Businesses that make and sell physical products face a host of different risks. The cost of raw materials, the availability, and even the weather can threaten to sink a company. It’s more important than ever for manufacturing firms to have an effective risk management strategy in place as they work to survive and thrive in today’s marketplace.
This article will discuss some common risks faced by manufacturers, how these risks are managed on an individual level, and what strategies may be most effective for particular types of businesses.
Sourcing Raw Materials Supplier
Different materials require different suppliers, and manufacturing firms often rely on one supplier for all of their materials. It can be extremely dangerous should that supplier fail to meet expectations.
Supplier risk is essentially the risk associated with finding another source for required materials in time to prevent disruption or other problems related to not having those materials available. Different business owners use different strategies to identify and mitigate this risk.
Identifying their top three suppliers and ensuring that each has a reliable backup may be the best strategy for some. Others will work with many suppliers to remain diversified, hoping to minimize the impact of any one failure. Another solution is to create multiple supply lines or work with different vendors to ensure that the firm has many options for getting materials.
Most manufacturers will have a supplier risk management plan in place, but they may not think to review it regularly or update it as their business needs change. Often, it is because small businesses don’t have dedicated human resources working on risk management issues. Other times, problems arise because the head of the company doesn’t have enough knowledge to create an effective plan.
Problems with Health and Safety
One of the most important parts of risk management is taking care of employees. The cost of an injury to a key employee can be devastating, especially in the manufacturing sector, where skilled knowledge workers are at a premium. Some factories have seen steep downfalls after injuries took place.
What is more, these accidents could lead to severe fatalities and the death of an employee. Suppose a lack of risk management causes these injuries. In that case, the company might face charges and deal with lawyers specializing in wrongful death.
On the other hand, injuries are caused by a lack of awareness or supervision on the part of employees. Other factors can contribute to damage occurring in a manufacturing environment.
Manufacturers are responsible for the products that they sell. If an effect causes harm to another party, the manufacturer is liable, especially if their product was defective or had inadequate warnings.
Product recall costs can devastate a manufacturing business if they occur without adequate planning and oversight. A product recall is not the same as an insurance policy since it only reimburses customers affected by a defective product for their costs associated with that issue.
Contractual liability can occur if products sold don’t meet specifications or legal requirements or if another party sues the manufacturer for a failed agreement. During these disputes, the manufacturer is responsible for reimbursing any losses.
A common example of contractual liability in manufacturing would be selling faulty products to another business. The supplier could sue the manufacturer for reimbursement, and damages awarded in this case could be devastating to all parties involved.
To resolve this issue, a manufacturing firm needs to create a product liability insurance policy that will cover its costs in a lawsuit.
Property damage concerns might arise from a fire, flood, or other issues on a manufacturing site. While insurance policies often cover these issues, manufacturers must be sure they have sufficient coverage to protect their business interests and their customers should such an incident occur.
Protection against contamination, whether it is of the environment or products, can help to prevent lawsuits. Manufacturers are responsible for minimizing their footprint on the world around them. If they fail to do so, they might be held liable if contaminants cause damage unexpectedly.
Manufacturers can get rid of contaminants by carefully managing waste disposal. If environmental issues arise, manufacturers might not be liable for them if they can show that they took all reasonable precautions to keep these issues from happening.
In short, there are many risks that a manufacturing firm might face. While you can insure against some of these risks, others must be planned for ahead of time. Without an effective risk management plan in place, a business might not survive a major lawsuit or product recall.