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Manufacturing is a complex business. It has become a truly global operation for many organisations, and this has meant that supply chains have evolved, diversified and grown.
While this can mean better results for the customer, delivering more varied and sophisticated end products, it also means manufacturing businesses have, in some ways, become more vulnerable. With supplier consolidation, lean manufacturing, just-in-time inventory, changing political landscapes and expansion into emerging markets, manufacturers have much to consider.
So, what are the main risks when it comes to supply chains for manufacturers?
Here, we identify the top five to help you plan for key eventualities.
Logistical delays
The range of risks involved with the movement of raw materials, equipment, parts and finished goods is vast. It often includes several journeys. This has always been the case, but now the extra complications of Brexit and Covid-19 have made overseas logistics even more challenging. The recent Suez Canal blockage illustrated how easily things can go wrong and how one incident can impact so many. Around 12% of global trade1 is trafficked through the narrow waterway so that ships travelling between Europe and Asia don’t have to travel around Africa.
When a container ship ran aground in March this year, it took almost a week to free, causing huge disruption. Although the canal is now clear, it’s likely to continue to impact shipping costs to Europe. This is undoubtedly unwelcome news for manufacturers and insurers, discussions are in place2 to pay out millions in compensation to the canal operator. And while the ship itself was likely to be insured for around $200m3, there is still its contents to consider as well as the 300+ ships delayed by the blockage. While most logistical hurdles are not this huge, it shows how quickly a supply chain can be thrown into complete disarray.
Weather and natural disasters
Earthquakes and tsunamis at one end of the scale can have an immediate impact on whole areas, while sudden freezing and thawing can cause floods or power cuts on site. When considering any business continuity plan, ensure you factor in any suppliers based in countries likely to be affected by such weather disruptions. These events can’t often be predicted with any great accuracy, but are acknowledged as some of the key exposures in the global risks report, prepared by the World Economic Forum4.
Failure of service
There are several reasons for the failure of service from a supplier. The main one would be their going insolvent5. In March 2021 alone, 1562 UK companies became insolvent , leaving a trail of customers in their wake. However, the full effect of Covid-19 has yet to be realised, so this number could increase. Another reason for failure of service could be a product being recalled and therefore not being delivered, or issues identified from a health and safety check at a supplier’s premises, meaning changes need to be made. While these are temporary setbacks, they can still cause disruptions to your supply chain, delays for your customers, and more challenges for you.
Increase of procurement costs
This is seen by manufacturers across Europe as the impact of Brexit starts to become clear. Raw materials and components are becoming more expensive6 to transport. It means that many companies may look to new suppliers closer to home in order to avoid the increase in paperwork and the costs attached7. Even before Brexit, existing economic downturns or changes in global economic climates could impact on trade8. Fluctuations in costs can and do occur, which may impact your entire profit margin.
Cyber disruption
One of the fastest-growing risks impacting organisations worldwide, cyber has been a threat for some time, thanks to the rate of technological advancements.
Manufacturers are especially vulnerable to three main types of cyber threats; phishing attacks, ransomware attacks and internal breaches, mainly due to changes in supply chains and management9.
Back in 2019, Norsk Hydro, who are one of the world’s largest producers of light-weight metals, was the subject of a major cyber-attack. The attack forced the company to cease some of its production and switch to manual operation, leading to costs of $52 million10. Hackers are targeting all types of industries and organisations, meaning an entire supply chain is potentially vulnerable at any given time.
These events can’t always be predicted or prevented. However, the financial impact can be prepared for with the right risk management and insurance. If you’re looking for advice then why not view our Top five supply chain management tips for Manufacturers article.
Sources:
1. trtworld.com/magazine/what-the-closure-of-the-suez-canal-costs-global-trade-45321
2. cityam.com/ever-given-ship-faces-seizure-as-suez-canal-operators-demand-compensation
3. bloomberg.com/news/articles/2021-03-27/insurers-may-be-on-hook-for-millions-tied-to-suez-canal-crisis
4. marsh.com/us/insights/research/global-risks-report-2020.html
5. creditsafe.com/gb/en/blog/reports/insolvencies.html
6. ukandeu.ac.uk/the-new-costs-for-business-post-brexit
7. theguardian.com/business/2021/feb/11/half-of-uk-exporters-to-eu-are-having-brexit-difficulties-survey-finds
8. warwick.ac.uk/fac/soc/economics/staff/dnovy/tradeuncertainty.pdf
9. securitymagazine.com/articles/94030-why-cyber-criminals-target-manufacturers-and-what-to-do-about-it
10. cyberstartupobservatory.com/cyber-attacks-on-manufacturing-a-clear-and-present-danger/
