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Whole industries are going on a digital trip, but they will need to shore up their IT defences beyond all reasonable measures. Image Credit: Reuters

Manufacturing companies have slowly but steadily been automating their production processes to achieve efficiencies and improve quality. In recent years, these production processes have become increasingly digitalised; aligning production equipment with other applications such as enterprise resource management or logistics systems.

As we enter a new industrial revolution - Industry 4.0 - large-scale machine-to-machine communication (M2M) and the industrial Internet of Things (IIoT) are starting to achieve wider operational integration, offering increased automation, improved communication and self-monitoring. In addition, we are seeing the introduction of smart machines that analyse and diagnose issues without the need for human intervention.

Industry 4.0 fosters what has been called a “smart factory”. Within which, automated systems monitor all of the factory’s physical processes, creating a virtual copy of the physical world and making decentralised decisions that seek to improve operational effectiveness and efficiency.

Manufacturing is set to become a “cyber-physical” system, which offers an information-transparent environment that facilitates significantly improved asset management, re-configurability, and productivity.

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Risks come with it

As manufacturers increasingly adopt more sophisticated digital production processes, new cyber risks start to present themselves. The risk of business interruption from a cyber-event at one or more factories - specifically from threats like ransomware - is a real concern. Such attacks can lead to defective products, production downtime, physical damage, and potentially even injuries and death.

Manufacturers who are working hard on ensuring that their supply chains are digitalised can expect improvements to the management and flow of materials and goods. Unfortunately, this also provides new opportunities for cyber-criminals who can target production lines and damage not only the technology, but the physical infrastructure too.

Need for new

These changes will also drive a new workforce, one that needs to be in tune with technology. As companies look to develop their smart factories they will need to consider the human elements; the need for training, capabilities, and knowledge.

This will also include managing the transition from the physical to the intellectual where roles will not be lost but will change. This will result in more cyber exposures as employees will be required to utilize more tech tools, software, and platforms to fulfil their roles.

Smooth out processes

Furthermore, digitisation of back-office activities is also rapidly becoming a reality in the manufacturing industry due to the efficiency offered by AI and robotic process automation. While the use of AI can boost productivity of tasks that require data-analysis (such as sales reporting and forecasting), automation can also help increase productivity of transactional tasks that allow for a better, and seamless, user experience.

Moreover, automation can help reduce the human effort required to carry out routine transactional activities, enabling employees to focus on value-adding tasks. However, to fully leverage this capability, employees will need to develop new skills and enhance their digital competencies.

On alert

Finally, the theft of sensitive commercial data is a specific concern for manufacturers. Many manufacturers possess the blueprints and intricate details of intellectual property belonging to either themselves or third-parties. With high levels of competition within the manufacturing sector, industrial espionage is a common threat.

Hackers too, are aware that they can demand high ransom payments in exchange for unencrypted data, as well as use personal information for the purposes of fraud or blackmail.

Manufactures need to be more aware of the impact to themselves, their supply chain and what the potential financial implications could be as a result of these risks. In light of the current wave of ransomware attacks, we are seeing an increased interested in transferring these losses off manufacturers’ balance-sheets in order to protect their business.

Undoubtedly, those manufacturers with smart factories will have a competitive advantage, with increased operational efficiency, reduced environmental impact and improved future planning. But, this comes at the price – they are at a significantly greater risk of cyber-attack, being the target of ransomware, data theft or industrial espionage.

- Simon Bell is with the Financial and Professional Liability Practice at Marsh.