Before the pandemic sent shockwaves across the globe, the United States employed approximately 12.8 million people in the manufacturing industry. In the third quarter of 2018, that same industry contributed over $2 trillion to the country’s gross domestic product or GDP. Suffice it to say that the United States stays busy manufacturing.
Even the busiest sectors of an economy can feel the strain of a pandemic, and manufacturing has been no exception. 1.3 million manufacturing jobs were lost between March and April 2020 as lockdowns and supply chain shortages went into effect. While the industry has been slowly climbing out of that April low, the initial shock and pain manufacturers and their employees felt was palpable, and it continues to this day.
The pandemic revealed several weaknesses in the manufacturing industry. Anyone who tried to buy disinfecting products or toilet paper in March of 2020 knows that well enough, but there were other shortages less publicly available. There continues to be others. To this day, car and video game console manufacturers alike can’t seem to get their hands on enough semiconductors to meet demand.
Given these issues, we thought it would be helpful to ask, “What are the biggest risks to manufacturers in 2021?” More importantly than just describing them, we wanted to compile a list of ways to alleviate them since, as we’ve seen, there is more at stake than just toilet paper shortages when things go wrong.
The Top Risks to Manufacturing in 2021
Some of these risks might not sound like risks, but they are. Emerging technologies present huge opportunities for increased efficiency and production capabilities, but they come with their own dangers, which we will get into. Before that, we will lay out the threats in an organized list (borrowed from Liberty Mutual Insurance).
In no particular order, the top risks facing manufacturers are:
- Product Recalls
- Direct-to-Consumer (DTC) Models
- The Skills Gap
- Intellectual Property (IP) Protection
- Global Supply Chains
- Smart Facilities
- Collaborative Robots
- 3D Printing
How are some of these items threats? You might reasonably assume that 3D printing is a technology that manufacturers will take full advantage of to make some cool products quickly, and you’d be right. Used well, 3D printing can boost production and reduce costs. However, the technology is also available to criminals; they can use it to create and sell low quality counterfeits that can be mistaken as legitimate manufacturer products, causing legal headaches for the creators. Technology is often a double-edged sword in this way.
Without further ado, let us break down what we see at the top risks manufacturers are facing and what can be done about them.
This emerging risk is one of our priorities for manufacturing companies for the simple fact that it costs so much money. Take food-related recalls, for instance. According to Liberty Mutual, they result in $10 billion in associated costs each year. For one thing, there’s the matter of logistics. Processing returns, replacements, and repairs is costly and time-consuming. There are also legal consequences to consider. According to All Law, “product liability” is an umbrella term that indicates a person was harmed by the manufacturer of a product. A plaintiff can have a case if:
- The product had a defect that made it unreasonably dangerous
- The product was manufactured in a way that deviated from the intended design and brought increased risk to consumers, or
- The manufacturer failed to adequately warn the user of risks inherent to the use of the product.
On top of loss of revenue and legal fees, there is more that can go wrong when product recalls happen. Manufacturing companies can also be forced to pay large regulatory fines. If the recalls are wide-reaching and public, they can also cause reputation damage, leading to a lasting mistrust of the product and a preference for a competitor’s product that is perceived as safer or high quality.
The thing about product recalls is that they happen—they just do. You can spend all of your resources in quality assurance, but mistakes will still squeak through even if they are very rare. The Consumer Product Safety Commission (CPSC) gives their advance on dealing effectively with these occurrences.
“One of the best ways to ensure that a product recall is effective is to have a recall plan already in place and to execute the plan as quickly as possible. A well-thought out, well-executed recall plan can save lives and prevent injuries in addition to limiting damage to your company’s brand and bottom line.” -CPSC
Since you may have to deal with a product recall in the future, having a plan that outlines your process is invaluable. You want to resolve the issue as quickly and fairly as possible, with as little downtime and customer exposure as possible. The CPSC provides some assistance when you need to report a defect, including deciding when a recall is necessary. Once they deem a recall is necessary, you will be expected to comply and respond quickly, such as through their Fast-Track Program.
Developing a plan for executing recalls is part of creating a larger business continuity plan. Remember, the worst plan is no plan at all, and that’s exactly what happens when you fail to be proactive. Backing up your data, creating a plan for disaster recovery, and being proactive in general is what managed service providers (MSPs) excel at. MSPs have been helping manufacturing companies in growing numbers in recent years, and if you want to manage the risks of product recalls and other unexpected disasters better, consider working with one.
The mysterious and confusing technology blockchain, often said in the same breath as Bitcoin, is really just a type of database. A blockchain collects information and stores it in groups called blocks. Once a block is filled, it is chained onto a previously filled block, forming a chain. New information that gets added goes into a new block, and so on. This characteristic makes blockchain a particularly useful data structure for ledgers for transactions since information can easily be kept chronological, such as in the case of Bitcoin’s ledger. See? It’s not so hard to wrap your head around.
