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Managing manufacturing risk

At a glance

  • Smaller manufacturing businesses may not have adequate risk-planning procedures
  • These businesses may be focussing on immediate risks and not addressing the bigger picture
  • Manufacturing industry expert David Seall examines the issue

When businesses consider how they can prepare for major events that may have a negative impact on their activities, it’s often a daunting task.

Driven by the Board, or expectations of shareholders, large enterprises will task senior management with analysing risk, estimating probabilities of occurrence and developing contingency plans.

For example, in the case of disaster planning, charities may rely on trustees, perhaps with experience gained from their ‘day jobs’, to assist the management team and give guidance on these matters.

This will be fulfilling an expectation from the Board of Trustees, or perhaps external stakeholders with major influence.

About the author:

David Seall

David Seall is currently advising a number of businesses at director level on operational issues and engagement with the manufacturing sector. For some years, David’s views have been sought by national, regional and local government on policy linked to manufacturing, business support, skills development, science, technology and innovation, which he continues to do in his capacity as Regional Chairman of Institute of Directors, South and Member of IoD Council.

For manufacturing businesses, the planning is much more challenging. Most have some sort of external qualification and approval of their business management system, probably with proceduralised, regular reviews. Some may also have some kind of non-executive input to their boards.

These non-executives, as part of their governance role, would expect the management team to have completed an estimate of the risks to the business, and the likelihood, or probability, of these risks occurring.

SMEs need to address risk

However, the reality of the situation is that many manufacturers, particularly SMEs, struggle to adequately cover risk compliance. Simple time constraints mean that most energy is spent purely keeping the business trading.

Post-recession, most small companies do not have an excess of staff with the available time to deal adequately with this planning. Additionally, management review time will be probably be used addressing the key performance indicators thought vital to the business. These are the ones that are perceived to have a direct input into the bottom line.

While most small companies will closely monitor risks associated with their key customers, or elements of their supply chains, there is the temptation to think that major events, such as the Deepwater Horizon oil spill, the banking collapse, or the recent catastrophes to hit Malaysian Airlines, only affect large companies

But for a manufacturing business, most risks while not as clear cut, can still cause major headaches when they manifest themselves.

Importance of planning

Most mid-market manufacturers will have some type of disaster recovery plans relating to problems affecting their premises, and will have IT and communications back-ups.

However, ‘domestic’ risks, such as a lack of sufficient succession planning, can also cause major problems. For example, most manufacturers cannot afford generous notice periods for key staff and can find themselves left high and dry when someone leaves or falls ill.

Additionally a key process that stops working, or a piece of capital equipment that fails, can seriously affect productivity. Even something as simple as a software upgrade can cause chaos if problems occur.

As well as ensuring their internal procedures are in place to mitigate risk, there’s an ever-increasing demand placed upon layers in the supply chain to address all areas of risk to protect the corporate reputation and brand.

So, no matter how you look at it, the task of predicting, estimating and managing risk is increasingly important for manufacturers in today’s economy.

Image © Getty

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