Businesses with ambitious growth aspirations will typically need to ‘scale up’ to meet lofty targets. However, while it can be exciting as your business looks to scale operations and enter a period of growth, this phase isn’t without risk.
As operations expand and your business enters new markets, your risk profile will also simultaneously change. To help build resilience into growth periods and reduce vulnerability, it is essential that organisations consider product recall insurance.
Scaling up: what’s involved?
Scaling up will require a radical transformation of operations and strategy. Ostensibly, approaches to growing your business will be heavily tailored to your industry and current model. However, a majority of businesses will need to consider the following elements as they look to grow:
Production
Companies looking to ramp up output may need to alter business models and either bring production in-house, or out-source to different geographies.Facilities
To increase production, businesses may have to lease or purchase newer, larger facilities.Staffing
To build resilience into periods of transitional growth, business leaders need to ensure they have both the required quantity of employees and needed technical expertise.Customer base
Growth may hinge on either signing large retail partnerships, or expanding into new markets.
How periods of growth can invite risk
Businesses moving into mass manufacturing or new commercial contracts may begin to lose oversight and control of operations as production expands. To ensure growth is resilient – whether insourcing or outsourcing production – monitoring product quality and safety is crucial. Unlike well established brands, a large recall event for less robust businesses could more easily result in bankruptcy.
Business leaders must understand their product is only as good as their worst supplier. Before a potential incident with a supplier occurs, companies must have a clear understanding of where liability rests and if they have any leverage to recoup resulting losses.
If a company has to initiate and/or mishandles a product recall or withdrawal event, their brand reputation could suffer tremendous damage, whether it be through cancelled customer contracts or drops in consumer confidence. This could be significantly problematic during attempts to enact growth strategies.
Particularly if growth has been catalysed by large retail partnerships, increase in sales could be heavily concentrated within a small number of customers. If a client rejects an order or attempts to exit a purchase agreement, organisations could suffer a significant contraction in sales if they are overly reliant on the customer in question.
Product recall insurance: becoming recall ready
While all of these risks can’t be covered by insurance, a recall policy can issue valuable mitigation. Companies entering periods of intense change may have not previously considered – or have been able to afford – a comprehensive product recall insurance programme. Product recall policies cover products from arrival to insureds’ control, all the way to consumer level, and can protect against ‘withdrawals’ from the downstream supply chain too.
Key indemnity cover from product recall insurance includes:
First and third-party recall costs
Replacement costs
Business interruption and third-party financial loss
Consultancy costs
Brand rehabilitation
Benefits of a comprehensive product recall insurance programme
Companies with suitable coverage can avoid various repercussions. For example, businesses suffering an uninsured loss or a protracted claims experience can experience exceptionally long delays to restart normal operations.
Beyond financial recourse, insurance also provides improved risk management through third-party consultancy services that can help with business continuity and crisis management. Bursaries may also be available to reinvest back into risk mitigation, quality assurance, and supply chain mapping.
Furthermore, risk managers can leverage strong product recall insurance policies to secure new revenue sources – insurance adds a layer of protection that retailers want when looking to trade.
Recall readiness is key to maintaining shelf space and distributor trust. For more information, reach out to a member of our team.
Further insights are available via our Product Recall and Reputational Risk (opens a new window) page.
