The supply chain for any product has several moving parts. Each activity in the supply chain plays a role in the flow that begins with sourcing a product's raw materials and ends with delivering the finished goods to a customer.
As with many other areas of modern business, digital technologies are redefining supply chains. With more technology comes increased cyber risks. This article explains digital supply chains along with their benefits and cybersecurity risks.
Traditional vs. Modern Supply Chains
The traditional supply chain encompasses many important activities as goods flow from suppliers to customers, including:
- Conducting research to estimate the demand for a product
- The procurement of raw materials for manufacturers
- Manufacturers producing and shipping a finished product to distributors
- Distributors transporting the product to different retailers
- Retailers selling and shipping the product to customers
The core activities and flow of goods in a digital supply chain are the same, but the difference is in the approach.
A traditional supply chain takes a linear and reactive approach in which the functioning of the chain depends on specific predefined workflows. Historical transactions from legacy systems govern how the chain functions rather than real-time conditions. Visibility within a traditional supply chain is limited by the lack of integration between different systems in the chain.
The digital supply chain uses a network approach to apply digital technologies throughout the supply chain for a more integrated, dynamic, and predictive supply chain. These technologies help spot problems earlier and proactively respond to disruptions based on real-time conditions rather than predefined workflows. Connectivity is critical to remove silos and provide visibility across the supply chain.
Digital Transformation in the Modern Supply Chain
Several disruptive technologies work together to achieve the agility, visibility, and velocity promised by a digital supply chain.
IoT (Internet of Things) devices include sensors, appliances, and actuators that connect to the Internet. Projections show an estimated 25 billion of these devices worldwide by 2021.
IoT devices monitor the supply chain's physical machinery, equipment, vehicles, and the environment in which they operate. IoT devices share data within the digital supply chain network, which results in the following outcomes:
- Stakeholders within the supply chain, from warehouse managers to retailers, get increased visibility into the flow of goods.
- Predictive analytics and maintenance become possible, which dramatically reduces the downtime of machinery and other equipment.
The ability to make predictions and empower decision-making doesn't come from data alone. Advancements in artificial intelligence help turn real-time data into smart business decisions. Machine learning algorithms drive those decisions without the need for specific human input. These algorithms help to make predictions and inform decisions in some of the following areas:
- Demand forecasting
- Scheduling maintenance
- Detecting anomalies in products
- Optimizing costs
- Managing inventory
Big Data Analytics
Big Data analytics uses advanced techniques and distributed computing to make sense of and extract insights from large, fast-moving, and diverse datasets with multiple data sources. In a complex modern supply chain, big data analytics powers unique insights that help improve performance across all supply chain activities.
Big Data analytics expands the scope of possible analytics beyond data captured by internal systems such as ERP or Supply Chain Management. For example, companies can capture social media feedback from customers and fine-tune their supply chain operations based on analysis of this information.
While IoT devices, AI, and advanced analytics can provide visibility into the physical flow of the supply chain, the flow of financial information is too elusive to track with these technologies. Blockchains are decentralized and distributed ledgers that record transactions with the necessary visibility for digital supply chains. In an ERP system, it's extremely difficult to uncover the source of any mistakes in inventory data, missing shipments, or duplicate payments.
Using a blockchain gives unique identifiers to financial assets such as units of inventory, orders, and loans. Each party in the supply chain digitally signs the transactions they enter on the blockchain to ensure the validity of those transactions. By integrating transaction flows into a single system, you remove blind spots.
Digital Supply Chain Benefits
Enhanced visibility into all aspects of the supply chain improves customer satisfaction because businesses can pass on this visibility to their customers. Customers appreciate this level of granularity, whether it's customizing last-mile delivery times in line with their personal lives or simply keeping track of where their product is throughout the fulfilment process.
