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9 Enterprise Risks for Manufacturing Companies

Risks that impact manufacturers continue to evolve and grow. We have identified nine enterprise level risk areas that manufacturing companies should be addressing today. You may have a good sense of the control environment you currently have in place, but it may not be clear how your internal controls address the areas of greatest enterprise-wide risk. Once you know which risks you’re addressing, you can ensure the proper controls are in place to manage them.

The following nine major risks are interconnected. As you manage the risks throughout these areas, stay focused on your organization’s mission statement and how managing these risks helps you achieve your objectives.

1. Third Party/Supply Chain Risk

This includes your supply chain and the vendors you use for billing, technology, or payroll. Key consideration should be given to suppliers of core ingredient, components, services, and equipment used for the finished product. This may also include fluctuation infuel, energy, and transportation costs.

2 .Technology & Cybersecurity Risk

In addition to software and applications used to run the business and connect with third parties, technology and cybersecurity risk has evolved to include the internet of things (IoT).  As more equipment connects to the internet to facilitate processing, and the reliance on cloud storage increases, data security must be extended to these areas. If you allow customers to place orders through technology, you must also consider Payment Card Industry (PCI) requirements.

3. Business Continuity Risk

While the potential for natural disasters gets the attention of many business continuity plans, most downtime is actually caused by human error. Such downtime must be considered in your supply chain in the event that one of your key suppliers has their own business disruption.Areas your business continuity plan should include are employee availability, communication, and documentation.

4 .Transaction Risk/Operational Risk

This is a broad category that encompasses key employees, production, and recoding financial transactions. It may incorporate retention efforts of key personnel, onboarding of new personnel, and integration technologies during acquisitions, or how the acquisition is likely to affect your culture and operations.

5. Regulatory Compliance Risk

Regulations that must be considered are coming from many different organizations: OSHA, EPA, FDA, and EHS are just a few of the federal agencies making the laws businesses must adhere to. Start adding in the international, state, and local regulations and the compliance environment becomes exponentially more complex.  You need someone monitoring compliance across your organization, including all key third parties relied upon for your operations.

6. Market Risk

This risk focuses on price competition and pricing strategies, changes in consumer spending or preferences, and identifying and utilizing emerging markets in a timely manner. Business Continuity Risk (#3) will connect to this area if you are operating in a more commoditized market. The easier it is for your customers to replace your product during a business interruption, the more impact the downtime will have on your bottom line. It may also affect your ability to recapture market share.

7. Foreign Exchange Risk

With globalization, the world is made smaller by the day. Many companies that never had to consider foreign exchanges now feel an impact to operations when something happens across the world. If you have any kind of global ordering, supply chain, or distribution, you need to ensure that you are monitoring changes in applicable markets and are prepared to act at a moment’s notice.

8. Strategic Risk

Keeping ahead of competition by seeking innovation and product development is critical to maintaining and growing your market share. This may include acquisitions to vertically integrate your supply chain, implementing new ideas or technology, and identifying succession challenges like adding and retaining key personnel to maintain the company’s competitive advantage.

9. Reputational Risk

Reputational risk evaluates the impact to the Company’s perceived image if a public risk area has a failing. This could result from a decrease in quality (supply or product), mislabeling as organic, product recalls, environmental implications of your manufacturing process, or if a third party in your supply chain causes your data to be compromised or your product to become unavailable.

Once you know what risks you’re addressing, you can ensure you have the proper controls in place. To download supplemental questions you can use in all nine areas, download them here.