We previously alerted our Supply Chain Matters readers to the stunning and somewhat embarrassing news that Samsung initiated on its own, a global recall of its newly announced Galaxy Note 7® smartphones due to reports of battery fires. It is now becoming much more evident that Samsung has created additional customer creditability and market perception challenges by attempting to manage its ongoing faulty battery issues on its own, without timely notification to product safety regulators. Yet, once again, there exists other multi-industry supply chain learning regarding needs to closely coordinate potential product or equipment safety issues with governmental regulatory agencies. Learning that other manufacturers and their respective suppliers have painfully encountered.  Recalled Samsung Galaxy Note 7

As of this week, Samsung has received 92 reports of the batteries overheating in the U.S., including 26 reports of burns and 55 reports of property damage, including fires in cars and a garage. And that is just for the U.S. The consumer electronics provider itself has been reluctant to share details relative to which supplier batteries are suspected (there are multiple battery suppliers) and why the uncontrollable thermal events are occurring. We came across a well written analysis commentary penned by Brian Morin on Seeking Alpha that points to overheating of a battery cell as a result of anode-to-cathode shorting caused by flawed separators as a potential cause. This analysis raises speculation that the problem may not just concern Samsung but other smartphone manufacturers as well, depending on the specific supplier involved. Again, Samsung has yet to identify the specific battery supplier involved in the recall, or whether the battery performance issue extends to other models.

Samsung launched the top-of-the line Galaxy Note 7 on August 17 in an effort to announce the new model prior to Apple’s expected iPhone 7 product launch. Approximately two weeks later, reports surfaced as to occurrences of faulty batteries that were exploding during the recharging process. Now as the hubris of Apple’s iPhone 7 permeates media channels, Samsung must deal with effects and visuals of battery fires among its smartphones.

Today, a published report by The Wall Street Journal, coupled with other business media reports all seem to conclude that Samsung has fumbled this recall because of attempts to singularly investigate and respond to the occurrences of faulty lithium-ion batteries that were causing unexpected explosions and fires. Global wide telecommunications carriers as the principle distributors of the Note 7 were caught in the middle of this situation, receiving conflicting information from the manufacturer and from consumers, while unable to act without a formal product recall notice.  It still remains unclear as to whether the problem can be corrected by a different battery, and when supplies of that different battery are made available. Meanwhile, individual consumers and business customers are reluctant to suspend using their new smartphones without having a replacement in-hand.

This week. The United States Consumer Product Safety Commission (CPSC) was obligated to take direct control of the ongoing issues with the occurrence of some overheating batteries by issuing a formal and immediate product recall notice. The notice urges consumers to “immediately stop using and power down the recalled Galaxy Note 7 devices purchased before September 15, 2016.”  They are further instructed “to contact the wireless carrier, retail outlet or Samsung.com where they purchased the device to receive free of charge a new smartphone with a different battery, a refund, or a new replacement device.” The latter statement is of course what will obviously lead to other confusion but the timing and the urgency left little choice.

According to U.S. law, the CPSC must be notified within 24 hours after a product safety risk has been identified.  The agency did not issue a statement until a week after Samsung’s initial announcement. The chairman of the CPSC indicated to the WSJ that for a company to go out on its own is not a recipe for a successful product recall, and in other media interviews, was somewhat blunter in his remarks.

This 24-hour notification was initiated as a result of the aftereffects of the prior sudden unattended vehicle acceleration and other perceived vehicle safety issues that impacted Toyota during the period from 2009-2010. Three years later, Toyota was still dealing with the after effects and U.S. legislators collectively called for stricter controls related to product safety. Today the automotive industry as a whole continues to deal with the challenges of faulty air bag inflators and other product safety related recalls that have now exceeded all previous records for total number of recalled automobiles.  The 24-hour threshold coupled with the potential for significant financial and litigation implications related to the mere potential of product safety concerns has led automotive producers to err on the side of caution and engage regulators much earlier in the process and issue a product recall. Currently it seems that not a week can go by without news of some major recall involving an automotive brand.

Samsung’s faulty battery issues further have some parallels to the 2013 challenges that impacted Boeing’s 787 Dreamliner aircraft as a result of unexplained lithium ion battery fires affecting the aircraft’s own power systems. A series of unexplained battery compartment fire incidents triggered a subsequent six-month grounding of all existing operational 787 aircraft while government safety agencies and Boeing searched for the cause.  The aircraft was later approved for service after Boeing reluctantly initiated a complete redesign of the battery housing unit containing lithium-ion batteries. The incident was very costly or Boeing from both a financial as well as brand reputation basis. Airline flyers began to question the overall safety of the 787.

Boeing’s initial reaction was to push-back on government regulators. An NTSB investigative report later concluded that the probable cause was an internal short circuit within a battery cell which led to a condition of thermal runway. The report also pointed to cell manufacturing defects and oversight of cell manufacturing processes involving the battery manufacturer. Today, there are little incidents of battery issues for operational 787’s but there will also be some concerns on the part of airline travelers as more and more lithium ion battery related fires come to the forefront.  U.S. and other airline safety regulators are considering outright bans on allowing bulk quantities of the batteries to fly in aircraft cargo compartments.

Hence the learning is again that product defects often involve the supply chain, not just your organization, but others as well.  In this specific Galaxy Note 7 issue, Samsung SDI is a supplier, along with other battery suppliers. The open question is whether Samsung was somehow trying to control the broader industry fallout of its battery manufacturing process. We will not likely know the answer to that until later in the investigative process.

Like others, Samsung will eventually garner important learning regarding the control or management of consumer focused product performance data and in trying to control the fallout.  On the one-hand, today’s social media based channels, whether good, or not so good, provide instantaneous feedback and perceptions related to consumer experiences and product performance.  A belief that the fallout can be controlled or buffered by internal control processes has passed. Like any other challenge involving major supply chain disruption or business continuity, there must always exist a set of response plans that include important decision criteria as to what needs to occur at any point. Lawyers, corporate risk and other senior managers will often have their own viewpoints but they must understand that this new world of always-on media and instantaneous information requires the most-timely responses, often with a supply chain purview.

The lesson for all is to look to multi-industry learning from past events and not let internal or external perceptual concerns cloud regulatory requirements, regardless of how your organization views such requirements. In the minds of consumers and customers, product and supply chain component safety trumps all other concerns.

Bob Ferrari

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