Cyber security enters U.S. manufacturers’ Top 10 risks: BDO

Cyber security now ranks among the Top 10 risk factors of manufacturers south of the border, notes a report issued Tuesday by accounting and consulting organization BDO USA, LLP.

The lion’s share of manufacturers in the United States analyzed in the study – 92% – cited cyber security concerns in their U.S. Securities and Exchange Commission (SEC) disclosures in 2016, the Chicago-based company notes in its 2016 BDO Manufacturing RiskFactor Report.

“That represents a 44% jump from 2013 – and the first time in BDO USA’s analysis that cyber risk ranks among manufacturers’ top 10 risk factors,” notes BDO USA, the U.S. member of BDO International Limited.

Analyzing the latest 10-K filings from the largest 100 publicly traded U.S. manufacturers across five key subsectors, the report further indicates 91% of the manufacturers also point to operational infrastructure risk, including information systems and implementation of new systems and maintenance.

The report cites IBM information, which reports that manufacturing was the second-most targeted industry for cyber attacks in 2015.

“While the industry may have flown under the radar as high-profile attacks against the retail, financial services and healthcare industries made headlines, manufacturers’ information, intellectual property and products have become prime targets for cyber criminal,” the report cautions.

As data and connectivity transform the industry, “smart, connected products and processes make for vast amounts of data and more network entry points for bad actors,” notes a statement from BDO USA.

That being the case, Rick Schreiber, partner and national leader of the company’s manufacturing and distribution practice and a board member of the National Association of Manufacturers, emphasizes in the statement that “as the industry races toward the next frontier, manufacturers must strike a balance between progress and security.”

While data analytics and the Internet of Things may spur the next industrial revolution, Schreiber comments that brings with it increased exposure to cyber risk. “Manufacturers still have some catching up to do to adequately protect their data, customers, products and factory floors,” he suggests.

“While manufacturers recognize the cyber issues, only 8% in the MPI Internet of Things Study, sponsored by BDO, say they are very confident in their ability to prevent an IT breach,” states the report.

“The push to get leaner and meaner and keep up with emerging technologies, like the Internet of Things, machine learning and virtual reality, appears to be contributing to related business risks,” BDO USA reports.

“All it takes is one weak link in the security chain for hackers to access and corrupt a product feature, an entire supply chain or a critical piece of infrastructure,” Shahryar Shaghaghi, national leader of technology advisory services and head of international BDO cyber security, warns in the report.

“The stakes are too high in the manufacturing industry for complacency or inattention. Security can no longer be considered an add-on to products and processes. It must be built in from design to distribution, and monitored with a high level of priority,” Shaghaghi emphasizes.

While emerging and growing risks in cyber security, competition, labour, pricing, regulations and international operations are keeping manufacturers up at night, the report states, the most frequently cited risk factor was supply chain, noted by 100% of the manufactures analyzed.

Pressures such as worry about the inability to properly execute corporate strategy or the ability to develop and market quality products that meet customer needs “could be propelling manufacturers to pursue merger and acquisition transactions in an effort to achieve scale and new capabilities,” the BDO statement notes.

In all, 92% of manufacturers cite the inability to manage, complete and integrate current or future M&A or joint ventures this year, up from 88% in 2015.

The report offers views on fabricated metal, food processing, machinery, plastic and rubber, and transportation equipment. Looking specifically at food processing, the report notes that processors had a number of concerns around contamination and product quality issues, including 90% who cite weather concerns and 85% who cite product liability and insurance risks.

“Product recalls are also matters of public health and safety, so the reputational repercussions are often severe,” the report cautions.

Other reports findings include the following:

• 94% of manufacturers note threats to international operations and sales, up from 93% last year;
• 70% of manufacturers worry about their ability to comply with anti-corruption and bribery laws, up from 45% in 2013;
• federal, state and local regulations are highlighted by 99% of manufacturers in their annual SEC filings and are among the top two risks for the fourth year running; and
• 95% of manufacturers cite environmental regulatory risks, with 42% specifically mentioning regulations around emissions standards.

“When done right, risk management can be more of a boon than a burden to manufacturers by reducing costly errors and enhancing the operational foundations of the business,” Dawn Williford, south region leader of BDO’s risk advisory services, suggests in the company statement.