Avoiding risk in manufacturing operations

Risk. It’s something most manufacturing managers try to avoid at all costs. Of course, that isn’t always possible.

The typical manufacturing operation is a daily balance of risks and opportunities. Some risks are minor and acceptable. The chances of a specific occurrence can be calculated, contingencies can be planned and reactions can even be rehearsed — just in case. Other risks carry such serious ramifications that every possible precaution must be taken. These are the “what if” scenarios that keep the nervous CEO awake at night. Fortunately, IT solutions can help.

Whether you manage a young, growing company or a mature manufacturing operation with multiple branches and product offerings, risk management is a highly relevant topic. It is an area in which technology is rapidly changing and one where new ERP solutions are dramatically making an impact. If you haven’t stayed informed on the new functionality and best practices, you could be struggling with unnecessary worries and obstacles to growth.   

Risk management today is far different than it was a decade ago when executives weighed options based largely on a mysterious mixture of instinct, experience and luck. Some spreadsheets may have been an influence, perhaps even a chart showing a trend or a few statistics predicting odds. But few seasoned veterans of manufacturing will refute that critical decisions were often made on hunches. There was an art to playing the risks.

Sometimes this worked. Sometimes it did not. The ill-fated decisions are often the ones that stand out from the annals of fame and fortune, causing many new MBAs to vow to never say “that can’t happen to us” when considering the misfortune of belly-up competitors. Risk is real. It is all around and, thanks to the high stakes of government fines, punitive litigation and global supply chains, it is more serious than ever.

This driving need has prompted software providers to tackle the issues with the most powerful tool they have available: data.

For a manufacturer, the goal of risk management is rather basic. The manager wants to identify the risk, understand the impact, weigh preventive options and prepare for the impact, if there is one. Data makes each of those goals highly attainable. Information gleaned during normal business operations can point to all of the relevant answers. You just need the right ERP solution and quality control tools to extract the correct date — and put it in a consumable format. Then, the informed manager can make relevant, in-context decisions — based on facts, not instinct. Risks can be understood and avoided — or accepted and tolerated.

Yes, some risks can certainly be tolerated, especially when they are analysed in the black and white reality of statistics. For example, is there a risk that the pallet system used for storing paper goods in the warehouse will fail after prolonged usage? Yes, any material storage system, without proper maintenance, has a predictable lifespan. But when will this failure likely occur and what will be the impact? In some cases, dropped or dented goods are minor incidents. Perhaps some scuffed packaging means a discount will need to be offered to a wholesale customer. In other instances, when the stored materials are toxic chemicals, rare raw materials or mission-critical parts, the reliability of the pallet storage system needs much closer scrutiny.

Today’s advanced ERP solutions with integrated business intelligence tools allow managers to see a variety of risk management decisions with greater clarity. Self-service reporting tools and role-based dashboards now give employees the ability to ask difficult “what if” questions and uncover the answer quickly and easily. The data holds the answers.

Employees can then become actively engaged in identifying risks and opportunities to avoid negative effects. They can become more alert to early signs that a customer’s shipment may be delayed or outside of variance tolerations. When caught early, appropriate steps can be taken to avert costly delays, customer complaints or shipments refused due to quality issues.

In some industries, complying with federal regulations or association standards is a monumental concern and exceptions must be averted at all costs. Recalls in the automotive industry or the food and beverage industry can be disastrous — not only financially but in regards to the safety of consumers.

In such risk-averse cases, additional IT tools can be leveraged to add safeguards and help monitor compliance. Automatic checks and balances can be built into workflows, just as escalation alerts can be created to signal employees when key critical performance indicators (KPIs) fall outside tolerance. Automatic emails to managers, “freezes” on further action and a variety of “red flag” devices can be used to trigger further examination of the details.

Quality control solutions can be used to enforce a wide variety of risk avoidance steps and guarantee compliance with best practices guidelines, as well as critical mandates. These robust tools, along with an end-to-end ERP solution, provide managers with one real-time version of the truth and allow managers to monitor compliance with continuously changing regulations, high volume transactions and regulatory reporting.

Monitoring for fraud, protocol violations and misuse of funds or company policies can also be tracked, giving managers an added sense of confidence and security that all branches and divisions are operating within boundaries. This extra layer of security adds to the ability to grow, acquire new companies and expand into new regions.

Today’s advanced ERP solutions help ensure company procedures are followed, plus help direct employees to resources for support, training or knowledge banks. Collaborative tools also aid in allowing employees to form teams, mentor relationships, record critical decisions and document due diligence. This “paper trail” is often useful when verifying facts and processes.        

For many companies, risk management simply means delving into the financial ramifications. ERP solutions and analytical tools are now also able to master with greater ease efficiency and intuitive insight based on the underlying objectives. Analysing the dollars and cents associated with a risk no longer requires an advanced accounting degree or senior-level IT background. Manufacturers who have turned to modern ERP solutions get the benefit of screens and applications that look and feel much like their consumer devices. They are intuitive, easy to use and provide the information in context. The solutions anticipate your question and push the relevant data to you before you even have to ask. This saves time and enforces best practices. It reminds employees of what safeguards they need to be checking to ensure risks are avoided.   

Although IT solutions cannot totally eliminate the risks that manufacturers face, they give you the tools you need to make well-informed decisions and take expedient action. In some cases, as in a food or drug recall, tracking the affected supply chain partners, batches and shipments can mean high stakes — of costs and safety.

Risk is a serious concern, one that must be addressed by any conscientious manager. IT solutions make the risk easier to define, identify and manage.

Mark Humphlett is industry and solution strategy director at Infor.