Today’s global economy is more interconnected than ever before. That drives significant benefits for companies and industries operating worldwide. It also, however, drives significant new risks, too.
One industry that faces a multitude of risks is the manufacturing sector. Within this industry, numerous risks affect companies and their human, IT, and financial assets.
Advances in internet-based communications, wireless sensors, and data processing capacity have led to a huge increase in the complexity of supply chains. Because of the intricate nature of these networks, potential risk points are dispersed throughout the entire chain. That makes locating and quantifying those points challenging — and manufacturing businesses, with their long supply chains and carefully calibrated internal operations, feel that risk especially acutely.
Continue reading to learn more about the top 10 potential risks the manufacturing industry faces.
Top 10 Manufacturing Risks
Cybersecurity plays a vital role in the manufacturing sector as new technologies are deployed. The manufacturing industry as a whole needs to improve its cyber risk management and be more mindful of securing sensitive employee and customer data, IT assets that govern the supply chain, and other industry-related processes.
Since some data must be stored for years, access to documents and systems should be limited and carefully reviewed. In addition, there should be multiple layers of protection beyond passwords, such as two-factor authentication or single sign-on.
Cybersecurity vulnerabilities and data breaches are the most pressing threats affecting businesses today, since hackers will take advantage of any opportunity to leverage cyberattacks and disrupt operations, causing downtime.
Intellectual property protection
The manufacturing industry has moved away from traditional production, toward using new technologies to manage the configuration of physical assets provided by other suppliers. As a result, trade secrets and other intellectual property have become a valuable target for cybercriminals.
Therefore, establish cybersecurity and risk assessment protocols to maintain an effective strategy against potential theft of intellectual property, and to keep the company’s intellectual output secure.
Global impact and international operations
International trade agreements significantly affect industry and business continuity. As a result, it’s essential to comply with regulatory obligations, including export controls, since export control regulators can impose costly sanctions.
Export rules and legislation change often, so keep current with any change affecting your company’s operations. For example, the United Kingdom’s withdrawal from the European Union triggered new U.K. domestic laws affecting the manufacturing industry. Russia’s invasion of Ukraine in 2022 triggered sanctions worldwide against the sale of many goods and services into Russia.
Raw material prices
Volatility in global markets can have significant consequences for manufacturing organizations. From unexpected fluctuations in raw material prices to rising energy costs, such surprises can destabilize markets and supply chains, making it difficult for manufacturers to continue delivering positive financial results.
The Covid-19 pandemic was a painfully clear example of this. Shutdowns led to closed ports, shortages, disrupted transport, raw materials not being processed, and other disruptions — leading to rising commodity prices and higher production costs.
Supply chain interruption
Manufacturers that can’t meet delivery targets due to a supply chain interruption are at greater risk of losing millions of dollars in revenue and profits, threatening the business and its reputation.
To combat this threat, manufacturers should perform assessments of their supply chain risks to identify key suppliers and to determine how supply chain disruptions might affect manufacture of end-products.
Product recalls are when a manufacturer must take back already-sold products because the product has a defect that could cause harm or grievance to consumers. Recalls can disrupt production, manufacturing process, distribution, and even the business’ supply chain. They can also expose the organization to costly legal and reputational harm.
A company should therefore define processes for a product recall. Doing so can help execute the recall efficiently, with minimal harm to consumers and cost to the company.
A third-party vendor can expose manufacturers to numerous risks. For example, poor vendor practices can be a regulatory risk since the manufacturer is responsible for any misconduct or negligence that occurs while a vendor is working on the manufacturer’s behalf. So a system of vendor risk management and security initiatives addressing cyber risk is crucial.
Various physical hazards must be managed to reduce threats to the safety of personnel, property, or business operations. For example, a fire can be tremendously harmful if it damages specialized equipment that can’t be replaced quickly or cheaply. In a distribution center, auto or truck accidents can wreck the building, injure employees, and ruin products before shipment.
Industrial activity affects the surrounding environment, and harm to the local environment can bring real trouble. Pollution, deforestation, industrial accidents, and other potential damage all need attention. For example, improperly handling organic waste or toxic chemicals can result in regulatory fines, civil lawsuits, and reputation harm.
In addition, consumers are paying more attention to a company’s environmental footprint and want to see businesses take environmental stewardship seriously. So manufacturers must manage their environmental risks vigorously and perhaps even publish reports on their corporate sustainability efforts.
Forced labor and human trafficking can sneak into the far-flung corners of a global supply chain, and the consequences ricochet to the manufacturer selling goods to consumers. The result can be reputation harm, operational disruption as you cut ties with offending suppliers and struggle to find replacements, and the cost of dealing with regulatory enforcement.
Closer to home, workplace safety is a heavily regulated field. Businesses must assure they meet compliance obligations for workplace safety, organized labor, wage-and-hour violations, and so forth.
Risk Reduction in the Manufacturing Industry
A risk management plan can reduce the uncertainty around all those risks with planning, assessment, mitigation, and monitoring. Industrial control systems (ICS) connected with supervisory control and data acquisition (SCADA) systems provide firms with real-time monitoring and analysis.
The steps for SCADA risk management are the same as for any other risk. Catalog your assets, identify risks, analyze potential damage, mitigate the threat, and monitor ongoing regulatory compliance with risk management protocols.
ZenGRC is Your Secret Weapon for Risk Mitigation
RiskOptics ZenGRC is a governance, risk, and compliance platform that assists you with implementing, managing, and monitoring your risk management system and corrective actions. Analyzing risks and documenting risk mitigation methods for manufacturers can result in time-consuming, manual data entry.
To maintain a successful SCADA risk management program, you need a workflow tool that allows internal and external stakeholders to communicate and handle tasks. ZenGRC enables manufacturers to assign and prioritize tasks so everyone knows what to do and when. Keeping records and preparing for audits is automatic and effortless.
Schedule a demo to get started on the path to worry-free risk management the ZenGRC way.