Manufacturing is going through a transformative period, with ever increasing risk from technological innovation, economic and regulatory uncertainty, automation and workforce concerns and globalization and trade disruptions. It’s imperative then, that companies identify and evaluate risks so they can create strategies to address these concerns.
To help identify these risks, BDO has released its “2017 BDO Manufacturing Risk Factor Report,” which examines the risk factors in the most recent 10-K filings of the largest 100 publicly traded U.S. manufacturers in the food manufacturing, transportation, fabricated metals, machinery, plastics and rubber industries. The risks are analyzed and ranked by order of frequency cited.
I wasn’t surprised to see that supply chain disruption (specifically, supplier, vendor or distributor disruption) is cited as the leading risk; or that federal, state and local regulations were named as the second largest risk. I was interested though, to read that labor costs, retention and outsourcing are the third largest risk. In particular, finding, retaining and engaging the next generation of engineering, technology and factory floor talent is a growing concern, with 98 percent of the companies listing labor costs, retention and outsourcing challenges chief among risks; 66 percent of the companies listed concern about strikes or work stoppages; and 75 percent listed attracting and retaining key management personnel as a key risk.
As is likely, general economic conditions, including disruptions in the financial markets, is another key risk, as is risk regarding environmental regulations and liability. “Strengthening Cyber Defense in Industry 4.0” is a growing concern among the respondents, as also would be expected. However, it’s growth rate is interesting: 96 percent of the companies listed concerns about cybersecurity breaches as a key risk, up 50 percent from four years ago—making cybersecurity breaches one of manufacturers’ top five risks for the first time.
“With the nation’s eyes on the manufacturing industry, companies can’t afford to take chances with their cybersecurity measures,” says John Riggi, Head of BDO’s Cybersecurity and Financial Crimes Practice. “It’s safe to assume a breach is always a possibility, so to avoid manufacturing interruptions, losing valuable intellectual property and taking a reputational beating in the event of a cyberattack, manufacturers should regularly test their incident response plan to ensure it’s ready to deploy at a moment’s notice.”
Finally, as the report notes, 2016 was, undeniably, a mercurial year in politics. One in 5 manufacturers mention the 2016 U.S. general election and changes associated with the installation of the new administration in their filings. As businesses wait to see how campaign rhetoric will play out in enacted policies, manufacturers seem to be feeling a measure of uncertainty around economic priorities and spending, the report continues.
“While manufacturing companies are riding a wave of optimism propelled by the Trump administration’s stated focus on regulatory reprieve, the feasibility and speed of potential reform is still murky,” says Rick Schreiber, leader of BDO’s Manufacturing & Distribution practice and National Association of Manufacturers board member. “There’s hope in the industry that a solid level of balance will be reinstated between the greater good some regulations seek to achieve and the high costs of compliance.”
What are your company’s chief risks? Do they align with the report’s findings? What steps are being taken to mitigate those risks?