But the applications of blockchain don’t begin and end with Bitcoin or other cryptocurrencies. In fact, it has far-reaching applicability in the manufacturing industry since it can enable secure data sharing within and beyond a factory. It can also scale transparency and trust through all stages of the industrial value chain, according to Manufacturing Global.
What else can the technology of blockchain help with? Manufacturing Global provides six of the key ways blockchain empowers manufacturers to overcome challenges:
- Enhanced tracking and tracing
- Protection and monetization of intellectual property
- Simplification of and safeguards for quality checks
- Machines-as-a-service (MaaS)
- Machine-controlled maintenance (such as automating service agreements)
So if the technology can provide so much good, what could possibly be the downside to using it? There are actually two significant challenges associated with blockchain to be concerned with.
The first is that regulations and laws have not caught up to technology, making its application risky at the present. Firms need to be able to show extensive records that they are in compliance with regulations concerning data protection, health and safety, export and import laws, and more. You don’t want to have any room for interpretation when it comes to compliance, and the jury is still out on blockchain right now.
The second challenge with blockchain is that the technology is incompatible with many of the legacy systems companies are running. Integrating the technology sounds great, but it needs to be done from the ground up in order for it to provide expected return on investment as well as play nice with the existing infrastructure. Luckily, transforming IT infrastructures is exactly what managed service providers specialize in—that and bringing new technologies in to help you grow. You need cost-effective solutions to gain a comparative advantage over the competition and stay ahead of the industry as a whole. If you decide that blockchain is more of an opportunity than a risk, you are going to need experts on your side for getting the most out of it.
You’ll notice that cybersecurity is not one of the list items on Liberty Mutual’s top ten emerging threats to the manufacturing industry. Well, not exactly. As it turns out, cybersecurity will continue to play a key role in the industry in the future, even if it is not its own respective list item.
For starters, the direct-to-consumer (DTC) model complicates the cybersecurity role of the manufacturer and increases the amount of risk they take on. This becomes obvious once you understand the difference between DTC and the traditional retail supply chain. In a traditional supply chain, manufacturer sells to retailers, wholesalers, and other distributors who then turn around and sell to the end-user. These types of companies serve as middlemen between the manufacturer and the seller. In a DTC mode, however, the middlemen are gone, so the manufacturer has to handle consumer transactions. That means handling consumers’ credit card data (as well as protecting it). Governmental regulators now make you prove that you are actively taking steps to keep consumers’ data safe from breaches, meaning that you have no choice but to comply.
Then there is the matter of intellectual property (IP) protection. This made its way onto Liberty Mutual’s list for one thing because it costs businesses hundreds of billions of dollars each year. There is rampant theft of intellectual property, including patents, designs, trademarks, copyrights and trade secrets. Accordingly, gaps in your cybersecurity must be closed in order to have an effective strategy for handling IP theft. There are the absolute essentials like encryption, anti-virus software, firewalls, and email filters. There is also a need for penetration testing, which is where technicians and even auditors assess the security of the company network by attempting to break into it. As we have seen, even massive global corporations like Microsoft can experience intrusions; as part of the 2020 SolarWinds hack, cybercriminals were able to view Microsoft source code.
Finally, there is a rise in the number of smart facilities. This term is used to refer to factories that incorporate increased automation, IoT devices, equipment monitoring, and other new technologies. As with most other items on Liberty Mutual’s list, the opportunities and risks go hand in hand; with smart facilities, you open yourself up to more cybersecurity threats. That’s because you can’t always be confident in the security of IoT devices connecting to your network, especially when they aren’t able to receive patches that fix vulnerabilities.
Cybersecurity is critically important to manufacturers as they look to head off the largest threats coming to their industry over the next decade.
The problem with handling cybersecurity on your own is that it is expensive, complex, and time-consuming. According to Indeed, the average base salary for an IT technician is $75,000 per year. Too often, these salaried, benefitted technicians are kept busy with menial, daily tasks instead of advancing the strategic position of the company. Outsourcing IT tasks like cybersecurity to a managed services provider is a cost-effective way to free up employees’ time so they can start doing what they’re supposed to be doing.
Putting it All Together
The threats facing the manufacturing industry over the next decade sure look scary when you break them down in terms of what can go wrong. On the other hand, they may not seem so bad when you consider the opportunities that also are present. Manufacturing companies need to take the good with the bad, realizing that a scary new technology like blockchain is something to be carefully scrutinized. It comes down to being proactive. Understand the technology (its risks and benefits), and then start asking the tough questions like “How can we safely implement this in our own factories while mitigating the dangers?” While you’re at it, go ahead and ask, “Could we use a hand with IT?” Seeing how busy you’re going to be growing over the next decade, the answer to that question may very well be yes. If it is, you can explore our website to find out more about why Machado Consulting is More Than Your IT Department®. You can contact us here if you’re looking to getting a personal response to your questions.