Every digital touchpoint is exposing manufacturers to potential cyber-attacks.
Article by Kevin Stevens, Chubb’s Head of Industry Practices in Asia Pacific
The pandemic was an impetus to change the way Asian manufacturers do business.
Many leading manufacturers have taken the opportunity to invest in digital technologies, re-examine their business model, and strengthen their processes to create smart factories. Industry 4.0 is driving a wave of transformation to revolutionise how manufacturers have traditionally operated. Greater technology adoption also means that smart products equipped with microchips, sensors, and other electronic components are more commonplace on many manufacturers’ production lines.
While Industry 4.0 brings opportunities for new revenue sources, greater customer centricity and agile supply chains, it also exposes manufacturers to significant challenges and risks that need to be carefully addressed.
What are the most salient risks facing the manufacturing sector in Asia in 2022 and how can manufacturers address them to emerge stronger amidst a global pandemic?
Integrated Supply Chains Are Not Without Their ‘Cons’
The supply chain is an enormous pressure point for manufacturers. As we have seen over the past two years, pandemic-driven production disruptions in established manufacturing hubs and incidents such as the Suez Canal blockage have completely broadened perspectives on the types of events that can hamper the supply chain.
The increasingly interdependent relationships and connected systems between manufacturers, customers, and suppliers have led to trusted pathways between all connected parties, including logistics companies, IT suppliers, and financial service providers. Supply chain and vendor-based cyber-attacks exploit trusted access pathways and provide the threat actors with access to more potential targets, impacting every stakeholder in the supply chain.
With integrated supply chains and just-in-time inventory management becoming increasingly common, the margin for error continues to shrink with a shorter turnaround time and higher demand for customised products. When products embedded with defective components are distributed to third parties, it can trigger a domino effect within the supply chain. Root cause analysis into the defective product can disrupt production, jeopardise contractual obligations and result in product recalls. Consequently, lawsuits demanding compensation are increasingly likely.
Cybersecurity Threats Increasing In Prominence
The industrial Internet of Things and new technologies are changing how and which products are being manufactured. Processes that used to be manual are now digitised, data has transitioned to the cloud, and new innovations such as automation, advanced process controls, artificial intelligence, and robotics are being implemented by manufacturers who are looking to stay ahead of the curve in today’s digital-first world. This all requires an understanding of the new and heightened operational and cybersecurity risks facing manufacturers today.
Every digital touchpoint is exposing manufacturers to potential cyber-attacks. Amid the widened attack surface area, unauthorised access to both IT and operational systems can lead to a complete shutdown of production lines.
Globally, cyber-attacks targeting the manufacturing sector have increased both in numbers and severity. Chubb’s global cyber incident data suggests that in 2020, manufacturing was the second most targeted industry for cybercriminals. In addition to the significant increase in cyber incidents, Chubb’s global data also indicates that the average cost of a cyber claim is also at an all-time high.
Expanded Service Offerings Are a Gateway To Increased Exposures
To increase customer stickiness and revenue, many manufacturers are switching from a product-only model to one that includes more value-added services such as maintenance, installation, design, consulting and training. Essentially, this means that manufacturers are more connected to their customers and for a larger part of the product lifecycle.
Manufacturing smart products and network-connected devices also add an extra dimension to modern manufacturers’ risks. These products are susceptible to digital malfunction and unauthorised access that could result in failure to perform or loss-of-use issues for end-users.
These new offerings increase manufacturers’ exposure to compensation demands or lawsuits for potential financial losses incurred by customers or downstream supply chain partners, which could stem from a product or service defect or the failure to meet customer expectations, specifications or contractual requirements.
How Can This Dynamic Industry Become Safer And Stronger?
Manufacturers in Asia need to consider exposures differently as they confront these emerging risks that have not existed in the past. So, the first step to protecting a business is understanding what makes that business vulnerable.
One of the many tangible building blocks for a resilient future is to involve risk specialists who have deep knowledge of the industry’s complex risks. The importance of having in place a robust risk management plan cannot be stressed enough.
Besides actively preventing and reducing risks through tactics such as implementing quality control processes, investing in cybersecurity and formulating a Business Continuity Plan, manufacturers also need to utilise risk transfer mechanisms to enhance business sustainability. Effective risk transfer can be done through contractual arrangements and purchasing appropriate insurance solutions – from traditional risk transfer for simple operational exposures (e.g., system malfunction) to bespoke programs specifically designed for complex projects (e.g., implementation of advanced manufacturing and additive manufacturing technologies for your factory floors around the world).
Instead of taking reactive steps after things go wrong – which remains too common – now is the time for manufacturers to prioritise risk management, assess the procedures they have in place, what’s needed and whether insurance can address their emerging risks.
About the author: Kevin Stevens is Chubb’s Head of Industry Practices in Asia Pacific. In his role, he works directly with the industry to understand the emerging exposures faced by manufacturers around the region.
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