Modern manufacturing is rarely self contained. Original equipment manufacturers (OEMs) and system integrators are deeply embedded in operations, and while that close connectivity delivers efficiency, it also introduces third party risk that can disrupt production and revenue.

OEMs can create exposure through defective or delayed parts, service failures, supply chain interruptions, recalls and remote system access. Integrators can amplify that risk further because they are often granted elevated access to configure, connect and maintain critical equipment.

Acera Insurance’s Jen Warman, a Senior Client Executive with more than 14 years of experience advising Canadian manufacturers, explains the risks that arise through OEM and integrator relationships and what manufacturers can do to reduce the potential impact to production.

How partner ecosystems increase exposure in manufacturing

Very few manufacturing activities happen in isolation. From sourcing raw materials and shipping finished goods to maintaining machinery and managing connected systems, third parties play a role at almost every stage.

While internal risks inside the plant often receive the most attention, external partners can expose manufacturers to vulnerabilities they don’t always see or control. OEMs and integrators, in particular, operate so closely with manufacturing environments that problems on their end can quickly become your problem.

Although manufacturers can’t eliminate third party risk entirely, they can manage it. That starts with understanding how OEM risk differs from integrator risk, where failures tend to occur, and how to limit damage when disruptions happen.

The differences between OEMs and integrators in manufacturing

OEMs are responsible for producing the machines, components and technology that manufacturers rely on to operate.

Integrators, on the other hand, take those products and install, customize and connect them into functioning systems. That often includes configuring software, networks and operational workflows within the manufacturer’s environment.

The distinction is important because each introduces risk in different ways:

• OEM related risk often affects manufacturing through parts quality, availability, design flaws, support limitations and defects.
• Integrator related risk frequently centres on cybersecurity and system integrity due to the level of access required to configure and maintain systems.

Common risks driven by OEM reliance in manufacturing

When manufacturers depend heavily on OEMs for critical equipment or components, risks emerge in several ways:

1. Defective or delayed components
   A faulty or late part can halt production entirely. Quality issues, counterfeit components or supplier errors can surface downstream and leave manufacturers responsible for delays and corrective measures.
2. Equipment failures and service gaps
   OEM disruptions can ripple quickly. If an OEM experiences a breakdown or supply issue, parts availability can dry up overnight. Compounding the issue, OEM support often ends for older machinery, making repairs slower, more expensive or unfeasible.
3. Design limitations and software dependency
   Design flaws and software issues are another significant concern. One often overlooked exposure is proprietary or “locked in” technology, where only the OEM can perform updates or repairs. If support is delayed, limited or discontinued, your capital investment is at risk.
4. Supply chain disruptions and recalls
   Transportation delays, geopolitical issues and logistics failures can stop shipments without warning. And if an externally produced component fails inside your finished product, recalls can fall squarely on your business even if the root cause lies elsewhere.

Common risks associated with integrators in manufacturing

Integrators play a critical role in assembling and connecting manufacturing systems, but that role usually requires elevated privileges.

Because integrators often have deep access to networks, machines and software, weak controls or poor cybersecurity practices on their end can expose manufacturers to vulnerabilities they didn’t introduce themselves.

If integrator access isn’t carefully managed and monitored, cyber incidents can quickly turn into operational shutdowns.

How OEMs and integrators heighten cybersecurity risks for manufacturers

Cyber risk increasingly comes from shared or connected systems, particularly when manufacturers log into platforms owned and maintained by vendors or when vendors remotely access manufacturer systems to troubleshoot, update software or manage equipment.

It’s important to understand that weak cybersecurity among your vendors can have consequences that spread to your organization: Examples include:

• Weak or shared passwords that make it easier for attackers to gain access
• Dormant user accounts that remain active after vendor staff leave
• Unsecured or personal devices that can be used to connect to your systems
• Poor network segmentation that allows attackers to move laterally
• Unpatched software that introduces security gaps into your environment

Seven ways to protect manufacturing operations from third-party risk

While there’s no controlling third party behaviour, you can take measures to limit the exposure and ensure that if all else fails, insurance can help absorb the financial impact.

1. Identify your key OEMs and integrators
   Start by mapping who your key partners are and how heavily operations depend on them. This visibility helps uncover hidden dependencies and makes it easier to plan for disruption.
2. Strengthen contracts and insurance requirements
   Contracts should clearly define responsibilities, expectations and required insurance coverage. Clear agreements reduce ambiguity when losses occur.
3. Request to be added as an “additional insured”
   Ask your vendors for a certificates of insurance listing you as an additional insured. This ensures that if a claim arises and the vendor is at fault, you’re covered under their insurance and your own claim history is unaffected.
4. Confirm vendors have cyber insurance
   Cyberattacks are a persistent threat to operational and financial stability. If a vendor interacts with your systems, an attack on them can spread into your environment. Their cyber insurance can help cushion the impact on you.
5. Control and track system access
   Limit access to what’s necessary, monitor activity and regularly review permissions, particularly for integrators with administrator privileges. Stringent access management reduces the chance that vendor exposure leads to a disruption or outage for you.
6. Incorporate redundancy into your supply chain
   Maintain alternative suppliers, additional inventory and backup transportation options. Redundancy helps production continue when one partner fails.
7. Reassess your own insurance program.
   Regularly review coverage limits to ensure they’re aligned with rising costs and avoid gaps in the event of a claim.

These coverages protect manufacturers from first-party risks which arise from within their own operations:

• Commercial general liability covers legal costs if you’re sued for causing bodily injury or someone else’s property.
• Commercial property insurance pays to repair or replace physical assets (e.g. buildings, equipment, machinery and inventory) if they’re damaged or destroyed.
• Business interruption insurance covers your losses and ongoing operating expenses if you’re forced to temporarily shut down operations.
• Equipment breakdown insurance pays to repair or replace equipment, including mechanical, electrical and pressure systems, that fails unexpectedly.

However, additional specialized coverages are often required to address third-party risks associated with OEM and integrator relationships:

• Cyber insurance helps you respond and recover in the aftermath of a cyberattack, including incidents and outages that originate from vendors.
• Contingent business interruption insurance helps offset income loss resulting from supplier outages or other supply chain disruptions.
• Product recall insurance pays for costs to remove a product from the market, particularly important when you use third party components.
• Product liability insurance pays for injury or property damage caused by your product, another important coverage if you rely on OEM parts.

Take control of OEM and integrator risk

Many manufacturers focus on what happens inside their facilities, but problems don’t always start there. OEMs and integrators play a critical role in uptime, security and continuity, and failures on their end can have serious consequences for you.

You may not be able to control every outside partner, but you can prepare for problems and protect your business if they happen.

As a starting point, take these two steps to help you identify areas of exposure:

1. Identify your OEMs and integrators and map out the level of access they have to your systems and operations.
2. Review your contracts and insurance policies to confirm where responsibilities lie and where coverage exists. Consult a manufacturing insurance specialist to assess your risks and provide recommendations for addressing gaps.

Jen Warman is a Senior Client Executive at Acera Insurance. With more than 14 years of experience in the insurance industry, Jen specializes in supporting manufacturing companies, contractors and businesses with complex risk profiles. Licensed in both British Columbia and Alberta, she is well-positioned to serve clients across Western Canada. You can connect with Jen at [email protected] or 250.824.2905.

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