Globalisation has brought with it the opportunity to source products from even the remotest corners of the world. Production, once a small-scale community past time, now spans entire continents. As supply chains continue their geographical expansion, becoming an interdependent web of individual manufacturers and suppliers, so does the risk associated with the production stream.

For retailers, the globalisation of production means an increased level of complexity when ensuring products meet national and international regulations and standards.At a time when limited consumer spending power is at odds with shareholder pressure to report profits, retailers are turning to risk based approaches to lower the cost of compliance. But is this in turn increasing the likelihood of unsafe products being sold to consumers, resulting in higher numbers of product recalls and the costs that go with them? If so, can robust testing and inspection programmes deliver the compliant, quality products consumers expect?

The Real Cost Of Product Recall

Over recent years, there have been numerous well-documented recall events from automobiles to yoga pants, medicines to toys (not to mention a spate of widely publicised ‘food contamination’ scares) including:

  • 2015: automobile manufacturer ordered to pay two $35 million civil penalties for failing to report deaths and injuries
  • 2013: apparel manufacturer of ‘see through’ yoga pants suffered a $57- 67 million loss following recall
  • 2010: recall of 43 children’s medicines products by a consumer healthcare manufacturer resulted in an annual sales drop of $600 million
  • 2007: toy manufacturer recall of 20 million toys due to lead paint contamination, and small parts hazard, cost an estimated $24 million

The cost of noncompliance is compounded by the potential for litigation, civil and criminal penalties, and as mentioned above, product recalls. But these three factors only go someway to revealing the true cost of noncompliance. In a paper titled, ‘The Social Costs of Dangerous Products’, three widely sold ‘dangerous products’ were examined and estimated to have a combined total external cost of $4.7 billion – far in excess of any direct cost to the manufacturer or retailer.

Why third party testing and inspection matters?

Third party testing and inspection are the gatekeepers of safe products. In a recent joint report by the International Federation of Inspection Agencies (IFIA) and the International Confederation of Inspection and Certification Organisations (CEOC) titled, ‘Consumer Product Safety in Europe: results of the 2012-2014 market studies’, the testing of products on the open EU market (and US market for 2014) found in favour of third-party testing versus ‘self declaration of conformity’.

In ‘self declared’ compliance, 78% were shown to be noncompliant/faulty products, whereas when the product had been assessed by an accredited, independent third party, only 26% of products were noncompliant/faulty (the vast majority due to warnings and labelling issues).

When the entire data set is considered for 2012-2014, again third party testing passes with flying colours – only 1 test failure deemed ‘dangerous’ versus 38 non-third party tested products, or, 0.5% of third party tested products rated ‘dangerous’ versus 13% tested by nonthird parties/’self declared’.

Third party testing is often seen as an added cost – yet the reality maybe that the cost savings in reduced time to compliance, increased speed to market and lessened chance of recall far outweigh the expense (see pullout box: ‘REACHing Compliance More Cost Effectively’).

Areas to consider in relation to defining a robust testing plan include reasonable sample size, declaration of prior test reports, component retesting after failure and pre-production stage testing.

Delivering Quality First Time, Everytime

Quality assurance programmes (QAP) are one way to ensure no flaw ends up in a final product’s design, and that the production and delivery systems are functioning efficiently. Programmes, such as those offered by SGS, help manufacturers through the steps of product evaluation, factory assessment, product inspection, and shipment control – an effective method to identify potential production pitfalls, and realize faster time-to-market.

While QAPs are effective ways to improve product quality, Quality Improvement Programmes (QIP), another SGS service, utilise a thorough gap analysis method that applies practical tools, such as quality management systems (QMS), operations management, organisation audit, data analysis and process failure modes effect analysis (PFMEA) to identify the root causes of product flaws and defects and address them before it is too late.

Combining both QAP and QIP with our comprehensive Customer Quality Assurance Management (CQAM) programme is by far the best way to ensure all inspection steps are met and any chance of faulty product is minimised.

An ‘Unexpected’ Ending

As stakeholders, national and international regulators, and consumers continue to increase the demands and pressures on manufacturers and retailers – the one question to really consider is whether it is worth risking safety and quality in products, for a short-term return? Because long-term, without an effective third party testing and inspection programme, companies run the gauntlet of a single ‘unexpected’ risk becoming a reality – and when it does the social, monetary and reputational costs could prove too much for organisations to survive the storm that follows.

This article is part of an upcoming SGS white paper on ‘Retailer Issues’, should you wish to pre-register for a copy please send us a request here.

Case Study

REACHing Compliance More Cost Effectively

A number of retailers positioned as importers of products and suppliers of formulated products required to ensure they were in compliance with REACH regulations. SGS was employed to obtain BOS information and assess chemical substances in products and articles from numerous suppliers many of whom are located outside of the EU.

A tailor-made web based data management system was used to collect information enabling the customer’s registration and notification obligations to be evaluated. Product testing in independently accredited test laboratories enabled articles that were considered a high risk of containing SVHCs to be evaluated, allowing the customer to show a good level of due diligence.

SGS was able to reduce testing costs for the client by offering a package of testing that selectively identified SVHC`s most likely to be present and not unnecessarily testing SVHCs that had a low likelihood of being present. The customers, by using SGS’ services, were able to reduce the level of manpower that they were committing to REACH management whilst maintaining a high level of regulatory compliance.

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