As the world becomes more interconnected, organizations increasingly rely on extended supply chains to conduct business. For many, however managing the supply chain and the risks associated with it is a time-consuming, expensive process.

In many cases, organizations that don’t adequately manage their supply chain risks are more likely to fall victim to a cyberattack – one that could potentially cause severe disruption.

In this article we’ll take a closer look at supply chain risk management, the most common risks it introduces, and five steps your business can take toward worry-free supply chain risk management.

What Is Supply Chain Risk Management?

Supply chains are the networks between a company and the suppliers it relies upon to produce and distribute the company’s products or services. Managing a supply chain involves managing the flow of goods, including all the processes that are involved in transforming the raw materials an organization consumes into the finished products or services that organization provides.

Supply chain management includes planning and managing all the activities around sourcing, procurement, and conversion of raw materials, as well as logistics management functions. One of the biggest reasons companies implement a global supply chain management strategy is to boost their competitive advantage. Many of the benefits that come along with supply chains, however, can also increase an organization’s risk of quality, safety, business continuity, reputation, and cybersecurity.

After the onset of the COVID-19 pandemic, supply chains started to gain more traction in the media as the fallout from supply chain disruptions reached into the homes of average consumers around the world. The pandemic underlined just how vulnerable traditional supply chains are to these types of disruptions.

Every company is exposed to internal and external risks stemming from supply chain disruptions. Managing the risks that these types of disruptions pose is called supply chain risk management (SCRM).

Supply chain risk management is the process of identifying, assessing, prioritizing, and mitigating threats to your supply chain and the risks they pose. An important component of supply chain risk management is third-party risk management (TPRM). Organizations in virtually every industry work with some type of third party along the supply chain, whether it’s a supplier, vendor, contractor, or service provider. The nature of those business relationships inevitably exposes those organizations to potential risks.

Research shows that on average, organizations share their data with around 730 vendors. Of those organizations that share data with third parties, 53 percent have experienced at least one data breach caused by a third party, with an average cost of about $7.5 million.

In addition to data breaches, other external supply chain risks include those caused by unpredictable or misunderstood customer demand; interruptions to the flow of products including raw materials, parts, and finished goods; natural disasters such as earthquakes, hurricanes, and tornadoes; and more.

Meanwhile, internal supply chain risks can include those caused by disruptions of internal operations; changes in key management, personnel, and business processes; non-compliance with environmental regulations or labor laws; lack of proper cybersecurity policies and controls to protect against cyberattacks and data breaches; and more.

However you look at it, your organization’s participation in the supply chain (particularly outsourcing to third parties) inevitably creates risk for your organization. Whether it’s legal, compliance, financial, strategic, or reputational risk – the supply chain introduces your business to numerous potential disruptions it might not otherwise encounter.

Perhaps the gravest risk that the supply chain poses to your business is cyber risk: the possibility that a cybersecurity incident will occur and disrupt your data and business operations.

As organizations keep using more third parties, and as the number of cybersecurity incidents grows along with that trend, it’s more important than ever that your organization create and implement a supply chain risk management plan to protect your business, its customers, and any other business relationships from potentially devastating supply chain cybersecurity risks.

What Are the Types of Cyber Risks in Supply Chain Management?

As we mention above, cyber risk is an increasingly important risk that supply chains introduce to organizations. Unfortunately, most organizations that operate along the supply chain will eventually suffer from some type of disruption to data, finances, or business operations at some point. How those disruptions affect your business in turn will be determined by the efficacy of your supply chain risk management strategy.

As the business environment becomes more digitized, the Internet of Things (IoT), Industrial Internet of Things (IIoT), and other digital technologies will continue to play a major role for many organizations, and especially when optimizing their supply chain operations. These new technologies, however, also leave businesses exposed to new cybersecurity threats such as malware, ransomware, phishing, and hacking.

Some of the most common risks that affect organizations along the supply chain today include data breaches, cybersecurity breaches, and malware and ransomware attacks. Next, we will take a closer look at each of these cyber risks and how they could hurt your business.

Data Breaches

Data breaches are one of the most serious cybersecurity threats faced by organizations today. It’s likely that the frequency and severity of these security incidents will only continue to grow in the coming years.

When an organization falls victim to a data leak or a data breach, it usually results in significant financial loss and reputational damage in addition to any regulatory and legal consequences. In 2021, the average cost of a data breach was a whopping $4.2 million.

Even with the right regulatory and compliance standards in place, it often takes organizations a long time to identify a data breach once it has occurred – about 197 days, according to one piece of research. Even worse, that number goes up when organizations suffer a data breach as a result of a supply chain security incident. IBM and the Ponemon institute report that on average, a company takes 280 days to detect a third-party data breach.

The more you share sensitive data with third parties in your supply chain, the more likely it is that your data will be breached or leaked. Sensitive data is information that must be protected against unauthorized access to safeguard the privacy or security of an individual or organization. It could take the form of intellectual property or personally identifiable information (PII).

Some of the most common data breaches caused by third-party vendors result from unauthorized access via company email account, hacking of an email provider, lack of encryption, and unsecure websites and improperly stored login information.

In some cases, third parties may even maliciously leak sensitive customer data outside the business, making your organization vulnerable to supply chain attacks from cybercriminals, hacktivists, and even rogue nationstates.

