Today’s global economy is more interconnected than ever before. That drives significant benefits for companies and industries operating worldwide. However, it also has significant new risks, necessitating effective risk mitigation strategies.
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. Risk remediation vs risk mitigation strategies are crucial in addressing these challenges.
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. With their extended supply chains and carefully calibrated internal operations, manufacturing businesses feel that risk especially acutely.
Continue reading to learn more about the top 10 potential risks the manufacturing industry faces.
What are manufacturing risks?
Manufacturing risks encompass uncertainties and potential disruptions that can impact various facets of a manufacturing operation. These types of risks are diverse and complex, making it essential for manufacturing companies to identify, assess, and mitigate them effectively. Here are some examples of manufacturing risks:
- Raw Material Shortages: Manufacturers heavily rely on a steady supply of raw materials. Any unexpected shortage can disrupt production schedules, increase costs, and affect product quality.
- Regulatory Changes: New regulations or compliance requirements can necessitate adjustments to production processes, safety protocols, and sometimes significant investments in compliance-related activities, prompting the need for robust risk mitigation strategies.
These are just a couple of examples that underscore the diversity of operational risks in the manufacturing industry. Identifying, assessing, and mitigating these risks is crucial for the resilience and sustainability of operational risk management.
What are the 3 pillars of operational risk?
Operational risk in manufacturing can be categorized into three pillars: people, processes, and systems.
- People: Employees play a pivotal role in operational risk. Training, competence, and adherence to safety protocols are essential to mitigate human-related risks.
- Processes: Effective manufacturing processes are crucial for risk reduction. Streamlining processes, quality control, and continuous improvement efforts can minimize operational disruptions.
- Systems: Technology and data management systems must be robust and secure. Regular maintenance, updates, and cybersecurity measures are essential to mitigate risks associated with technology.
Top 10 Manufacturing Risks
1. Cybersecurity risks
Cybersecurity plays a vital role in manufacturing as new technologies are deployed. The manufacturing industry 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.
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.
2. 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 valuable targets 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.
3. 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 started sanctions worldwide against selling many goods and services to Russia.
4. 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.
5. 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 the manufacture of end-products.
6. Product recalls
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 processes, distribution, and the business’ supply chain. They can also expose the organization to costly legal and reputational harm.
7. Third-Party Vendors
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 while a vendor works on the manufacturer’s behalf. So, a system of vendor risk management and security initiatives addressing cyber risk is crucial.
8. Property damage
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.
9. Environmental impact
Industrial activity affects the surrounding environment, and harm to the local climate can bring real trouble. Pollution, deforestation, industrial accidents, and other potential damage all need attention. These specific risks demand immediate attention to ensure both regulatory compliance and the preservation of the environment.
For instance, improperly handling organic waste or toxic chemicals can result in regulatory fines and civil lawsuits and harm a company’s reputation. Mitigating these specific risks is paramount for manufacturing businesses’ long-term sustainability and success.
10. Labor concerns
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 meet compliance obligations for workplace safety, organized labor, wage-and-hour violations, etc.
Importance of managing risks in manufacturing
Proactive risk management is essential for the manufacturing industry for several reasons:
- Enhanced Safety: Effective risk management reduces workplace accidents and ensures employee safety, promoting a positive workplace culture.
- Operational Efficiency: Mitigating risks leads to smoother operations, less downtime, and greater overall efficiency.
- Cost Savings: By identifying and addressing risks, manufacturing companies can avoid costly disruptions and recalls. Implementing a robust risk management process allows them to tackle potential issues proactively.
Risk Reduction in the Manufacturing Industry
A risk management plan can reduce the uncertainty around all those risks with planning, assessment, mitigation, and monitoring. Risk identification is the first step, followed by establishing a risk management framework. 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, and apply appropriate mitigation measures as part of your risk management process. Then, continuously monitor ongoing regulatory compliance with risk management protocols.
Manage risk with ZenRisk
ZenRisk 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. ZenRisk 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 ZenRisk way.