The Risks that Manufacturing Firms are Facing and the Impact that Follows

Posted on: December 21, 2022
Author: Alex Toews

Bamboo Trees Close UpThe reach and criticality of global manufacturers impacts almost everyone. Manufacturers are responsible for sourcing and producing life-sustaining food, medicine, commodities, and goods that we rely on. They produce electronics and transportation that keep us connected and engaged. Their supply chains enable the world like the veins that carry our blood; but, because manufacturers touch nearly every facet of our daily lives, disruption to their operations can have an immediate and wide-reaching impact. A 2021 Gallup Poll noted that 6 in 10 Americans were not able to get a product due to shortages, and a similar percentage experienced delays in obtaining products.

We’ve been living in a compound crisis since the start of the pandemic – we have been experiencing global political instability, war, an increase in cyber and ransomware attacks, labor shortages, shortages of critical commodities, etc. Building resilience means looking to your North Star to anticipate, prevent, plan for, respond to, and learn from such unprecedented disruptions. And while all organizations have needed to adapt to become more resilient, manufacturers should be mindful of the following five areas of risk – while also considering the unique impact that they may have to their organization – when defining their resilience programs.

Cyber Disruption

Technology advances (such as smart factories and robotics), coupled with manufacturing’s critical role in the global value chain, makes them a favorite target for cyber criminals. Ransomware and other cyberattacks can result in significant monetary loss, supply chain disruption, or drastic consumer data exposure.

A prime example of a high-profile attack on infrastructure was demonstrated when Russian hackers shut down critical operations resulting in a gas shortage across the southeastern United States. This attack was devastating and was cited as a key driver in additional legislation protecting critical infrastructure from cyber threats. As technology evolves, manufacturers need to ensure that their cyber resilience programs are adapting, evolving, and maturing while their investment in cyber resilience follows suit.

Supply Chain Disruption

Because manufacturers operate in a global environment, this means that they are constantly moving commodities and products from one end of the globe to the other. Disruption at any one point in the supply chain can wreak havoc downstream and delay critical products from getting into the hands of consumers.

While the Evergreen ship ran aground in the Suez Canal, a year later her sister ship, the Ever Forward, ran aground in the United States. Additionally, operating in a global environment leaves manufacturers vulnerable to the results of geopolitical tensions. The war in Ukraine has caused significant issues in obtaining commodities like natural gas, wheat, and precious metals that are native to the region. Similarly, many organizations have operations in China and are thinking through next steps as tensions rise with the U.S. over trade. Moving operations onshore or to other locations is not as simple as packing a suitcase – it can take months, even years, of planning to move the intricate chains of operations without sustaining downstream impact.

Other risks that can impact supply chain include supplier disruption as a result of cyberattacks, climate incidents, or fraudulent business conduct. Manufacturers must identify their critical suppliers and define contingency plans to enable secondary or tertiary vendors when disruption occurs.

ESG Risks

The term “ESG” is everywhere – it’s short for Environment, Social, and Governance programs and refers to how organizations can make an impact on society by addressing risks that are specific to ESG. While manufacturers are not holistically subject to sustainable investment legislation, there is increased scrutiny from the SEC (Securities and Exchange Commission) and other regulatory bodies that ESG disclosures are accurate. While the immediate pressure is on reporting accuracy, the tailwinds will require manufacturing companies to adapt and make program improvements across the board.

Under the “E” umbrella, manufacturers are paying attention to how they can reduce their carbon footprint and better capture data from their value chain to demonstrate reduction. But they are also looking to alternate resources to avoid depleting natural resources and are getting better at managing their waste.

Under the “S” umbrella, manufacturers are taking steps to promote diversity and actively protect human rights throughout their supply chain via prevention of human trafficking/slavery and fostering safe working environments.

Under the “G” umbrella, manufacturers are working towards greater transparency in their decision-making, committing to ethical behavior, and putting the right risk and resilience protocols in place across the organization.

Labor Shortages

Labor shortages have compounded the disruption facing the manufacturing sector and related industries. While companies have made attempts to improve resiliency, these new plans cannot be executed without the personnel to support them.

The labor shortage is a result of the pandemic impacting the workforce (due to illness, death, and parents staying home to care for children), public perception that jobs are undesirable (low skill/low wage), and the great wave of retirement. Additionally, the labor shortage affects logistics; of note, trucking jobs have increased 30% from pre-pandemic levels, but there still remains a shortage of some 80,000 drivers nationwide. Manufacturing companies must continuously evaluate their compensation plans and their working culture to ensure that operations can continue.

Product Recall

No consumer wants to be notified that a product that they’ve purchased has been recalled. Many recalls are a result of the discovery of defects that could hinder performance, harm consumers, or cause legal issues. As a consumer, it can be alarming to read that a product that you’ve purchased can cause injury or death.

Recalls also have impacts on manufacturers: they can harm a company’s reputation, disrupt supply chains, and detrimentally impact their bottom line. Therefore, it is imperative that manufacturers build resilience into their product development and quality control processes to reduce the impact or likelihood that a recall will occur.

Build Resilience

Unlike financial services firms, manufacturers do not have a strict regulatory framework that defines the minimum viable standards of an operational resilience program. Therefore, they can be more creative in the design of the programs that support their core products and services that achieve the same outcome: to continue delivering their products to clients and consumers, no matter what.

If you want to learn more about how Fusion can help your organization build resilience in the face of disruption across unique manufacturing risks, contact your Account Manager or request a demo today.