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Ideas for Leaders #285

Reasons for Product Recalls: Safety on the Line

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Key Concept

Product recall is an increasingly common problem for manufacturing industries. But its causes are rarely researched. Most studies concentrate on its effects. The  financial impact of withdrawing a product from sale has been examined in detail; the PR ‘fall-out’ much discussed. This Idea shifts the emphasis to the ‘plant-level drivers’ of recalls — and reveals the ‘systematic’ and operational reasons for quality-control failure and serious product flaws.

Idea Summary

The past 10 or so years have seen a significant rise in the incidence of product recalls. Multiple sectors and product categories, ranging from toys to automobiles and food to pharmaceuticals, have been involved — and, in some cases, the business and human costs have been immense. (Faults in Toyota cars in 2009 and 2010 led to loss of life — and to recalls that may have cost the company more than $1bn.)

Despite this, the problem remains under-researched. Most of the literature focuses on its effects — for example, the impact on a company’s share price and financial performance when a product has to be withdrawn — rather than its causes. As a result, understanding of prevention can be limited.

An empirical study of the American automobile industry sets out to fill the gap. Comparing production-line data with auto recall data, it examines the operational causes or ‘plant-level drivers’ of defects over a seven-year period.

The researchers look at the two main types of recalls in the car industry: manufacturing- and design-related recalls. (The former occur when a correctly designed part is not installed properly; the latter when an incorrectly designed part is installed properly, and the defect goes undetected.)

Their results point to ‘systematic reasons’ for recalls. The biggest is ‘over-utilisation’. Once a plant is running at more than 98 per cent capacity, and it starts to rely on overtime or on temporary staff to meet increased demand, it ceases to function effectively. Analysis by the researchers finds that every 5 per cent increase in utilisation leads to a 13.6 per cent rise in manufacturing recalls and a 9.8 rise in design-related recalls.

As production lines get busier, problems in the design and composition of components get harder to spot. Employees lack the time (and often the energy) for effective quality control — and, in the case of temporary workers, the knowledge and experience to prevent errors. Sometimes, faults may be purposefully ‘brushed over’ to meet production targets. The researchers cite a 1993 case study of a joint Toyota-GM plant in which the authors describe how workers force-fitted poorly designed connections between components to keep up with high-capacity mandates.

Another problem uncovered by the study is increased variety and increased complexity in the production process. A rise in the number of options and ‘add-ons’ can significantly increase the risks — particularly of design-related recalls. As the number of options grows, assembly and inspection processes become more time consuming, more complex and more error-prone.

In contrast, ‘factory focus’, the policy of restricting the number of products made at a single plant, dramatically reduces the chances of recall. The researchers found that moving from a multi-model plant to a single-model plant might lower the risks by up to 74 per cent as the complexity of processes and the pressure on individuals decrease.

Business Application

The research suggests it may be time for a review of contemporary manufacturing and production practices.

Managers are often mandated to increase revenue and market share by producing multiple products and end-product configurations — and to do so by using key and existing resources efficiently so that the company becomes or remains cost-competitive. But this dual demand can be almost impossible to meet without pushing the risks of recalls to unacceptable levels.

Choosing not to make new labour and capital investments when demand increases is, on the evidence of this study at least, false economy.

The managerial implications of the research include:

  • Keeping overtime and the use of ‘casuals’ to a minimum — fixed hours and full-time staff significantly reduce the risks.
  • Monitoring plant use carefully: extra capacity can be used to absorb increases in demand and increases in complexity.
  • Switching from ‘lean’ production to ‘factory focus’ — running multiple ‘dedicated’ plants to mitigate the negative effects of variety.

The case for action to prevent defects that put people at risk is both moral and pragmatic. While some companies survive recalls and suffer no lasting damage, others never recover. American food processer Topps filed for bankruptcy following the recall of 21.7 million frozen hamburgers in 2007. 

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Authors

Institutions

Source

Idea conceived

  • November 2013

Idea posted

  • December 2013

DOI number

10.13007/285

Subject

Real Time Analytics