Risk Identification In The Manufacturing Value Chain

Are you running or working for a manufacturing concern?  Whether you are running/working for small manufacturing firm producing products for the local market or a large manufacturing firm producing products for the local and international markets, you still need to take time off and establish occurrences that can negatively affect production and sales (hazard risks).  Risk Management experts use different models to identify risks that can negatively affect business operations. Perhaps the most logical approach is to look at stakeholders that can affect business operations namely the firm itself, clients, suppliers, competitors, substitute producers and new entrants. The external local and global environment can also affect production and sales e.g. fall in commodity prices in the world affects revenue generated.

Internal risks emanating from the firm

Risks emanating from within the firm can originate from People (Staff Members and Third Parties), Premises, Plant & Equipment, Assets and IT Systems.  Manufacturing firms can use historical information, current information and future predictive models to identify risks that hit the business in the past, risks that the business is currently facing and risks that can strike the business in future.

Suppliers

What risks can strike your supplier/s and negatively affect your production and sales?  How reliable are our suppliers in terms of continuity in provision of raw materials or services? Are they continuing business concerns? Do you have alternative suppliers in the event that your main supplier is affected?  Are spare parts for your machinery, plant and equipment readily available and will the supplier be there for you in future? The types of risks that affect your supply chain fall into two areas, delays and disruptions. Delays can come from transportation issues, such as grounded flights due to bad weather or they could come from quality control issues with your supplier. If critical supplies are coming from great distances, you may want to consider looking for a supplier that’s physically closer to your operations or collecting larger reserves of the supply to minimize your risks. Disruptions can be harder to predict. Examples of disruption risks include natural disasters, fires and labor strikes. With labor strikes, your company may be able to predict a strike coming based on how labor negotiations are going. This would allow you to stockpile the supplies that would be affected by the strike, thus lowering the disruption risk. Using multiple suppliers for the types of supplies that are costly to stockpile is another way you could reduce your disruption risks.

Competitors

Competitors always pose a threat to business operations.  Imagine, a situation where one of your competitors suddenly gets a cheap import line for the same products you are producing locally.  This sounds very familiar to manufacturing firms in Zimbabwe which were negatively affected by introduction of cheap imports.  Manufacturing firms should deliberately identify possible competitor actions that that can negatively affect their production and sales.

Substitutes

Different products can be used to satisfy the same customer need.  For example, a firm manufacturing peanut butter not only face competition from other peanut butter manufacturing firms but from other producers of alternative spreads. Manufacturing firms should realise that they are not only competing with companies that producing same products but other companies that produce product that satisfy the same customer need.

New Entrants

How secure is your business operations from new entrants.  Are your production processes efficient to match modern production methods that can suddenly come into the market?  Are you enjoying economies of scales?  As you run your manufacturing concern, it is important to be alert that new entrants can cause massive disruptions or even closure of your business.

Globalisation

Globalisation is fast destroying traditional trading and communication boundaries.  Manufacturing firms thus need to identify risks in a global context where there are few and weaker boundaries in terms of suppliers, clients, competitors, substitutes and new entrants.

The next article will give practical examples of manufacturing firms that have been adversely affected by unforeseen circumstances.

Has your Manufacturing firm suffered an unforeseen major loss before? Share with us on simonsays@cbz.co.zw

 

 

 

 

 

Comments

%d bloggers like this: