duck under the radar screen and hope the public does not become aware of safety issues.
7. Sometimes a major recall is initiated by either a lawsuit or failure so catastrophic, that the company is forced to retrofit, or recall their products.
8. Before recalling, they have to analyze the market, to determine what level of support they are going to need from their suppliers.
9. Companies must project what this recall is going to cost them, and put that money in a specialized reserve account, dictated by laws regulated through Sarbanes Oxley. This means reserves to cover the cost of the retrofit must be in place in case the company goes out of business or is sold, in the interim.
10. Supply chains and vendors must be prepared for parts, service, and maintenance manuals, including testing capabilities, and training the workers for the proposed fix, before they can do the recall.
11. This entire process can take several years to get ready, depending upon design changes, testing failures, supply chain lead times, repair capabilities and willingness of public to cooperate.
12. Costs of the fix sometimes are shared by the OEM, the vendor and consumers, depending upon the root cause of the problem and the fix. In the airline industry, the FAA is involved in the US recalls, and EASA, in Europe, while in China, they have the CAAC. The US Government regulates the auto industry with regard to it’s safety, environment and advertising standards.
No company ever wants to do a product recall but when they do, there are steps they need to take to protect their brand name and reputation, as well as corporate liability. These steps include a formula that analyzes cost and risks throughout the recalling process. The risk factor impacts how aggressively, and what tactical plan a company takes, to perform a product recall.
To see general information about how a workflow system was developed for precisely for this process, see “US Government needs to adopt a workflow system”.