Product Recall is a Prime Example of a Risk That Should be Managed Through a Risk Financing Facility

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Remember when you were a kid traveling by car with your family and the issue of "clean bathrooms" was of prime importance when looking for a place to stop?  Buc-ee's solved that problem.  If you are ever driving between Texas cities (which Texans do regularly), Buc-ee's has become the stopping place because of their attention to cleanliness.  Buc-ee's is also a great store.  They use the Costco HR strategy -- pay your people well, thoroughly develop their talent, and they will actually work more efficiently.  Trust me -- it pays off in spades.

I feel the personal need to begin this blog post with a thorough defense of the chain because Buc-ee's recently had to recall a product, which is never a good development.  However, it's part-and-parcel of running a retail store.  Let's look at the the potential costs associated with this event:

1. The labor cost of removing the product from the shelves
2. The shipping cost of moving damaged product from point A to point B.
3. The cost of moving replacement product from point B to point A
4. The labor cost of placing the product back on the shelves.
5. Lost income from a decline in sales of the replaced product.
6. Potential litigation costs associated with defending the company in the event the product causes harm
7. Rebuild the company's and the product's image.
8. Potentially changing the way the good is manufactured, or changing producers if there is a systemic problem with the old company.

This is a complicated risk.  Not only should a company develop a customized plan for dealing with it (because it's not a matter of if but when it will happen) but it should also develop a specialized plan to deal with it.  And that's where a customized risk financing facility comes into play.  It allows the company to have a good idea up front how to pay for this eventuality.