Recalls are expensive and can spell the end of a supplier. Can the right digital technology soften the impact and reduce costs of recalls?

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Automakers in the US spent $22.1 Billion to recall 53.1 Million vehicles in 2016, the year Takata had a faulty inflator in its airbags. This represented an increase of over 26% from 2015. Just the year before, General Motors recalled more cars in the US due to ignition and cabling issues than they had sold in 2013. That’s a staggering number.

Cars are no longer just a body, 4 wheels, brakes, drivetrain, and engine. As in-car tech has become a bigger focus for automakers, these modern components have been the subject of a growing amount of recalls in the past several years. According to Automotive News, “recalls of electronics and electrical systems have risen 30 percent each year since 2013, whereas for a period of years before that, this annual increase rate was about 5 percent.”

So why is this such a big deal? One word – Globalization. When something goes wrong, it is typically widespread across the globe, as the number of vehicles using similar systems has increased exponentially.

A recent study suggests that automakers and suppliers have cut as much as 50 percent of quality control spending in recent years, directly leading to the larger number of recalls.

A product recall can spell the demise of a company, especially in the food and pharmaceutical segment. This is an area of huge concern to both the regulators and manufacturers, as this can result in loss of life, and if not managed properly, can become widespread.

Fortunately, large automakers can weather the storm. However the vendor supplying to these automakers are normally insulated from the public, as the public only knows that Toyota had a problem, and not somebody up in the supply-chain.

The component supplier may have caused the incident leading to the recall, but it is the OEM that takes the public beating. In other words, the OEM gets blamed for the problem. General Motors, Toyota Motor Corp., and Chrysler, announced the recall of more than 300,000 vehicles due to faulty “electrical connectors of the diesel fuel heater, which may overheat, causing a leak” according to a report issued by the National Highway Traffic Safety Administration (NHTSA). Despite such a massive-scale recall, the name of the supplier was never publicized.

The supplier whose faulty component resulted in a product recall, faces huge financial penalties and may not be able to survive, as they can lose major contracts not only with the impacted OEMs, but also other customers.

How can we avoid costly product recalls? Are our ERP systems adequately allowing us to reduce recalls, and not simply manage the recall process after the damage is done? Systems should be designed to proactively prevent recalls in the first place. Here are 5 things we can do as a digital manufacturing enterprise to bring tech-tools to bear in our efforts to reduce the frequency recalls:

Design Process: Engineering design that allows stress testing. Simulation of all sorts of conditions are critical. Designs should also be able to be manufactured. We have found that having a product lifecycle management (PLM) system is critical for this phase.

Failure Analysis: Test, test and re-test. All test cases should be documented and root cause analysis performed. To assist with this, we developed a very robust vision inspection system to alleviate many issues in the quality assurance cycle.

Tracing the Supply Chain: A great product is only as good as its weakest component. It is critical to be able to trace every sub-component all the way to the finished product. A single OEM product can have components from dozens of suppliers, and thus an effective failure monitoring system must look deep into the supply-chain to discern its origin. We did not find a product in the market suitable for our trace-ability needs and ended up developing our own trace-ability solution called DACS TrackIt.

Collaboration tools are key to bring distributors, suppliers and OEMs together: A unified platform may allow all segments of the supply chain to work tightly together early in the product design life-cycle to avoid product recalls. Supplier portals can fulfill such a role.

Inspections: Manufacturers should regularly inspect their suppliers to ensure all their specifications are being met while complying with all regulations. Audit compliance is critical. Having the right tools and measuring this effectively is key. Sometimes, finished goods get damaged during shipment. For instance, in late 2014, Toyota announced the recall of 170,000 Camry sedans in the United States and Europe “over faulty ball joints that may have been damaged during shipment”, which could make drivers lose control of the vehicle. Our solution was a home-grown tool, CAMS that allowed us to track all audit and compliance items world-wide.

According to Organization Science, “Academics that analyzed the impact of a recall on a company’s reputation, found that these companies lost between 1.6 and 2.9% of the total market share. Our goal is to mitigate all risks with the right tools and to minimize recalls, but in the event a recall is inevitable, we should have a Crisis Response Team. The crisis response team should also be charged with closely monitoring the product through the design and production stages, while overseeing post-production activities to identify problems and deal with them promptly.

It is critical for teams in the engineering and crisis response team to have the right software tools at their disposal to reduce recalls, so in the event we do have a recall, we can minimize its impact by being able to trace and audit the lineage of all components. If a proper traceability solution is in place, the number of vehicles that must be recalled would be greatly reduced, as we would know exactly which vehicles were impacted by a sub-component, rather than recalling all the vehicles because we were unsure. In our experience having the right traceability software specifically integrated into your PLM and ERP systems can reduce the potential damage of the kiss of death – The Recall!

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