Why 9 Out of 10 Business Leaders Fear Equipment Breakdown as a Threat to Continuity

A fast-moving economy and just-in-time delivery are a few of the factors contributing to increased equipment failure risk.
By: | December 15, 2019

It’s great that the economy is humming along and that jobs are added quarter by quarter.

But the cost of all this production to meet consumer demand is that many executives are losing sleep. The cause? Fear of production and manufacturing equipment failure.

According to a new study by FM Global, equipment failure is a major concern for Fortune 500-size companies.

There are a number of reasons for this.

Equipment failure is not only a substantial risk, but the risk of it is rising.

The healthy economy and the demands of just-in-time delivery mean that equipment, much of it aging, is working at or near capacity. The talent gap is also playing into this. An aging workforce, lack of proper training for equipment operators and increased operator turnover are all adding to the risk.

Any suspension of a production line with the economy running this hot can mean business interruption and a loss of market share to competitors.

Adding to the potential pain, as detailed by FM Global Executive Vice President Malcolm Roberts last year, is that most manufacturers and retailers operate with less inventory than they did in years past. That means the loss of market share is amplified when a production line is shut down, even for short periods of time, by an equipment failure.

A more modern equipment failure risk is that most industrial control systems are connected to the internet and are vulnerable to being hacked. Of the company leaders queried in the FM Global survey, 96% of them reported that their production systems are connected to the internet.

Only 3% of them reported that they were not, and — sadly — 1% didn’t know if they were or not.

We’ve mentioned business interruption and loss of market share as risks to be feared should equipment break down. But the list of pitfalls that can trail in the wake of an equipment breakdown is actually much longer than that.

Among survey respondents, 54% of them said a decline in earnings and/or revenue was their chief equipment breakdown fear. Next highest on the list, at 51% was the fear of increased scrutiny from investors. Introduction of regulatory compliance problems was next on the list at 50% of survey respondents.

Degradation of brand and reputation was next on the list at 48%. And the list goes on and on. Layoff and losses of key employees in the event of a production breakdown, at 29% of respondents, made the list as well.

The length of time that it would take a company to bounce back from an equipment breakdown may be underestimated by some.

Of the companies surveyed by FM Global, 75% of them said that it would take months for them to recover. Included in that percentage were 14% of companies that said their recovery would be measured in years, and 23% that said that their recovery would be measured in quarters.

The FM Global researchers concluded their report by saying, “A robust economy, turnover in the technical workforce and an increasingly potent cyber criminal community means every company should be scrutinizing its potential vulnerabilities now.”

Good advice. We wonder how many will take it? &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected].

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