Supply chains are complicated. A healthy supply chain relies on an uninterrupted chain of success across a series of processes. This is a fragile status to maintain since it only takes a minor disruption in a single process to cause financially damaging delays in the entire production line - a phenomenon that impacted most of the world at the height of the global pandemic.
To increase efficiency and resilience to disruption during the pandemic, business entities enthusiastically embraced digital transformation - a move that, ironically, exacerbated many of the problems it was hoping to solve. The problem with digital transformation is that it expands the attack surface - the more digital solutions you have, the more cyberattack options you give to cybercriminals.
The modern supply chain is, therefore, consistently at a heightened risk of a cyberattack, which has cascading effects across all categories of supply chain risk.
Given the considerable competitive advantage of digital solutions, unwinding the progression of digital transformation will only impede business continuity. Instead, the supply chain management ecosystem should introduce risk mitigation strategies to support its continual enhancement without impeding supply chain resilience - a methodology known as supply chain risk management.
Supply Chain Risk Management (SCRM) is the practice of identifying and addressing all risks and vulnerabilities throughout the supply chain.
6 Different Categories of Supply Chain Risks
The supply chain risk landscape should be divided into six categories to simplify risk identification and the design of a risk management strategy.
- Financial Risks - Financial risks are any events that could potentially negatively impact new suppliers and existing supplier relationships. An example of a financial risk is a ransomware attack terminating all profit generation engines of a business.
- Reputation Risks - Reputational risks are caused by poor security due diligence leading to third-party breaches or associations with vendors exhibiting reprehensible conduct, like when a vendor posts offensive content on social media.
- Natural Disaster Risks - The potential of natural events causing supply chain disruptions, such as a tsunami, hurricane, or snowstorm.
- Man-Made Risks - Disruptions to supply chain operations are caused by human error, such as office fires or falling for cybercriminal trickery.
- Geopolitical Risks - The potential risk of political events disrupting procurement operations.
- Cybersecurity Risks - Cybersecurity risks are events that could facilitate the compromise of sensitive data. These risks could include vulnerabilities in third-party cloud solutions or poor security awareness training in the workplace. Supply chain cyber risks can also addressed in a more focused strategy known as Cyber Supply Chain Risk Management.
Cybersecurity risks disproportionately impact the global supply chain because their ripple effects spread across almost every supply chain risk category.
Track supply chain risks with this free pandemic questionnaire template >
4 Ways to Reduce Cybersecurity Risks in the Supply Chain
Because cybersecurity risks have a dominant impact on supply chain integrity, risk management practices should primarily focus on this risk category.
A strategy for mitigating risks in the cybersecurity category needs to meet the following requirements:
- Visibility - Security teams need real-time awareness of all vulnerabilities in the supply chain and the remediation efforts addressing them.
- Stability - Cybercriminals should have difficulty penetrating your IT network and compromising privileged credentials.
- Scalability - A cybersecurity program needs to scale alongside the growing complexity of the supply chain; otherwise, security risks will eventually surpass management efforts.
- Accountability - Stakeholders and decision-making personnel need to be continuously aware of all risk mitigation practices. This will address concerns about potential penalties for noncompliance with third-party risk regulations.
Each of these metrics can be addressed with the following best practices.
Conduct Regular Third-Party Risk Due Diligence
Third-party providers introduce significant security risks into your ecosystem. It's estimated that compromised third parties cause almost 60% of data breach events. To suppress third-party risks, the complete lifecycle of a vendor relationship needs to be secured, from vetting prospective retailers to audits of long-standing relationships.
Third-party due diligence is achieved through a combination of risk assessments, security ratings, and security questionnaire automation software to achieve the most accurate representation of each third-party's security posture.
All three of these functions are conveniently addressed in UpGuard's cyber risk remediation software, helping organizations meet the visibility, stability, and scalability requirements of an effective supply chain risk mitigation strategy.
UpGuard also addresses the critical SCRM requirement of tracking each vendor's compliance efforts against popular cybersecurity regulations.
Prioritize Critical Risks
Security risks are an unavoidable by-product of digital transformation. The goal of supply chain risk management isn't to completely eradicate third-party risks but to focus remediation efforts on those that surpass your unique risk appetite. The resulting security controls create a balance between inherent and residual risks.
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A risk appetite defines the necessary thresholds for Vendor Tiering, a feature of the most effective supply chain risk management programs.
Learn how to calculate the risk appetite for your Third-Party Risk Management program.
Vendor Tireing is the practice of categorizing vendors based on their security risk severity. Tiering vendors allows you to focus security efforts on vendors with the most significant impact on your security posture. This will suppress the risk of third-party breaches and supply chain attacks.
This effort results in deeper visibility into your third-party attack landscape while creating a scalable foundation for a Third-Party Risk Management program.
Learn about Vendor Tiering best practices >
Implement Security Awareness Training
Humans will always be the most critical cybersecurity risk in an organization. Cybercriminals commonly begin attack campaigns by targeting low-level employees to gain entry into a private network.
If a cybercriminal can trick an employee into divulging network credentials, the arduous effort of contending with network security controls is completely avoided. This is why phishing is such a significant cyber threat.
To address the critical human factor, organizations should implement security awareness training compromised of two components:
- Theoretical - Educate staff about common cyberattack tactics, how to identify and correctly respond to them.
- Practical - Staff should be randomly targeted by controlled phishing and social engineering attacks to solidify theoretical knowledge.
Establish a Supply Chain Risk Management Culture
To sustain SCRM efforts, the practice should become integrated into the workplace culture. This change of mentality can be naturally enforced at a security framework level with a zero-trust architecture. Zero-trust also has the benefit of offering a higher degree of privileged account protection to prevent the compromise of sensitive data following network penetration.
Beyond a framework level, SCRM culture is encouraged by involving all levels of an organization, including stakeholders. Upper management should be kept updated on all SCRM efforts with comprehensive reporting - a requirement that will only intensify as regulations continue to increase their emphasis on supply chain security.
Employees should also be kept in the loop. This will highlight how their efforts contribute to the company's overall supply chain risk mitigation direction.
