How Finance Officers Minimize Losses During a Product Recall 

Recalls in Food and Beverage Industries  

The quality and safety of food products are the most significant factors for food and beverage manufacturing. Contaminated food or beverages can be a cause of severe illness and sometimes even death. Therefore, it is the responsibility of manufacturing organizations to ensure the quality of their products. Technically, the contamination of food products and beverages usually happens because of the presence of destructive microorganisms. Pathogens such as: 

• Salmonella 
• Norovirus 
• Listeria  
• Escherichia coli (E. Coli) 

are usually the main sources of food contamination. This results in a food recall. The food recall process involves retrieving and replacing defective food and beverage products from consumers. The consumers may include retail markets or everyday customers.  

If the manufacturer’s food products are somehow contaminated, it becomes their responsibility to fix their mistake. The manufacturers’ primary responsibility is to remove the recalled food from the market and alert the people in possession. 

Impacts of Food Recall on Food and Beverage Manufacturing Companies:  

A food recall has countless degrading impacts on the finances of a company. Large-scale manufacturers are not as greatly affected by regular food recalls as their smaller counterparts. The impacts of food recall for a small or medium–sized manufacturing company in terms of finances are as follows: 

• The cost to remove the defective product from the market 
• The additional cost of replacing the products 
• Refunds issued to discontented buyers 
• Capital for research and development of better production and storage techniques 

• Potential lawsuits that cause hefty legal fees and may even result in bankruptcy 
• The supplementary public relation and marketing costs to alert customers of the recall and re-establish brand credibility  
• Decreases in sales and potential loss of brand reputation 

How Finance Executives Should Handle Food Recalls to Minimize Losses: 

The Chief Financial Officer of a company is the head finance executive and is responsible for upholding its past, present, and future financial situation. A Finance Executive has multiple responsibilities and duties, which can include when and where to invest. He/She is also accountable for the financial reporting of an organization. 

A food recall is one of the most devastating times for a company, especially any small or mid–sized company. Finance Executives needs to take specific steps to ensure the company survives and thrives in the future. Specific measures must be quickly implemented to make sure the company doesn’t go into bankruptcy. 

Any responsible Finance Executive should take the following steps to save the company from extreme circumstances: 

• Pinpoint cost aspects immediately at the time of a Recall. Make a calculated assumption on how much it would cost the company. 
• Secondly, provide strategies to overcome the additional costs. 
• Use ERP technology that allows for the tracing of defective products that need to be removed. Therefore, the defective product can be located with ease and at minimal labor and reporting cost 

• Implement product traceability to alert affected consumers rapidly and reduce brand degradation. 
• The Finance Executive needs to check the cost per product, i.e., the shipping cost, the receiving cost, and the packaging cost. Moreover, every other direct or indirect cost should be calculated to give the CEO a number on which financial matters are taken forward. 
• Annual and logistical costs should be monitored to outline the scale of damage that will be done to the company. 

Providing a company with a plan in case of emergency will ensure the manufacturers’ survival and maintain the best relationship with all connected to the brand.  

Useful Links

To learn more about product recall management: https://softengine.com/resources/blog/coo-recall-management/ 

More about Quality Assurance & Quality Control, learn here: https://softengine.com/resources/blog/quality-assurance-vs-quality-control-in-manufacturing/