Number One Risk for Manufacturers Is Supply Chain Disruption

July 25, 2017
While manufacturers are enjoying the promise of the fourth industrial revolution and the new administration’s vocal support for the industry, there are still significant supply chain risks that need to be faced.

While manufacturers are feeling the promise of the fourth industrial revolution and the new administration’s vocal support for the industry, and their confidence is at an all-time high,  there are still risks that need to be faced, according to the National Association of Manufacturers.

BDO’s 2017 Manufacturing Risk Factor Report reveals how manufacturers are confronting a wide array of supply chain risks. The report 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 segments; the factors are analyzed and ranked by order of frequency cited.

The number one risk for the past two years has been supplier, vendor or distributor disruption.

The other top risks include:

  • Federal, state and local taxes
  • Labor costs, retention, outsourcing
  • General economic conditions
  • Competition and pricing pressure
  • Environmental regulations and liability
  • Cybersecurity breaches
  • International operations
  • Failure to execute on growth or efficiency strategy
  • Foreign currency exposure

“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 NAM 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.”

Highlights from the report include the following:

Major Votes Rock the Status Quo

As businesses wait to see how domestic and foreign campaign rhetoric will play out in enacted policies, manufacturers seem to be feeling uncertainty around economic priorities and spending. And while it’s too early to tell the full scope of changes to come, regulatory easing was a major theme throughout the Trump campaign.

  • 20% mention risks associated with the new administration.
  • 19% point to infrastructure spending & commercial construction, from 14% in 2016.
  • 30% mention the UK’s “Brexit” vote to leave the EU.
  • 98% point to federal, state and local regulations.
  • 11% cite Dodd-Frank, a decrease from 22% in 2015.

Byte by Byte: Strengthening Cyber Defense in Industry 4.0

Implementing and maintaining systems that preserve the integrity of production processes without the same level of human oversight remains one of the main challenges to Industry 4.0 implementation.

  • 96% worry about cybersecurity breaches, up 50% from four years ago, making them one of manufacturers’ top 5 risks for the first time.
  • 91% point to challenges implementing and maintaining information systems and operational infrastructure.

“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.”

Staffing the Next Industrial Revolution

Manufacturers are still working out the kinks when it comes to finding, retaining and engaging the next generation of engineering, technology and factory floor talent.

  • 98% point to labor costs, retention and outsourcing challenges.
  • 2/3 of manufacturers mention strikes or work stoppages.
  • 75% say attracting and retaining their key management personnel is a risk.

CapCapital Concerns: If You Allocate it, will it Come?

Amid unprecedented innovation and change in the industry, many manufacturers have one question: How will we fund it? There are huge opportunities to deploy capital, but concerns over access and liquidity—not to mention the potential for rate hikes—persist.

  • 89% note concerns over access to capital.
  • 71% cite indebtedness and lack of flexibility, up from 61% in 2016.
  • 52% cite challenges with seasonality and cyclicality, up from 45% in 2016.

A New Compass for Trade

Major decisions on global trade by the Trump White House could have broad implications for supply chain operations, growth markets and labor. While re-shoring has been on the industry’s radar for several years, 2017 could be the year for acceleration.

  • 94% cite threats to international operations and sales.
  • 87% are concerned by restrictive trade policies.