The novel challenges created by COVID-19, the looming recession and the changing regulatory and technological landscape call for new approaches to risk management in the manufacturing industry. In these circumstances, manufacturing businesses need a holistic approach to their Governance, Risk Management and Compliance (GRC) practices to address the risks proactively before they materialize.
A sound GRC plan for manufacturing involves a robust risk management framework addressing the risk profile of the business. Below, we look in greater detail at the types of risks faced by manufacturers today, the key elements of risk management, and how entity management software can contribute to manufacturer's risk management agenda.
Types of Risks in Manufacturing
Challenges faced by the manufacturing industry are multifaceted and include various types of risks that should be covered by the risk management plan. The main categories of risks include:
- regulatory risks related to changing environmental, safety, labor, trade and tariff regulations and policies,
- product liability and quality risks,
- supply chain and vendor management risks,
- labor-related risks,
- intellectual property risks,
- environmental, health and safety (EHS) hazards,
- data privacy and security.
Components of the Risk Management Program
A comprehensive risk management plan includes several key elements required to respond to risks before they become major threats and result in business disruption. These elements include:
- reporting and monitoring,
- risk governance.
Identifying the risks and their sources is always a first step in any risk management agenda. Manufacturing organizations use various methods for identifying risks, including Failure Mode and Effects Analysis (FMEA), Hazard Analysis and Critical Control Points (HACCP) and Root Cause Analysis (RCA).
After the risks and their drivers are identified, the company needs to assess the risks and prioritize the control measures. When measuring risks, businesses calculate risk exposure, which is comprised of risk impact and the probability that the risk will materialize.
Manufacturers use various methods for measuring risks, which are best suited to their situation. Many organizations start by identifying Key Risk Indicators (KRI) or quantifiable metrics, for example, equipment downtime or supplier lead time variability. Another method is based on a risk assessment matrix, listing all identified risks, their severity levels and their probabilities in descending order.
When all risks are identified and quantified, organizations need a robust risk mitigation plan focusing on the most critical issues. This includes prioritizing the risks based on assessment and implementing relevant risk-reducing controls, for example, compliance audits, materials handling protocols, supplier audits, equipment maintenance or data backup and recovery.
Risk Reporting and Monitoring
Since manufacturing risks can materialize at any moment, regular reporting and monitoring are key to any successful risk management plan. The teams create risk registers to identify and describe risks and their impact and implement digital channels to report new risks or any changes in the existing profile.
These can involve using specialized software and developing dashboards and visualization tools to report and monitor risks, fluctuations and threats in the internal and the external environment.
The risk governance framework ensures that all teams and stakeholders act according to the risk management plan. This stage includes developing policies, setting up a risk assessment framework and real-time monitoring system and providing for cross-departmental collaboration.
Enhancing Risk Management through Governance and Compliance
Manufacturing businesses can enhance their risk management by developing a strong governance program. An effective governance framework assigns clear roles and responsibilities for risk management, improves accountability and aligns risk management with the organization's strategy. Meanwhile, compliance with safeguards in the legislation allows businesses to remain in good standing with regulators and effectively mitigate risks addressed by the legislative framework.
Automating Governance and Compliance
Strong governance and compliance are prerequisites for effective risk management, helping to provide for operational resilience and preparedness for crises and build up stakeholder confidence. Meanwhile, in a modern manufacturing organization, ensuring governance and compliance cannot be achieved without automation.
By employing effective digital technologies for their GRC framework, such as entity management software, businesses ensure consistency and accuracy for their data and reporting, reducing the chances of manual error and missing tasks or processes. Assisted by alerts and reminders, the teams can ensure timely action and meeting deadlines and improve collaboration across the board.
Centralizing Business Data for Better Visibility
Effective risk management requires full visibility of the whole organization, which is only possible when the company leverages a single source of truth for corporate data. Having a central database for company records helps to ensure data consistency and dependability, provide instant access to necessary information, and implement data safety and security.
Manufacturing businesses looking to automate their governance and compliance need effective digital tools, such as entity management software, to centralize the company's corporate records, exclude manual processes and streamline monitoring and reporting. An entity management software offering a central platform for all entities is instrumental in providing for effective compliance and addressing regulatory risks.
Improving Governance Through Streamlined Collaboration
Effective governance is contingent upon proactive collaboration by all stakeholders, from the line employees to compliance teams, company secretary, management, board and the shareholders.
Implementing modern digital tools such as entity management software allows to streamline collaboration by providing access rights to corporate databases. Having data readily accessible on a secure cloud in real-time enables companies to disseminate information about the expected governance policies, streamline communication and contribute to effective risk management practices.
Learn More with Athennian
Risk mapping in a manufacturing organization includes several fundamental stages, from risk identification and measurement through mitigation to risk reporting and governance. Meanwhile, as a part of the wider GRC agenda, risk management is directly related to effective governance and compliance framework.
With the global trend toward digitization, remote working and cross-border operation, effective governance and compliance require the application of digital technologies to automate GRC, implement a central database for all corporate data and streamline cooperation and communication. Please don't hesitate to contact the Athennian team for a free consultation and demo to learn more about how digital tools and entity management software can boost corporate risk management programs for manufacturing.