Onshoring Operations: Tips to Keep Risks from Hitting Home

July 18, 2017

17285MKTOnshoringOperationsBlogWD_thumb-(2).pngA trend among U.S.-based manufacturers is the onshoring or “reshoring” of production operations. Over the last several years, more companies have opted to bring some of their offshore activities back home. This trend is likely to accelerate if Congress takes up the administration’s pledge to create more domestic manufacturing jobs.
Regardless of prospective changes in federal legislation, more manufacturers, including General Motors, are deciding that some of the disadvantages outweigh the benefits of offshore operations. Disadvantages include longer and more complex supply chains, rising salary and wage costs, difficulty in finding the right talent, slow infrastructure development and, in certain countries, political instability. Benefits of onshoring, meanwhile, include proximity to suppliers and customers, strong supporting infrastructure and a stable environment for business.
As manufacturers weigh the pros and cons of onshoring, they should consider some tips to reduce the risks of bringing operations back home:
Recalculate asset values. Modern manufacturing equipment often consists of expensive and sensitive components. If onshoring requires new construction or a move into established facilities, companies may need to revise their property insurance schedules to account for changes in the value of their production assets.
Keep sight of site exposures. Locations desirable for manufacturers in various industries may increase their vulnerability to windstorms, wildfires, flooding or earthquakes. Depending on the geography, retrofitting or fortification to protect against natural catastrophes could be a wise investment.
Assess liability exposures. Liability as a legal concept and as a means of recovery is foreign in some countries’ cultures, unlike in the United States. Onshoring can increase a manufacturer’s liability exposure and gaps may arise in primary and excess liability coverages.
Take stock of workers compensation. Bringing jobs back home or expanding payrolls usually means increasing workers comp exposures. In manufacturing settings, where workers interact with and handle materials, strains and hand injuries, for example, can create significant claims. Examining and improving safety practices to reduce workers comp claims will pay off.
Bolster cyber security. Modern manufacturing systems rely on electronics, and a lot of today’s equipment is computer-controlled. Any equipment that is connected to the internet is potentially exposed to cyber attacks. Data loss may at first glance appear to be less of a concern in manufacturing, but if sensitive data such as trade secrets or customers’ intellectual property reside on a manufacturer’s computer network, it could be stolen. Another major worry for manufacturers is unauthorized use of equipment, which can disrupt operations and even damage equipment. Make sure that cyber security measures are strong, to prevent hackers from remotely controlling machinery or forcing it to shut down.
Manufacturers should consult with their agents, risk advisers and insurers to ensure that their operations, whether onshore or elsewhere, remain safe, efficient and running. For more information on manufacturing and property-casualty risk management, visit Amerisure’s Insights blog.