Manufacturing Redefined, With a Changing Risk Profile

Manufacturing Redefined, With a Changing Risk Profile

Photograph by Steve Cole

Last August, there was a ribbon-cutting for a 1.1 million-square-foot Caterpillar factory in Victoria, Texas. It was built to meet rising demand for machines like the 390DL hydraulic excavator, a 95-ton earth-mover. For many people, the word “manufacturing” conjures an image of large plants like this.

From his position as head of Commercial Markets for Zurich’s U.S. operations, Craig Fundum understands that fully. His insurance book of business covers a spectrum of companies “ranging from $5 million in sales up to the Fortune 500 level,” Fundum says. But as they ponder U.S. manufacturing’s next growth phase, Fundum and his colleagues are focused on potential contributions from smaller startups. They are glimpsing the prospect of entrepreneurial firms exploiting new avenues, such as 3-D printing technology, to fill a multitude of niches across the landscape.

“Our research points to a new dynamism in the way markets will be served by manufacturers,” says Fundum. “The forecast we are looking at shows localized, specialized manufacturing centers emerging to become important suppliers of products.”

His view is informed by Zurich’s proprietary study of the economic forces shaping current and future business trends. Newly mined information of this sort is vital to the Commercial Markets team’s basic mission of risk management and mitigation. Understandably, the discipline of underwriting creates a demand for current and reliable data about next-new-things. Once captured and distilled, that information can shed light on potential changes on the horizon—be they positive, negative or neutral.

And yes, there is a growing consensus that a 3D printing revolution is in the making. Based on an “additive manufacturing” approach (building an object by successively applying layers of material), 3D printing can deliver production capability to a small and lightly capitalized entity whose strength lies in conceptual or visual invention. The Zurich study suggests that traditional, centralized production plants will retain their dominance in large-scale products made of heavy materials, but yield in other categories to technologically robust micro-factories. Most likely, 3D printing will become a source of miracles and mishaps alike—and Zurich Commercial Markets takes an approach that will ready it for both.

From a risk perspective, it means advising client companies against developing a blind spot for these newer techniques. There is always the danger of vulnerability to underpricing or product obsolescence. Fundum, while attuned to these hazards, is also exploring frontiers of economic utility that a changeover like this seems to foreshadow. “It’s likely we’ll see a new business space open up for aggregator companies,” he reasons. “The market will be looking for whoever could be that interface between a network of micro-manufacturers and their end users—providing distribution, marketing, sales and other functions.”

The context for it all is a set of truncated and accelerated processes, he expects. “The common thread in whatever change unfolds from this would be efficiencies of nearly every type,” Fundum theorizes. “There are manufacturing supply chains out there now—and we insure them—that might be reduced in length and complexity by a great degree. There are stock-carrying patterns and delivery lead times that entire networks are based on that could be reduced dramatically or completely redefined.”

At any given point in time, the forecasting process is marked by a wide net that gradually cinches in. Scenarios of various likelihoods get drawn, from which policy and practices emerge. “We’re very used to preparing for outcomes that never occur, and that will be part of our efforts in the manufacturing category,” says Fundum. “But it’s a pretty safe bet that exciting changes will take place in this sector.”