The United Kingdom was once a manufacturing powerhouse. Between 1809 and 1839, exports tripled from £25 million to £76 million, while imports nearly doubled from £28 million to £52 million during the same period, Britain was the largest manufacturer in the world and the most technologically advanced. Total the sector generates £192 billion annually making the UK the ninth largest manufacturing nation in the world. It’s a major economic contributor to the UK’s GDP. Unfortunately, this success comes hand in hand with the high-risk environments which manufacturing companies often live in.
Investors buying shares in manufacturing sector businesses should be aware of the risks associated with highly geared production facilities and long supply chains. However, from the business perspective, this can be mitigated.
In this blog post, we will be breaking down the common forms of risk involved with manufacturing in 2021. The goal of this piece is to better inform businesses about the different ways we can help manage these risks and avoid accidents from occurring.
The importance of managing commercial risk
Manufacturing, like all types of business, has a unique set of risks that make running a business extremely complicated. Not only do you have to constantly look for optimisation opportunities but you also have to evaluate any high-risk points of the production process and work to minimise the chance of someone getting hurt. Failure to do so can lead to claims being made against the business and members of staff unable to work. The best business books recommend a preventative approach to addressing safety concerns, however insurance may be able to protect the business should the worst happen.
Members of staff becoming injured in work
Claims made by employees of the company are one of the most common within the manufacturing industry. Even the most technologically advanced production lines will have human involvement in one way or another, for example, quality checks, this then opens up a possibility of someone getting hurt in the workplace. If someone were to be seriously injured at no fault of their own your business may be vulnerable to claims.
Interruption to the supply of raw materials
To stay profitable your manufacturing business needs to generate a constant flow of finished products. It’s the concept that the business relies on meaning any interruptions can be extremely costly for the business. At first, you may expect interruptions to come from equipment breakdown or staff accidents but you also need to consider the interruption of supplies. If one of the key materials needed to produce goods were to not arrive on time, the business may be left at a complete standstill.
Product recalls due to manufacturing faults
Recalling products not only negatively impacts your brand image but can seriously impact the revenue generated by the business. Let’s just say there has been a mixup and 10,000 units leave the door in a seriously poor condition. It’s down to your business to resolve this. Recalling products can be extremely costly as you will need to refund the client which can also lead to a loss of trust down the line. This is especially true when it comes to safety equipment.
Breakdown of essential production equipment
Manufacturing in this day and age involves a complex production line and a whole range of specialist equipment which is often programmed bespoke to a businesses needs. News of the breakdown of any strategic fixed assets can cause a the share price of the best companies to invest in to take a hit immediately if investors anticipate this will halt production.
Whilst this does enable our manufacturing businesses to be extremely efficient at producing goods it also creates a huge dependency on this equipment to get the job done. If there were to be a breakdown of this specialist equipment it can lead to huge losses for the business and in some cases a complete shutdown until all is repaired.
Managing risk within the manufacturing sector
To manage risk within this sector you need to be a critical thinker, identify all aspects of the business which you rely on to complete the day to day job and put in a procedure in the palace if there were to be any interruptions to this. Investing in a comprehensive manufacturing insurance policy is also recommended to help protect the business from these risks. If there were to be any problems that were not the fault of the company, an insurance policy can offer your financial protection to get you up and running again.
Reading more widely
If this risk management article has piqued your interest then consider our ranking of the best financial risk management books. Consulting books and management books may also advise on how to manage the risks of your business.