Modern manufacturing are Efficient but vulnerable
Growing competition in manufacturing sector has pressure and narrow product cycle that encouraged many sectors for optimization which lead to efficiency of manufacturing process and globally adopted division of labor. Industries and insurance sector need to take account of the new business interruption scenarios. To be in the global competition, firms have started cutting their unit costs in recent years. There are many ways for them to achieve this. Supply chain, can be streamlined by efficient use of a small number of highly qualified and best suppliers. This has created oligopoly or monopoly for specific products, such as highly preferred microelectronic components. Companies often work on a just in time basis as an efficient way of supplying the increasing variety of models and versions their consumers demand for. Reduce stock level and reserve production helps to cut costs.
Increased network manufacturing process also require intensive exchange of data between all competitor, dramatically high dependence on internet availability, along with the risk of losing the data, theft and manipulation of data. As most of the companies focuses on core competences with high added value. The % of components manufactured frequently declines. This trend has now moved in ‘fabless manufacturing’, a process in which the manufacturers of the smartphones, for example, completely outsource production and concentrate on development of sales and marketing only. It is closely linked to the worldwide division of labor. Based on exploiting the cost benefits of individual production unit, this method greatly increases transport volumes between the individual production and locations. Sales channels are in the hands of small number of partners who market large shares in total production.
The first step towards reducing the business risk is to analyze the problem. The products and product groups with the high contribution margins must be identified first, as they are relevant for Business. Their manufacturing process is analyzed with regard to potential disruptions. Capacity utilization and possible technical reserve and redundancies within individual production location must be taken into consideration, as well as the relationship between individual. The next important step is to identify potential contingent business interruption losses .External factors are able to influence production and distribution must be analyzed for this purpose. This analysis emphasis on external supply chains and also the sales channels to the customer.
Once the weak points are identified, the further step is to check whether they can be remedied by technical or organizational means and at an economical viable cost. In most of the cases, this analysis showed that measures taken in the past to cut costs have in fact increased the risk. Risk management plays the vital role in this situation to cope up the losses. Analysis must identify and identify technical or commercial approaches which reduce the risk of business and establish a reasonable price for the additional risk carried.