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It’s been a rollercoaster couple of months for manufacturing in Australia, with the Australian Government promising over $1.5 billion to modernise the sector and create new markets and industries to accelerate the COVID-19 recovery, with many organisations already re-tooling their operations to produce new products.
This is an exciting time for Australia’s manufacturing future. It’s also one which we expect to further accelerate the automation of existing manufacturing outfits and the establishment of new, more highly automated production lines.
A recent study by Pitney Bowes reports that automation can assist in freeing up capital to invest in creating new and better-paying jobs. Another report by Bain & Company entitled Labour 2030: The Collision of Demographics, Automation and Inequality, forecast automation as one of the key drivers of change that will create an economic boost for Australia over the next decade and offset a slowing in labour force growth.
At FM Global, we’ve certainly seen an increase in policyholders who are looking to integrate automation into their production lines. This tracks the evolution and advancement of robotic technology. Twenty years ago, you could get a robot to pick up a pallet. Now automation has become more dextrous and nimble, performing more challenging jobs that previously only humans were capable of doing. There’s an opportunity to remove repetitive manual tasks from the remit of people and to utilise advanced artificial intelligence to ensure quality control is maintained at a level that the human eye alone cannot support.
But with all new opportunities, come new risks – as we dive headfirst into a manufacturing future, companies should take pause to reflect on how their risk profiles may change when implementing automation. There is a need to balance business interests in greater efficiency and increased profitability with minimising new risks.
This is particularly important given the tough environment manufacturers have found themselves in in recent years, with a growing trend of large losses. This is highlighted by the fact that the combined ratio for the Industrial Special Risk sector, which includes manufacturing, has been higher than 100 per cent over the last three years – paying out more in losses than it recoups in premiums.
It’s critical to upgrade your fire detection system if automation becomes a larger part of your production lines. But perhaps not for the reason you might expect. With automation, you will lose a crucial but perhaps underplayed component of your fire protection system: people. In a factory full of people, a small fire in the area is likely to quickly be detected and acted upon. Without people in the mix, fires may turn into much larger events before they are detected.
Automation also brings with it a shift in value density on the manufacturing floor. With the introduction of high-value automated production machines, building footprints can decrease, as less space is commonly needed. Simply put, businesses end up with more value – in terms of equipment and the value of that equipment and what it can produce – associated with a particular square metre of floor space.
While this may save on property costs, higher value density brings with it a greater chance of increased fire, smoke and water damage if you do have a fire.
For any manufacturer implementing greater automation on their manufacturing lines, strengthening fire detection and protection systems – including more sensitive detection and improved sprinkler systems – will be critical. Additional separations between production lines can also help to mitigate the spread of fire should it occur.
The introduction of more automation technology will significantly increase the risk faced by manufacturers from cyber threats. This is against a backdrop in which manufacturing companies are increasingly being targeted by cyber attackers. When the Petya malware attack struck in 2016, FM Global’s loss data shows that two-thirds of those affected were in manufacturing.
Since automation brings with it a larger array of opportunities for hackers to infiltrate your operational technology, additional defences must be put in place. FM Global advises its clients to consider cyber threats from the point of view of prevention, mitigation and recovery.
Prevention includes everything from physical security – who can access your building and machinery and how easily – to assessing your information security systems. This is an evaluation of your inherent cyber risk, your people, programs and technology, as well as your ability to detect, respond and recover from a cyber attack.
Due to greater internet connectivity, there has been efficiency and convenience benefits by having online access to automated manufacturing systems from anywhere in the world, but this has also led to an increased cyber risk. With the growing trend for remote working, this risk is heightened as more and more equipment, systems and processes can be monitored, interrogated and adjusted from a remote location.
Ensuring that access to such systems is secure and that solid network safeguard practices are in place is critical. During our evaluation of various industrial control systems, our engineers often find that critical production equipment have service agreements with the original equipment manufacturers who offer “dial-in support” and they have full access to the site networks, often using default passwords. We have also come across industrial control systems that are arranged such that they unintentionally bypass the firewalls in place.
At stake is the possibility that automated equipment is infiltrated by a cyber attacker, leading to either a malfunction, a stoppage or even initiating a fire event. In all cases, business interruption can result – leading to major losses.
Each of these threats points to another key priority in a more automated environment: the importance of considered change management and adequate contingency plans. In the case of the former, we advise that organisations must take a thorough, policy-based and consistent approach to deciding when to introduce new technology into their environment, as each decision can have a knock-on effect for your risk profile.
Who gets to decide when a change is needed, when it can be made, and what risk management steps need to be taken as a result? These are important questions to answer in advance.
With greater reliance on technology comes a need for adequate contingency plans in the case of an equipment malfunction or breakdown. This should consider the business impact of a particular piece of equipment being out of service and might also address whether your business has adequate stockpiles of materials or products to get by until it can be repaired. Without such plans, any financial benefits that might be obtained through automation can quickly evaporate if an incident results in prolonged business interruption.
With a renaissance in Australian manufacturing under way, automation is bound to play a key role in keeping businesses competitive. Managing evolving risks, from fire to cyber, will be critical to making sure manufacturers get the most out of the exciting opportunities that lie ahead.