3 internal risks manufacturers in Singapore need to be aware of

Embracing digitalisation – be it adoption of Industry 4.0 or 5G technologies - is a positive step, but some manufacturers may be diving in without fully understanding the risks. As companies digitalise more of their operations, they create more entry points into their systems. This increases their exposure to unauthorised access and cyber incidents, which can create rapid downward spiral for the business.

Their entire operations could be suspended if the factory floor shuts down and complex cyber-connected manufacturing systems can be hard to restore. Moreover, as automation techniques advance and usage of cloud-based applications increases, manufacturers are challenged to securely integrate older legacy systems (i.e. older machines that were not built for security that may now need to be connected).

Despite efforts to protect proprietary information and data, secure networks and systems could still be vulnerable to cyber-attacks. Risks are compounded as Singapore’s manufacturing workforce takes on hybrid work arrangements.

In fact, SME manufacturers, with their low or no investment in cyber security measures, are ideal targets for cyber criminals.

Shifts in customer needs and demand have prompted manufacturers to switch from a product-only model to selling value-added services (such as installation, maintenance, financing and consulting) to increase customer stickiness and reap in more revenue.

Moreover, technology has also altered what manufacturers make. Smart products (i.e. products equipped with microchips, sensors, and other electronic components) are more commonplace on many manufacturers’ production lines.

With most manufacturers adding services or changing products or both, manufacturers may be exposed to new threats and liabilities. Smart products and network-connected devices for instance, are susceptible to digital malfunction and unauthorised access resulting in failure to perform or loss of use issues for end users.

Such examples of product or service performance failure, not meeting customer expectations or contract specifications could result in serious financial injury and reputational damage, especially when a product recall or litigation is involved.

Even manufacturers with the best-laid strategic and tactical plans are likely to have their operations impacted by unforeseeable and challenging events – some might be preventable (e.g. human error), others are not (e.g. COVID-19 or more simply, a bad day in the office). For instance:
 

• System malfunctions result in performance and output issues for clients
• Manufacturing defects and inadequate warnings or instructions posing physical threat(s) to end users could lead to litigation
• Premise is mandated to shut down for deep cleaning following a COVID case on-site, incurring lost revenue and unplanned expenses
• Malware is introduced into the factory’s operational systems as a contractor plugged his/her own laptop and USB drive into the systems during maintenance
• Unauthorised access to the manufacturing facility can cause slowdown in operations and production, or even cease production altogether. Failure to meet their contractual obligations to supply product to a customer could lead to claims for compensation for breach of contract.