Product Recall Coverage for Metal Fabrication Contracts


Product recall coverage for metal fabrication companies is the first step in managing risk  when agreeing to a contract with an original equipment manufacturer (OEM) or value-added reseller (VAR). Each year, product recalls are costing companies upwards of $1 trillion, according to the Consumer Product Safety Commission. From cell phones to air bags and even household appliances, high profile product recalls have affected a number of different products and industries in recent years. Faulty products contribute to one of the most preventable issues in the United States. An issue that mostly goes unreported! When a product fails or does not perform as it is intended, the repercussions are felt across the entire supply chain. Product recalls damage brand reputation, increase expenses associated with conducting a recall, expose the company to third party liabilities, and put the company at risk for the loss of future earnings. In the event of a product recall, the brand, its manufacturers, and suppliers are all affected adversely.

Mitigating Risk Upstream in the Supply Chain
Risk mitigation is one of the most important aspects of the metal fabrication process and arguably the most undervalued. Metal fabrication jobs typically begin with shop drawings that include precise measurements before moving on to the fabrication stage and finally to the installation of the final project. Based on these engineering drawings, a fabrication shop will bid on a job, and if awarded the contract, will build the product. This can pose additional risk for shops further down the line in the fabrication process. Metal fabrication shops need to be proactive in protecting their business and its employees from financial and legal liability in the event of a claim relating to a product or part it produced. With the proper product recall coverage, a company can shield itself from any expenses associated with a product recall, along with any third party liability that stems from the use of a product that malfunctioned.

The True Cost of Product Recalls
Consumer products can be taken off of the shelf for health concerns, defective operation, or inaccurate marketing. Ultimately, when a consumer product is recalled, it is a decision made to protect the consumer from risking injury or jeopardizing their safety. Several high profile product recall cases have emerged in recent years that have cost reputable companies upwards of one billion dollars. Samsung paid the price for rushing a product to market after expanding its global supply with a more complicated product. Samsung’s fiasco with the Galaxy Note 7 was said to cost the company $5.3 billion in earnings, while doing irreparable damage to their reputation in the cell phone market. The company vows to avoid any future battery problems with a new process that includes more testing, inspections, and manufacturing quality assurances.

A number of high profile product recalls have heightened public awareness to the safety and security of the products that people use on a daily basis. Global supply chain risks and vulnerabilities present the need for product recall coverage for metal fabrication shops and other manufacturers. Product recall insurance is the most effective way to mitigate risk upon entering into a contract with an OEM or VAR to build a part or product.

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