Written on: July 1, 2024 by W. Stephen Tait
Hello everyone. In previous editions of Corrosion Corner, I’ve discussed the cost of in-market corrosion failures. These are package corrosion failures that occur with an existing or derivative commercial product.
In this issue’s column, I’m going to refine the prior discussions on in-market failures and add in-development failures from package corrosion observed during new/derivative product development.
The parameters for calculating failure-costs are summarized in Table 1.
These types of failures have costs that include internal budget costs, out-of-pocket costs, and loss of revenue when a fraction of a firm’s consumers/customers switch to a competitor’s brand when a failure occurs.
The numbers in Table 1 are from discussions with multiple attorneys, our current research on package-failure cost and experience. The actual numbers for each company could be different from those used here.
Table 2 lists the typical number of full-time employees (FTE) on a team investigating both in-development and in-market package failures. The last row of Table 2 summarizes all the yearly FTE costs for in-development and in-market failures.
These examples of calculations for both types of failure costs assume:
• Annual expected sales of $15 million
• A one-year manufacturing delay
• A 20% brand-loyalty revenue loss for five years for an in-market failure with personal injury litigation
• A 50% brand-loyalty revenue loss for five years for in-market failure with wrongful death litigation
Let’s begin with in-development failures caused by package corrosion that occurs during development of a new or a derivative product.
Solving In-development failures for new and derivative products typically involve the FTE personnel listed in the first three rows of Table 2. In-development failure costs are typically resolved within 1–2 years; manufacturing begins shortly thereafter. The costs for 1–2 years are:
• $15,573,948 for a 1-year resolution
• $31,147,896 for a 2-year resolution
In-market failures of commercial products are significantly more costly than in-development failures. Indeed, during my more than five decades of corrosion research and experience, I’ve witnessed examples where a single in-market failure negated decades of profits for a given brand.
In-market failures are more complex, involve more people and have escalating costs as the consequences of the failure become more severe, such as litigation, product recall and revenue loss from reduced brand loyalty.
Table 3 summarizes several scenarios for in-market failure costs that are resolved after one year, using the same assumptions as those for the in-development cost examples. Each row in Table 3 provides a different failure-cost scenario with the estimated cost for each scenario in the last column of each row.
Table 3 illustrates that, as the consequences of a failure become more severe, the costs increase significantly from only paused manufacturing to scenarios involving an in-pantry recall, lost brand-loyalty revenue and litigation. Indeed, a failure resulting in only lost revenue from a manufacturing pause ($15,940,637) is significantly less expensive than a failure where revenue is lost from all consequences of the most expensive litigation ($183,440,637).
How do you minimize the probability of financial losses from in-development and in-market failures? A comprehensive, corrosion control program is needed to minimize the occurrence of both in-development and in-market failures.
A corrosion control program includes corrosion testing and is typically inside a company’s R&D program. The costs of an internal corrosion control program with 2–4 FTE would range from approximately $573,948 to $1,147,896 per year.
Thus, the cost for a corrosion control program is significantly less than the costs for both in-development failures and in-market failures, particularly when an in-market failure involves product recall, litigation and loss of brand loyalty!
Therefore, why doesn’t/wouldn’t your company have a comprehensive internal corrosion control program?
Thanks for your interest and I’ll see you in August. Contact me at 608-831-2076; rustdr@pairodocspro.com or from our two websites: aristartec.com and pairodocspro.com. SPRAY
