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Are you prepared for a food recall?

Baker Tilly provides an experienced team of global forensic and litigation professionals steeped in food and beverage recall damages cases. We have the experience to assist where food and beverage companies have suffered damages from unforeseen events. Such events can quickly have a significant impact on companies and their supply chain. Our Global Forensics and Litigation Services group assists as companies deal with direct damages, consequential loss and third party damages.

We have a wealth of knowledge we can turn to when assisting clients, whether that be a food or beverage company dealing with recall related financial damages, insurance companies or risk professionals in the food and beverage sector. Our extensive knowledge allows us to provide expertise when a food recall and the resulting financial damage occurs.

Business income loss frequently results from a product recall event, along with other financial impact when a business’s normal operations are interrupted. The resulting consequential losses following an unforeseen event can have a major impact on the balance sheet and cash flow. Third party damages may also exist, in the form of damages suffered by customers or others in the supply chain. Our role is to understand and evaluate the damages resulting from the contamination or recall event.

For a food or beverage processor or supplier to be able to deal with a product recall, they must be prepared for the possibility of a contamination or recall event. Experience has shown us, the more prepared the company is in anticipating the possibility of a product recall, the better the outcome. Preparation enables companies to minimize the impact if they are able to respond quickly, deal with the issues and get control of the recall situation as quickly as possible. Their response can minimize the damage caused and the overall impact on business continuity. Preparation is key.

Often times, we see companies with a confident attitude towards food safety. They think they will never be affected by a product recall.  They believe their operating systems and processes are adequate and they are well prepared to minimize the likelihood of a contamination or recall event. Yet our experience has shown significant recalls impact brand names and companies of all sizes, and many with sophisticated operations. It can and does happen.

What Baker Tilly does for our clients is evaluate the financial impact. Such financial impact will take many forms, including loss of inventory, recall expense, brand rehabilitation, customer claims, and as mentioned third party damages. The most significant elements of such damages claims is usually business income loss and third party damages (including customer credits). Our work is to focus on the financial information needed to understand and document the loss. From those analyses, we will be able to construct and develop a financial model to identify the financial damages.

Baker Tilly has been involved in product recall from many perspectives of the supply chain. Our overall objectives are to gain an understanding of the business before and after the event, and establish a financial model needed to evaluate the damages.

When reacting to product recall, one of the key elements in understanding the business impact will be to establish and demonstrate a strong position on traceability. In other words, if it is a contamination issue, the company will need to establish which products have been contaminated, and where they are in the supply chain. They can then take appropriate steps to remove the products from the supply chain. Which products are in their own care and control, which are in the supply chain, and which are with customers? Are they in the market place? Are they potentially in consumer’s cupboards or refrigerators? Traceability is the number one element of dealing with the product recall. Identifying and ring fencing the impacted product is key.

Additionally, companies should be thinking more about the potential financial impact of a recall event. Given the business disruption, and need to respond, a recall can create extreme cash flow pressure. Insurance products have been developed to ease this pressure. Small- and medium-sized companies may more quickly feel the cash pressure associated with a recall. Sales will cease or significantly decrease, and payments from customers may slow. Customer credits will be demanded, and all these issues will mount to result in cash flow pressure – costs being incurred, and revenue generation slowing. If companies have not thought about this cash crunch, it can certainly be a problem.

Our global reach at Baker Tilly is advantageous when our clients face recall issues. Our offices and the locations around the world allow our professionals to respond and help clients with global supply chains. For many companies, those supply chains now span the globe. Our global footprint allows us to respond to both domestic and large-scale global recalls. With a network of professionals across the globe who are focused on product contamination and product recall, with have the capability to assist in product recall damages measurement wherever it may occur.

As mentioned, preparation for such events is key. If your company or client needs assistance preparing for the potential financial impacts of a product recall, we can assist in understanding what the damages may look like. Understanding the potential damages will allow for the right risk mitigation strategy to be deployed.

If you want to prepare now, for tomorrow, please contact us and we will be happy to discuss with you.

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