When you are faced with the potential of having your product contaminated in some form or another, and you need to institute a recall (either on instruction or voluntary) there are a number of costs associated with the process. But do you really understand the true extent of these costs?
The obvious comes to mind immediately - the cost of taking the product off the shelves to ensure that the public is not endangered; the cost of transporting the recalled product and warehousing in a safe place; and then the ultimate cost of having the product disposed of in a safe manner. You should be able to manage these costs, provided you deal quickly and efficiently and that you have a tried and tested recall plan in place.
But what about the hidden costs? It is these hidden costs, that determine whether your business is able to keep its doors open or if you have to close them. It is these costs that invariably end up having the biggest financial impact on the company. As the recent Listeriosis outbreak has shown, the reality of the “class action lawsuit” is now upon us and is here to stay. The costs associated with this can be devastating for a business that does not have the correct cover in place.
So are you covered? Do you have to right insurances in place so the costs can be paid? Do you even know how to assess if you have the correct cover in place?
Some of the key areas to look at are:
- Costs associated with loss or damage, including illness to a third party.
- The costs of legal defence
- Costs relating to closure of facilities resulting in business interruption and loss of profit
- Rehabilitation costs
- Consultancy costs related to crisis management
- Replacement costs
The recent events in the food industry have shown us that consumers have and will continue to become more aware of their legal rights, this will result in an increase in the number of recalls and potential financial losses incurred by manufacturers.
So, it is time to ask yourself how you are positioned to manage your hidden costs?
About the Author:
Gary Jackson is a CERTIFIED FINANCIAL PLANNER® professional.
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