Risk Management Strategies and Insurance for Manufacturing Companies

person on tablet in manufacturing setting

With over half of the senior executives in the U.S. worried about "risk and compliance" as a major threat, it is obvious people need to pay attention to it. The manufacturing world is full of potential issues that might impact profitability. As such, it is important to be aware of what they are and how to deal with them.

Below, you will learn a little more about risk management and some of the strategies manufacturing companies can use. As you read the article, compare them with what you are already doing and see where potential coverage gaps might be if the worst happens. Once you identify the holes, hopefully, you can acquire the appropriate coverage and resources to improve your risk management strategy.

Risk Management in Manufacturing Companies

The manufacturing industry is notorious for its association with various types of risk. 

For example, in the production process, there are plenty of physical risks. Some companies maintain fast, large-scale production, whereas others might use hazardous materials. Thus, you can expect a level of risk of damage to persons or property. 

Manufacturing companies also need to be aware of the possibility of disruption to a supply chain. As they make physical products, they not only need a high level of incoming supply but also the freedom to ship things out. If there is a blockage somewhere in either of these processes, things can back up fast.

These days, companies also need to be aware of the possibility of cyber threats. In theory, any electronic equipment attached to a network could be at risk from malicious actors. As such, protection must be in place to prevent that.

On a more legal level, companies also need to not only be aware of the regulations they must follow. They should also pay attention to when changes in laws come about so they follow any legal requirements moving forward. If they do not, they could come under fire from government bodies that might fine them or even undertake legal action.

Even when a company completes a product and ships it out, they need to ensure it is as safe as possible. While robust quality assurance procedures are a sensible step, they are not always enough. A company is liable for any failures in the things it creates, and so if a customer is harmed, you will need to have coverage and a process in place to handle it.

The Importance of Risk Management

With all the above potential risks in mind, it is important to understand the ways your company might face trouble should one spring up. Risk management can help mitigate many of these areas of concern.

For example, if your company comes under fire due to a problem that occurred during or after manufacturing, you could end up paying out. This might be a contractual obligation, a loss of money due to an unexpected event, or a legal obligation following a liability case.

Engaging in risk management means finding ways to prevent or recoup such payouts. By communicating early and often with lawyers or legal advisors, you can make sure you cover all your bases. This means you will perform all the necessary steps to keep people as safe as possible.

Regulatory consultants or advisors can also help ensure you keep up with industry standards when it comes to production. This way you can avoid any fines you are less likely to be faulted for any issues that arise. Thus, you can both avoid a financial payout and maintain your reputation as a safe employer and community leader.

On top of this, any problem that crops up always has the potential to impact your ongoing business. In a perfect world, you want your supply chain, production line, and employee management to work at peak efficiency. If there are systems in place to mitigate such slowdowns, you can ensure your operations do not grind to a halt.

In short, by engaging with risk management you stop yourself from falling onto the back foot when it comes to your business. Your competitors will not be able to take advantage of any issues that come up, and you can continue as normal. 

Risk Management Strategies

As seen above, ensuring you have strong and effective risk management strategies can protect your assets. By doing this, you can make sure you do not fall behind when things go wrong.

Some of the risk challenges you face, though, have very simple solutions you can put in place. The following are some of the strategies you can implement to keep your business from being unprepared:

Employee Training

By using training programs, you can start to teach your employees about the potential dangers they might find in their workplace. Training, from dedicated trainers and their superiors, ensures everyone knows the rules from the get-go.

When you do not train your employees, you can be held liable for not informing employees of the dangers in the workplace. They could also make the case they could not have acted in the appropriate way as they were not trained and did not know what to do.

Safety Rules

Rules for all employees help them both understand where potential risks are as they perform their roles, as well as comprehend how to avoid them. It is not only employees, though, who benefit. Visitors, customers, and anyone else who might visit will also avoid harm.

Safety rules could apply to any number of areas of your company. Such rules might include using personal protective equipment (PPE) such as:

  • Aprons
  • Coveralls
  • Gloves
  • Hard hats
  • Respirators
  • Gloves

The use of hazard identification signs can also ensure people follow the rules around different areas of your premises. The clearer these warnings are, the better for those who might not have received employee training.

Other rules might include people only having access to certain areas for safety reasons. If it is affordable, you can also back this up with the use of electronic access control.