The transparency made possible by an integrated network of disparate systems and technologies benefits several stakeholders within a supply chain. Collaboration and communication are central tenets of this networked approach. This transparency leads to a range of attractive possibilities, including uncovering previously unseen inefficiencies, improved relationships between different stakeholders, and faster time to market as bottlenecks are eliminated.
The flexibility of digitizing the supply chain is that it facilitates a fully demand-driven supply chain. Companies can use real-time sales and demand data to inform their strategies, focus on the products that will sell, and lower costs by reducing or eliminating the production of products with low demand.
Digitizing the supply chain makes it far more efficient. For example, visibility into inventory levels makes warehousing more efficient by ensuring optimal inventory levels and better maximization of the available space. Better control over the supply chain reduces lead times by ensuring that production capacity and raw material availability meet the forecasted demand.
An important benefit of technologies such as AI is the level of automation provided. Algorithms optimize inefficiencies and make decisions based on real-time information without the need for manual input. This level of automation is crucial for providing a competitive advantage in a business world that demands agility.
Digital Supply Chain Cybersecurity Risks
The optimization made possible by a digital supply chain strategy also increases the threat surface for cyber attacks. This ecosystem of modern technologies includes software and hardware across the entire supply chain that attackers seek to exploit in supply chain attacks.
Some supply chain cybersecurity risks include:
- Human risks: people can make costly mistakes or even intentionally compromise an entire supply chain. These human risks can arise from actions such as disclosing login credentials by email or not securing an IoT sensor.
- Third-party risks: with multiple parties involved in even the simplest supply chains, each party within a digital supply chain becomes more vulnerable to poor cybersecurity practices by third-party businesses, such as suppliers or logistics companies. According to Gartner, 60 percent of organizations work with more than 1,000 third parties.
- Vendor risks: Much of this digitization introduces additional dependencies on technology solutions created by software and hardware vendors. Supply chain threat actors regularly prey on discovering and exploiting vulnerable software to breach valuable data. Some hardware devices in the supply chain may be counterfeit or tampered with.
- Compliance risks: In an interconnected supply chain network with data regularly being exchanged between disparate systems, there's a risk of becoming non-compliant with industry regulations governing this data. If an audit reveals non-compliance, there are damaging penalties and reputational costs to consider.
Several cybersecurity incidents during the global pandemic reinforced the threat of attacks targeting supply chain technologies. One of the most notable was the Kaseya attack, which targeted network monitoring and remote management software and affected up to 1,500 businesses. One Swedish grocery chain had to close all of its 800 stores due to the impact of the Kaseya attack on its operations.
Managing Supply Chain Cybersecurity Risks
Proper supply chain planning must include security as a key consideration. Some best practices to help better manage supply chain cybersecurity risks include:
- Including security requirements in important supply chain contracts and documents, such as RFP documents for procurement.
- Enforcing basic security standards throughout the supply chain, such as changing default passwords for devices, limiting user capabilities, and securing communications with encryption.
- Better due diligence when researching vendors to ensure those vendors can adequately meet cybersecurity requirements. This means conducting detailed security questionnaires and asking vendors about important physical security measures, access controls, malware prevention and detection measures, and secure coding practices.
- Adequately monitoring the risk exposure from different vendors in the software supply chain. In complex digital supply chains, this should encompass a dedicated software solution that automates vendor risk management.
- Improving human awareness of cybersecurity risks throughout the supply chain. Everyone in the workforce that spans all of a company's supply chain activities should get exposure to Security Education, Training, and Awareness (SETA) programs that address supply chain risks.
The proliferation of attacks shows no sign of slowing down. Read more about detailed and actionable supply chain attack prevention strategies. These tactics can go a long way towards improving your cybersecurity posture.
Digital supply chain management suits many different business models across the supply chain, from manufacturers to retailers.
Establishing an integrated and transparent network using new technologies helps all relevant stakeholders easily track physical goods and information flow.
However, it's critical not to ignore the growing risk of supply chain attacks. Prevention is the best form of defense if organizations want both functionality and security within a digital supply chain.