Your Best Recall is the One You Never Have to Do

June 2014

Kelly KuchinskiIndustry Solutions Director,

Consumer Products & Chemical

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Product Recalls on the Rise

Recalls across all industries have increased since 2006 and half of these can be traced back to supplier and contract manufacturer issues

Recall Statistics:• Recalls can cost between $10M - $90M or more.

Removal and disposal costs make up 67% of costs.2

• Replacement delays can result in a 12% drop in sales, not including loss from brand switching.2

• A company’s stock price can drop up to 22% within 2 weeks after a recall.2

• The value of a brand can drop 24% or more due to a recall.3

52%

Recall

s

Due to vendor issues

1 Rapid Alert System for Food and Feed. RASFF. 20122 Recall Execution Effectiveness Report. Deloitte, GMA, FMI and GS1. May 20103 Interbrand 2012 Brand Valuation Estimates, Toyota recall

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The Impact of a RecallIndustry Example: Peanut Corporation of America

361 manufacturers used the raw

material in 3,913 products

Supplier distributed contaminated peanut products

HEALTH & SAFETY IMPACT700 illnesses 9 deathsLOST SALES$1Bn industry losses25% drop in peanut butter sales

SUPPLIERSupplier filed bankruptcyExecutives face federal criminal charges

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Why do Recalls Still Happen?

Companies are focused on reducing costs Multiple, disparate IT systems Quality processes still managed in spreadsheets or paper

records

Global Supplier and Contract Vendor

Network

of Quality Managers are using

paper-based

systemsto manage

quality1

Company and Worldwide Facilities

Disparate .IT Systems

80%

1 "Transforming Quality Management through Automation", Quality Digest. January 23, 2012

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The Cost of Poor QualityDeming’s 1-10-100 Rule

Identifying issues earlier in the supply chain reduces the impact on cost and brand reputation Pre-production issues only impact cost by 1X the cost of the suspect ingredient Post-production issues cost 10X the cost to resolve the problem Release into the supply chain can result in issue resolution by 100x to 1000X the

cost of raw materials

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Internal Risk Management Proactive Production Management

A cornerstone of many regulations in the Food & Beverage industry focus on Hazard Analysis Critical Control Points (HACCP) 1960s - NASA asked Pillsbury to design and manufacturer the first foods

for space flights Used in other industries outside Food & Beverage (i.e. Cosmetics and

Pharmaceuticals)

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Internal Risk ManagementHACCP Automation

Phase 1: Assignment Assign and track HACCP

Team members in TrackWise

Manage and record employee training in TrackWise in the event of a compliance audit

Phase 2: Identification Construct and record process

flow by product in TrackWise Identify critical control points

(CCPs) and minimum/maximum levels

Schedule HACCP audits to proactively manage process

Phase 3: Management Schedule internal audits to ensure

compliance and monitor hazards Reinforce SOPs and HACCP training TrackWise integrates HACCP and CAPA

processes Task assignments sent and managed in

TrackWise for faster resolution TrackWise provides one central

repository for exception and corrective action reporting

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External Risk ManagementKey Trends and Issues1

Outsourcing is one of the leading cost cutting trends in the consumer products industry

51% of respondents say that supply chain partners will characterize the future of innovation

50% of companies are working with more than 500 suppliers or manufacturers

50% of companies say they lack visibility beyond their Tier 1 partners Outsourcing has resulted in:• Poor communications • Inconsistent auditing practices• Lack of visibility into supplier quality processes • Operational inefficiencies and poor product quality

1 Global Manufacturing Outlook. KPMG, November 2012.

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External Risk ManagementSupplier Relationship Management

Companies are looking to change their supplier relationships from adversarial to more collaborative Adversarial relationships focus on price Collaborative supplier relationships are focused on share goals associated

with:o Mutual Successo Strategic Objectiveso Balanced supporto Dialogue on Ideas and Challenges

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External Risk ManagementCase Studies: Supplier Collaboration

In 1990’s - Chrysler introduced Supplier Cost Reduction Effort (SCORE) Fostered supplier relationships built on collaboration and trust Results:• Generated >$5 billion in annual savings • Reduced product development cycle by 2 years

Major equipment manufacturer in North America developed a collaborative relationship with it component suppliers in Europe

Identified $5 million cost reduction opportunities in the supplier relationship including:

Return/Rework/Scrap

1 – 2%

Warranty/Cost of Quality

4 – 6%

Supply Chain/ Logistics

2 – 4%

Source Consolidation

1 – 2%

Supplier Simplification

1 – 2%

NA Equipment Manufacturer

Extended Quality Enterprise

Trends Approvals Reports Status Audits

Mobile Devices

Mobile Employees

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Quality

R&D

Regulatory Affairs

Preclinical/ Clinical

Incidents Investigations

Audits

Commitments

Product Complaints

Supplier Defects

Events

Corrective Actions

Change Control

Non Conformances

Emerging Requirements & Capabilities

Regulatory Affairs

EHS

Commercial Manufacturing

Supplier & Contract Vendor

Network

Commitments Audit Observations Corrective Actions Incidents/ Events Product Complaints Certifications

External Quality Views

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External Risk ManagementBenefits of Supplier Visibility

TrackWise enables:

Information Sharing and Visibility

Transparency is key to reducing waste, rework and

recalls

Data Analytics

Identify issues and trends that

jeopardize KPIs

End-to-End Compliance

Ensure quality throughout the value chain for brand protection, consumer

safety and regulatory compliance

Supplier & Contract Vendor Network

Company & Global Facilities

Sparta Systems Enables Quality Management Across the Supply Chain

AirportMobility

Approve & close issues on the roadTrackWise EQMS

Streamlines quality processes to reduce costs and ensure compliance

Analytics Identify issues &

trends earlier

AEP Audits on the go

StratasVisibility across the value chain

To learn more about strategies to implement a successful enterprise quality management solution to address quality across the supply chain, check out these resources:

Whitepaper: From Typos to Trace Ingredients - The Need for Accurate Product Packaging and the Role of EQMS

Whitepaper: Protect Your Brand - Ensuring Food Safety and Compliance with a Quality Management System

eBook: Four Best Practices to Improve Quality in the Supply Chain

Resources

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Or visit us at www.spartasystems.com

Thank Youwww.spartasystems.com