BDO’s Manufacturing RiskFactor report analyzed 10-K disclosures from the 100 largest publicly-traded manufacturers in five sectors and examined risk factors cited. A few of these problems and risks include supply chain disruption, labor challenges and regulations, Cathy McNamara, partner at BDO, USA told us. But aside from these typical risks, here are 4 other issues she says are growing that manufacturers should be planning for.
1. Access to capital. Despite low interest rates and a generally positive financial environment, McNamara said many companies are wondering how they’ll fund their next big innovation or improvement amid rapid tech disruption. More than 7 in 10 respondents said they worry about their current level of indebtedness and debt covenants could limit their flexibility. Many feel that capital availability is uncertain and the chance that the Fed will raise interest rates sooner rather than later is spurring more concern.
While manufacturers are eager to implement new technologies, McNamara said they should conduct a thorough, honest audit of where they are in the innovation curve and where they want to be in 1-5 years. “To ensure ROI, capital expenditures must align with their current technology architecture and their strategic priorities…attracted by flashy new technology that may be too advanced…some companies want to run before they learn to walk,” McNamara said.
“attracted by flashy new technology that may be too advanced, some companies want to run before they learn to walK.”
2. Cybersecurity. The threat of cyberattacks remains a risk for manufacturers. Nearly 95% of those surveyed said it was their main risk, up from 50% in 2013. While 81% said they felt confident in their risk management program’s ability to address security concerns in a connected manufacturing environment, more than a quarter of manufacturers don’t have a security policy in place for their partners.
McNamara said the integration of new systems across supply chains is creating more potential access points for hackers and that it only takes one point of vulnerability to compromise the entire system. She said manufacturers not only should ensure they have adequate protection in place but that they regularly test their response plan.
“Manufacturers need to be prioritizing proactive threat intelligence, detection and rapid response when they invest in new or updated cyber protections,” McNamara said.
3. The talent shortage. Ninety-eight percent of respondents said they had at least some concerns about labor costs, retention and outsourcing. McNamara said the challenges of recruiting new talent ultimately come down to too few STEM graduates and a gap between the reputuation and reality of wages and work environment in the industry. Two-thirds of manufacturers said they were concerned about strikes or work stoppages, and 75% said they were worried about attracting and retaining key management personnel.
McNamara said manufacturers should prioritize retaining and engaging existing workers by focusing on employee productivity and empowerment. She said it’s essential to communicate a shared vision of the company’s future and the path it will take to get there. Most importantly, manufacturers need to be proactive in addressing talent now and foster a culture where every person is engaged every day in making small changes.
As manufacturers often are in competition with tech companies for advanced roles, she said they should develop innovative ideas that help them capitalize on changes. “Many manufacturing companies take a ‘wait and see’ approach when confronted with new challenges. That’s very different from the tech industry’s approach to embrace and grow from change,” McNamara said.
4. Politics. As negotiations are still in place, McNamara said Brexit is still a “big question mark in manufacturers’ peripheral vision” and should be watched closely. Once the regulations are firmed up, however, she said the separation of the UK from the European Union will take some time to play out. Depending on the terms, she suggested there could be major implications for supplier and vendor relationships and for the flow of skilled labor in parts of the EU.
Meanwhile, BDO’s report also revealed that one in five manufacturers see risks related to the new administration. McNamara said the Trump administration has been vocally pro-manufacturing and that much of the optimism manufacturers have could be connected to the possibility of an improved business environment. She said there is widespread hope on the regulatory front that more balance will be reinstated between the greater good some regulations strive for and the costs of remaining compliant. “That said, uncertainty is still the prevailing feeling for now, it’s business as usual until policies and regulations are actually enacted,” McNamara said.