Top Five Supply Chain Risks for Manufacturers

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 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 that the impact of that blockage is still felt today and will continue to impact shipping costs.  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 Forum in partnership with Marsh and McLennan4.  

Failure of service

There are several reasons for the failure of service from a supplier. The main one would be their going insolvent5. 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 MENA as the impact of the pandemic starts to become clear. Raw materials and components are becoming more expensive 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 attached. Even before the pandemic, existing economic downturns or changes in global economic climates could impact on trade.  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 management6.

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 5 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. 
securitymagazine.com/articles/94030-why-cyber-criminals-target-manufacturers-and-what-to-do-about-it

Our people

Image placeholder

Talal Darras

Senior Vice President, Strategic Risk Consulting