Tuesday, August 31, 2010

Increasing Cracks in the “US Product Safety” Egg: Why it is Difficult to Monitor Ourselves

By Dr. Hari Bapuji.

The latest recall of over 500 million eggs in the US tops a list of large recalls this year. A few other recalls that come to mind quickly are: McDonald’ recall of 12 million Shrek themed glasses, recall of 3 million bottles of Tylenol by Johnson and Johnson, Maytag’s recall of 1.7 million dishwashers, and numerous recalls of cars by Toyota, Ford and others. Besides these, there are a number of other smaller recalls in recent weeks. What is common to all these recalls is that these products cut across the spectrum of product safety and include food, drug, auto and consumer products. More importantly, these product were all made in the US. This obviously raises the question of why? It is difficult to tell without studying this issue in-depth, but let me hazard a few guesses.

As manufacturing of a number of products shifted out of the country, it is possible that companies on this side of the world (e.g. North America) are losing significant types of expertise related to product design, development and manufacturing. This might be resulting in more faulty products coming out of the companies.

Since 2007, a number of recalls involved products made in China. As a result, the attention of all stakeholders (industry, government, regulators, consumers, and media) was focused on “import product safety.” While this was no doubt required given the rise in imports to the US, a predominant focus on what is happening in China might have given rise to some kind of complacency in the US. It was probably felt that problems will not arise (at least not to the same degree as those made in China or elsewhere) with products made in the US. When we expect problems, we are more careful. But, if we do not expect problems, we are less careful and slippages might occur.

Maytag's recalls don’t surprise me anymore but are a case in point. When a defect involved external suppliers, Maytag was quicker to issue a recall (likely because they had more systems to monitor external suppliers). But, when products were made by Maytag itself, the recalls came slow and after a number of incidents and injuries occured. We all know that companies need to set up systems to monitor their contractors' opportunistic behaviour. But, it is equally important to set up internal control systems.

If there are no control and inspection systems, we get to see the kind of violations reported in some of the recent recalls. The violations in the egg farms were far too many and were termed as stomach churning. Johnson and Johnson was once known as the gold standard for recall management because it managed its Tylenol recall well in the 80s. The recent violations in its factories were numerous. On top of it, Johnson and Johnson was accused of engaging a third-party to buy back its products from store shelves instead of announcing a recall. Early last year, Peanut Corporation of America shook the US and Canada with its vast recalls. Several violations were found in their factories too.

If the above logic is true (one hopes that it is not and that these recalls are only isolated cases), then recalls of products made in the US will only rise in the coming months and years. To stop that, it is important that all stakeholders of product safety look as much within the US as they do outside. Also, companies need to look within their boundaries as much as they do outside.

In sum, it appears that we need a clean-up, both literally and figuratively.


Anonymous said...

strategy ?

Hari Bapuji said...

Thanks for the question.

Strategic management broadly deals with issues that help firms to achieve superior performance. The strategy angle in this article relates to two important aspects: (i) The governance systems that a company needs to manage its business operations - it appears that some companies have focused more on governance of contractors and less on their own internal operations. (ii) Industry and institutional behaviour that affects a company's own business operations - it appears that stakeholders have focused more on country borders and less on company boundaries.

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