Boosted by recent legislative funding and tax incentives, the manufacturing industry continues its trajectory of growth. Landmark bills such as the Infrastructure and Jobs Act, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the Inflation Reduction Act have driven private-sector manufacturing construction spending to $201 billion, a 70% year-over-year increase.

In 2024, manufacturing companies face various challenges — from digital transformation to supply chain challenges and labor shortages. We explore the key risks in manufacturing and offer actionable strategies to navigate them.

Manufacturing Industry Digital Transformation

Manufacturing is evolving with advanced technologies such as generative AI and smart factories, transforming conventional methods. Yet, with these innovations also arise increased cyber risks, data privacy issues and potential job displacements. This emphasizes the importance of strategic planning and strong cybersecurity protocols to safeguard operations and optimize advantages.

Incorporating Technology into Processes

Harnessing cutting-edge technology (e.g., generative AI) is revolutionizing manufacturing across product design, quality control and predictive maintenance. These advancements streamline response times to meet client needs. Moreover, the industry is adopting innovative technology (e.g., virtual reality, AI, augmented reality) to develop industrial metaverses that replicate real-world spaces for design, testing and training. Leveraging digital twins within metaverses enables real-time data to simulate physical objects and enhance performance.

Smart factories are also revolutionizing operations by optimizing network capacity, minimizing communication delays and enabling rapid data processing to reduce production downtime and enhance overall performance. Manufacturing firms are embracing robotics, the Internet of Things (IoT) and blockchain to further elevate efficiency and performance.

Potential Risks to Consider

While technology offers numerous advantages, it also carries inherent risks. For instance, as IoT connectivity and reliance on digital systems expand, manufacturers face escalating cyberthreats (e.g., data breaches, ransomware attacks, sabotage). Managing substantial amounts of data raises privacy concerns and the need to protect sensitive information. Other factors to consider include technology reliance, workforce displacement, regulatory compliance challenges, ethical implications and data integrity. Securing technology demands proactive planning, cybersecurity measures, talent development, regulatory collaboration and ethical considerations. 

Manufacturing technology and data are common targets for cyberattackers. Our Ransomware Survival Guide can offer additional assistance to protect your business.

Manufacturing Industry Supply Chain Challenges

Supply chains are showing signs of normalizing, but disruptions remain a significant risk due to various external threats, such as:

• Natural disasters
• Geopolitical tensions
• Trade disputes
• Unexpected events (e.g., pandemic)

Deloitte reports that the average delivery time for production materials improved to 87 days in 2023 from a peak of 100 days in July 2022. However, it remains higher than the pre-pandemic average of 63 days. To bolster supply chain resilience, manufacturing businesses should implement various tactics, such as:

Leveraging Technology Advancements

Deloitte reports that 76% of manufacturers are embracing digital tools (e.g., work instruction software, digital ecosystems) to streamline supply chain workflow, facilitate supplier communication, provide shipment updates and deliver notifications. Some manufacturers are leveraging AI, metaverse technology and digital twins to strengthen their supply chains and drive greater efficiencies.

Strengthening Supplier Relationships

Strong supplier connections are a significant advantage for the sector as they provide invaluable support in overcoming supply chain challenges. By establishing solid supplier relationships, your company can gain access to advantageous solutions like modified shipment routes and prioritized access to high-demand materials.

Nearshoring & Reshoring

Nearshoring involves shifting global production to neighboring countries, while reshoring entails bringing production back to one’s own country. By implementing these strategies, your business can mitigate global shipment delays and other supply chain disruptions.

Manufacturing Industry Labor Challenges

Recent legislation aims to boost manufacturing jobs through investing in clean energy and semiconductor production. Decreasing turnover rates haven’t fully solved skilled labor shortages, as projections suggest a tight labor market and increasing wage and benefit costs. To proactively tackle these issues:

• Diversify outreach efforts at community events (e.g., job fairs) to attract the next generation of manufacturing workers.
• Leverage training and apprenticeship programs to enhance new employees’ skills.
• Embrace technology to streamline processes and improve efficiency.
• Prioritize comprehensive safety training for all workers.
• Offer competitive wages, benefits and flexibility to attract and retain talent.
• Encourage former employees to return through incentives (e.g., flexible employment arrangements, career advancement opportunities).
• Explore underrepresented demographics and partner with talent recruiting agencies to expand talent pools.
• Foster a positive, safety-oriented company culture to attract and retain employees and reduce workplace accidents.

Manufacturing Industry & Per- & Polyfluoroalkyl Substances (PFAS)

Increased litigation and regulations surrounding PFAS focus on health, safety and environmental concerns. According to the Environmental Protection Agency (EPA), exposure to certain levels of PFAS can have serious health consequences, including:

• Certain cancers
• Reproductive issues
• Developmental delays in children
• Obesity
• Hormone interference
• Immune system dysfunction
• Manufacturers producing PFAS or PFAS-containing products must mitigate these risks and establish compliance and liability prevention strategies.

Recent Legislative Movements

The U.S. has banned PFAS compounds and mandated comprehensive reporting requirements. Prioritization by the EPA and several states emphasizes the need for rigorous adherence to environmental standards. To minimize your liability exposures, it’s important to reduce or eliminate your PFAS utilization, explore alternative options and ensure compliance with applicable laws and regulations.

Proper Insurance Protection

Partner with your trusted insurance advisor to conduct a thorough review of your insurance program. Evaluate whether it adequately shields your firm from PFAS-related claims. Be mindful that many insurance policies exclude coverage for incidents involving environmental pollutants or hazardous substances. Consider obtaining specialized coverage (e.g., pollution liability insurance) to bridge any potential gaps.

We’re Here to Help the Manufacturing Industry Avoid Risks

Several trends are currently impacting the manufacturing sector and potentially your future insurance coverage. Staying knowledgeable of these developments and mitigating their associated exposures can help manufacturers to effectively position themselves for long-term growth and operational success. Connect with a member of our team for additional risk management guidance.