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Half of manufacturers experienced data breaches in past year, report finds

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Fifth annual Manufacturing and Distribution Report from Sikich also finds many executives are preparing for a recession

CHICAGO — June 24, 2019 — Manufacturers face a barrage of cybersecurity threats today, and half of companies have fallen victim to at least one data breach during the past 12 months, according to the 2019 Manufacturing and Distribution Report from professional services firm Sikich. Of the 50% of respondents who said their companies experienced data breaches, 11% said they had experienced “major” breaches. Still, executives believe their companies can thwart attacks. A majority (54%) said they are “extremely” or “very” confident in the ability of their companies to prevent or minimize the impact of data breaches.

“Cybercriminals have moved on from focusing primarily on organizations rich in sensitive personal data, such as financial or health care institutions,” said Brad Lutgen, partner-in-charge of Sikich’s cybersecurity practice. “Instead, they target any organization with IT weaknesses and attempt to turn a profit through ransomware and other cyberextortion techniques. In response to this growing threat, manufacturing executives must make security a core corporate priority and push forward the implementation of preventative measures in their organizations.”

The report found that many manufacturers – especially those with revenues under $500 million – neglect key cybersecurity preparedness efforts. Overall, less than 40% of these smaller companies perform cyber audits (38%), penetration testing (33%), security assessments of vendors (32%) and phishing exercises on employees (31%).

Sikich’s 2019 Manufacturing and Distribution Report offers a comprehensive look at industry executives’ priorities and concerns related to technology, labor, the economy and more. Sikich surveyed 310 companies. The participants spanned the industry, including wholesale and distribution; industrial equipment; metal fabrication; apparel, footwear and textiles; chemicals and petroleum; aerospace and defense; and food and beverage.

A limited embrace of automation

Though a majority of respondents have automated in some way production processes and machining, assembly, and packaging, only about a third said they have “extensively” automated these areas. Notably, even fewer manufacturers maximize their use of the most advanced technologies. For example, 24% use robotics extensively, while 23% say the same about 3D printing and additive manufacturing. Only 34% of companies use the industrial internet of things extensively, though that number rises to 57% when just accounting for manufacturers with revenues of $500 million or greater.

“To compete in today’s fast-paced and evolving manufacturing environment, companies must embrace every efficiency-enhancing tool available,” said Jerry Murphy, partner-in-charge of Sikich’s manufacturing and distribution practice. “While the largest manufacturers have made meaningful strides down the path of digital transformation, it’s time for everyone else to follow suit. Incorporating automation holistically across a manufacturing operation can help a company enhance efficiency, ease market pressures and gain a competitive edge.”

Manufacturers prepare for a recession

Amid a decade-long economic expansion, manufacturers are bullish but still preparing for a downturn. Only 27% of the executives surveyed believe it is “extremely” or “very likely” that the U.S. economy will enter a recession in the next 12 months. However, that number rises to 49% among companies with $500 million or more in annual revenues. Overall, 63% of respondents are preparing for the possibility of a recession.

Despite the current economic boom, there are notable challenges on the horizon fueling concern of a downturn. Uncertainty surrounding global trade policy continues to hover over the industry. Nearly 40% of respondents expect trade developments to have a positive impact on their companies, while 35% said they expect a negative impact.

Manufacturers are also mixed on how the expansion of e-commerce has benefited or hurt their operations. Nearly half (49%) of the companies surveyed said they use e-commerce to sell their products. Of these, 39% said sales from e-commerce have exceeded their expectations, while 37% said sales have been disappointing.

Further, labor challenges remain an impediment to growth. When asked to identify obstacles to innovation, 53% of respondents cited “finding and retaining the talent needed” as “extremely” or “very” challenging.

“Despite a long run of impressive economic growth, manufacturers face challenges related to rapid changes in the industry, geopolitical uncertainty and the prospect of an eventual economic downturn,” Murphy said. “The manufacturers that thrive in the years ahead will be the ones that embrace advanced technology and proactively take steps to fortify their operations against cybersecurity, labor and economic challenges.”

Click here to download Sikich’s 2019 Manufacturing and Distribution Report.

Sikich LLP is a global company specializing in technology-enabled professional services. With more than 850 employees, Sikich draws on a diverse portfolio of technology solutions to deliver transformative digital strategies and ranks as one of the largest CPA firms in the United States. From corporations and not-for-profits to state and local governments, Sikich clients utilize a broad spectrum of services* and products to help them improve performance and achieve long-term, strategic goals.

*Securities offered through Sikich Corporate Finance LLC, member FINRA/SIPC.  Investment advisory services offered through Sikich Financial, an SEC Registered Investment Advisor.

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