Regular Maintenance

There is no point in training people to recognize risks if there is no way to monitor and evaluate equipment malfunctions. As such, your employees should check the tools they use and the facilities at large for possible danger.

Many things your company might work with also demand regular checking as per the laws and regulations related to their use. Equipment safety has its own set of rules, which you will want your people to understand so they follow them.

These laws are not always for safety reasons, as they may relate to the quality of your products or even environmental protection. Regardless of the reason, you might face reputational harm if anything goes wrong.

If you do not engage in regular maintenance, you put people and assets at risk when equipment failures and accidents occur. On top of that, repairing your equipment will lead to a great deal of downtime. This is especially true if there is more expensive damage that occurs due to a lack of maintenance.

Emergency Response Plans

An emergency response plan can help mitigate a lot of the issues should the worst happen. They are usually in place in case of some of the most extreme problems that could occur.

Such situations could be something like the destruction of equipment or data. They could also include events like natural disasters.

If you intend to put together an emergency response plan, you should start by conducting a proper risk assessment. This can help you discover potential risk areas in your company. It enables you to work out what is most vulnerable, and also what could cause you the most harm should a problem occur.

Such a plan will help you focus your attention and work on the scenarios where you have the most to lose in the easiest manner.

Once you have worked out where the biggest risks are, you need to put emergency procedures in place. You should record these and make them accessible for all employees who might need to use them. Examples of the kinds of things you might need to have procedures for include:

  • Natural disasters
  • Fires
  • Chemical spills
  • Epidemic or pandemic
  • Power loss
  • Large-scale damage to equipment
  • Death on the premises

You also need to work with your employees to determine who should be responsible for each of these. You should also have redundancies in place for this responsibility. At the same time, make sure there is a clear line of training and coverage should people leave their position.

Once you have trained people in these positions and have procedures ready and recorded, you should evaluate and update them regularly. This will prevent you from falling behind, and make sure your actions fit the regulations set by the government.

Insurance Coverage

Making sure you have insurance coverage is a very important part of your risk management strategy. After responding to any issue, you need to make sure that you can get back to normal as fast as possible, and insurance will allow that. If the situation is untenable, insurance will allow you to receive appropriate compensation so you do not end up at a loss.

Assuming the right coverages are in place, your finances can remain stable in the long term, leading to a much higher chance of bouncing back.

Types of Insurance Coverage Available

Part of preparing for the impact of risk on your company is risk financing. A major way of implementing risk financing and recovering from risk-based losses is by having good insurance.

There are many different kinds of insurance programs, each of which is able to secure a different part of your company. Some examples of these include:

Property Insurance

Physical disasters such as fires, storms, flooding, or earthquakes can cause havoc. They interfere with your ability to continue your business. Picking up property insurance will help reimburse you in case of any losses resulting from such events.

It is not only the physical buildings that you cover with such insurance. It can also cover your equipment, your computing infrastructure, and any inventory you might have on-site.

Product Liability Insurance

When there are product defects, they are not always caught by quality control experts. At times, the quality control team makes human mistakes, or their processes are not tight enough. This is where product liability insurance comes in.

If a failure in your product causes harm to others, you need to know you will not face an interruption in your income. At the same time, re-assessing safety standards and inspections may cause business interruptions. Liability insurance can cover these eventualities.

Workers' Compensation Insurance

It is a sad truth that manufacturing companies suffer from a higher chance of workplace accidents than many other industries. The nature of the work people in manufacturing do, as well as possible health issues related to the workplace, all demand compensation. Workplace compensation insurance ensures you do not have to pay out-of-pocket for this.

Business Interruption Insurance

Equipment might break down, you might see issues with your supply chain, or any other issue could cause an interruption in your work. When this happens, business interruption insurance covers you for the time you cannot produce things for your clients.

With this insurance, you should have the ability to ride out any bumps in the road and continue working afterward. 

Insurance as a Part of Risk Management

With this article, you should have a much better idea of how manufacturing companies should use risk management. We also hope we have helped you see how insurance plays a huge part in that. This is where we can help you offset any problems you might have during the course of your business.

We have specialists ready to discuss with you what we can do to help mitigate your risks. So, give us a call today to find out how we can cover you in case the worst happens.