For this Forum, you need to read Chapters 5 & 6 in the Dunne, Lusch, & Carver textbook and review the Chapter 5 and Chapter 6 PowerPoint presentations in the Resource link of the classroom.
After reading this week’s material, and looking back at Chapters 5 & 6 in Dunne, Lusch, & Carver review this case study:
Vending-Machine Operator Suffers the Cost of a Product Recall
While going to college, you have been working for a local vending machine company. Your job, which entails about 20 hours a week, requires you replenish the snacks and cigarettes in 213 machines at 86 locations each week. These locations range from beauty and barber shops to small offices. The money was good, as you were paid a commission; on average, you earned over $200 a week.
Last Monday morning, just before you left for class, you received a phone call from your boss. You had to go to every one of your machines carrying crackers and snacks that used a peanut paste because they might have a potential salmonella contamination (68 of your 86 locations) and remove them. It seems that over the past two weeks, more than 600 possible cases of salmonella were reported in 44 states across the country, resulting in eight deaths. The Centers for Disease Control and Prevention associated the illnesses with a peanut paste made at a peanut-processing plant in Georgia. The paste was used in more than 1,900 different products, including some famous brand names such as Keebler, Little Debbie, and Austin Quality Food. However, no problems were reported in your trading area. Your company had been distributing some of the suspected products during the past month and your boss knew that several route people, such as yourself, had distributed the infected items.
You know the consequences of selling a product that can cause salmonella, an organism which can cause serious and sometimes fatal infections in young children, frail or elderly people, and others with weakened immune systems. You also know that even healthy individuals infected with salmonella can get quite ill. Thus, you skipped class on Monday and stopped by all your accounts and removed the snacks. While doing this, you made some quick calculations and assumed that since no one locally had been reported as sick, the infected snacks must still be in the machines or, if a peanut-based item had been sold, a healthy person ate it and wasn’t seriously affected.
Later that week, the wholesaler came by to replace the recalled products. Your boss handed him a bill to cover the cost of the recall. After all, the route employees hadn’t been able to handle any of the other tasks on Monday. They just took out the cracker and snack packages before anyone got sick. The wholesaler apologized but said this was a cost of doing business as a distributor or retailer and his company couldn’t pay. Besides, if they reimbursed you, every manufacturer would have to pay every retailer for every recall. After all, the costs of the nationwide recall were probably well beyond the manufacturer’s ability to pay. Your boss became upset and claimed that he was totally justified in recovering the costs associated with this recall. Pulling product from the machines, isolating it in the warehouse, and exchanging it costs time and money. And this didn’t count the missed sales that resulted from the time and attention the route paid to handling a recall and not refilling other fast-selling products.
In the end, the wholesaler agreed to pay for the cost of the products themselves but not for any others costs associated with the recall.
After reading this case study, answer the following questions in this Forum:
► Is the wholesaler responsible if the manufacturer is unable to pay for all the costs of a recall?
► If the manufacturer or wholesaler must pay for the legitimate costs of a recall, who would determine the legitimacy of each cost and see that it was not creating an opportunity for middlemen to make an extra profit?
► Would the results achieved in this case have been different if there was a real vendor-retailer partnership? How and why?
► If the manufacturer must pay for the recall, would this cause some manufacturers to be more careful so as to avoid recalls? Or would it cause them to hesitate longer before deciding that a recall is necessary?
Source: This case is based on ”Food Sellers Feel Effects of Peanut Recall,” Lubbock Avalanche-Journal, January 29, 2009: A1, A5; and discussions with several vending-machine operators.