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The Dangerous Costs of Product Recalls in the Medical Devices Industry

The medical devices industry is affected globally by product recalls. Reports by leading governing bodies, such as the FDA and MHRA, show that the number of recalls in medical devices has increased dramatically over the last decade. There are many reasons for this increase, from the growing globalisation of supply chain, to increases in software components leading to more design failures. Regardless of the causes, product recalls can be a dangerously costly in many ways and, with the rise in communication and social networking, are more visible today than ever before.

There are two types of product recall. The first is voluntary recall: A company discovers an issue with one of its products and recalls the product itself. The second is involuntary recall: This occurs when a regulator raises a concern, and the company is made to recall their product. Medical device recalls are occurring more and more and can be huge expense to the company largely because it is not planned. So what are the dangerous costs lurking behind product recalls? 

 

1) Short-term. The direct financial expenses a business can face during a product recalls.

  • Litigation costs- Defective products that are recalled due to threat on life usually face greater lawsuits, which result in mounting costs. More often than not this is the largest part of the financial cost of product recalls
  • Communication costs- When the need to recall a product is confirmed, a company must factor in the cost of setting up means of communicating to the public
  • Return and Reimbursement costs- Companies must consider the price of arranging reverse logistics, and also preparing collection points for the recalled products, as well as the cost of reimbursement
  • Disposal costs- Obviously, any recalled product needs to be disposed of effectively, costing the company time and money
  • Staffing and Administration costs- To tackle the various stages of the product recall process, various people are needed. From the lawyers, to the public relations handlers, to the admin staff, the cost of the extra help adds up very quickly.

2) Long-term. Indirect but dangerous costs of product recall.

  • Brand cost - With the developments in social networking, the damage done in regard to a company’s brand is more prominent than ever. Blogs and social media sites allow communication to spread at an alarming pace, bringing a variety of issues into the public domain. News of issues and hazardous products can appear throughout the internet world, with companies having no control over who posts about their products. This often leads to a voluntary recall. Social networking can do detrimental brand damage in an extremely fast period of time if the product is not recalled quickly enough.
  • Market cost- Product recall can often turn customers to competing companies, and this can result in a reduced market share. It can also put off potential future customers, and therefore prospective revenue.

Product recalls are not uncommon within the Life Science industry as a whole and medical devices in particular; the most prestigious companies in the industry can be affected, often with a larger impact due to the wide spread nature of their distribution and the quantity of products they produce.

The cost can often be great, regardless of company size, due to the fact that recalls are often unplanned. A recall can also have a longer term financial effect through indirect costs of business loss and tarnished brand recognition. It is important that companies are aware of the dangers and cost of product recall. In our next blog we will address how a company can do their best to avoid these dangers.


By Lucy Excell at 10 Feb 2016, 16:01 PM

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