Cybersecurity Breaches

This category is intentionally broad because there are a number of new technologies that make organizations more vulnerable to cyberattacks along the supply chain in ways that were previously unheard of.

These days, any device that’s connected to the Internet creates supply chain risks. For example, the IoT usually refers to consumer devices such as personal fitness trackers or smart thermostats; in 2021, there were more than 10 billion active IoT devices worldwide.

IIoT refers specifically to equipment powering enterprises on a much larger scale. IIoT is intended to drive production, and encompasses devices connected to and communicating via the Internet from sensors and scales to engines and lifts.

These technologies help organizations create better efficiencies including shorter time to market, better asset tracking along the supply chain, cost reductions, and safer workplaces, to name a few. They also introduce a number of cybersecurity risks to the organizations that use them.

Cybercriminals know that IoT and IIoT security isn’t at its finest, making it an easier target for a cyberattack. According to IoT-based attack statistics from 2019, the average IoT device gets attacked just five minutes after it goes live.

For IIoT devices running industrial systems, the consequences of a cybersecurity breach can be much more devastating: loss of production, revenue impact, data theft, significant equipment damage, industrial espionage, and even bodily harm.

As more and more devices and sensors come online, they will only continue to create more communication channels, data stores, ports and endpoints. This increased attack surface represents even more vulnerabilities if those endpoints are left unprotected.

Malware and Ransomware Attacks

Malware and ransomware attacks are unfortunately becoming more common. These attacks are designed to steal information, change internal data, or destroy sensitive information.

Malware is any intrusive software that can infiltrate your computer systems to damage or destroy them or to steal data from them. The most common types of malware attacks include viruses, worms, Trojans, and ransomware.

One of the most memorable malware attacks in recent history is the SolarWinds malware attack of 2020. Early in the year, cybercriminals hacked Texas-based SolarWinds’ systems and added malicious code into the company’s software system, Orion – which was widely used by roughly 33,000 of their clients to manage their IT resources.

In March 2020, SolarWinds sent out software updates to its customers using Orion, including the malicious code the hackers had installed. The malware then created a backdoor into the IT systems of SolarWinds’ clients, allowing the cybercriminals to install even more malware to spy on those companies and organizations.

Another popular type of malware attack is ransomware. This form of malware encrypts a victims’ files, allowing the attacker to demand monetary payment in exchange for a decryption key. In most cases, the monetary exchange for a decryption key to recover your data takes place using cryptocurrencies like bitcoin to hide the identity of the attackers.

In 2021, a ransomware attack on Colonial Pipeline forced the company to shut down its operations for several days, which led to a gasoline shortage across the southern United States. The hackers initially gained entry into Colonial’s networks via a virtual private network (VPN) account that allowed its employees to remotely access its computer network. The VPN, however, didn’t require multi-factor authentication to gain access, allowing the attackers to breach Colonial’s network using only a compromised username and password – information likely obtained during a data breach that exposed an employee’s login credentials.

In the end, Colonial paid the hackers $4.4 million in exchange for a decryption key to recover their data. The decryption key, however, worked so slowly that the company had to rely on its own backups to restore service anyway. Eventually Colonial Pipeline was able to resume operations, but only after a devastating blow to their business that resulted in a number of financial and reputational consequences.

Supply Chain Risk Management Strategies to Help

To protect your organization and its customers from the cyber risks described above (and more), your company can embrace a number of supply chain risk management best practices. Here are some ways you can strengthen your cybersecurity defenses against the aforementioned cyber risks:

  • Establishing compliance standards for all of your third-party vendors, including manufacturers, suppliers, and distributors.
  • Defining user roles clearly and implementing security controls to restrict who has access to your systems, as well as what level of clearance or privilege they have. This is known as the principle of least privilege.
  • Determining and documenting data stewardship standards and defining who owns certain data, as well as what they are allowed to do with that data.
  • Providing comprehensive security awareness training for all of your employees.
  • Working with vendors in your supply chain network to develop a unified disaster recovery plan to assure business continuity.
  • Establishing backup controls to safeguard your data backups.
  • Regularly updating your software solutions including antivirus, anti-spyware, and firewalls. You should also consider looking into more advanced cybersecurity measures such as DNS filtering and network access control.
  • Choosing a software solution such as the ZenGRC that provides you with total visibility into your supply chain risks so you can quickly identify risky behavior or unusual activity.

What Are the 5 Steps of Supply Chain Risk Management?

Now that we have a better understanding of some of the most common supply chain cyber risks, it’s time to take a look at the steps you can take to implement a successful supply chain risk management strategy that’s best for your business.

Step 1: Start with a Plan

As with any risk management program, the first step is to make sure you have the right people in place to succeed. Assembling a team of individuals who are equipped to identify, analyze, prioritize, and mitigate supply chain risks will be essential.

Once you have your team, start the planning phase together. Delineate specific roles and responsibilities for your team members, create or include an existing vendor risk management policy, and decide how you will draft a detailed description of the procedures and processes you’ll use for each of the steps in the supply chain risk management strategy.

A detailed risk management plan is the surest way to prepare your team and the larger organization for the inevitable risks you will face along the supply chain. For cyber risk management, you’ll need to pay particular attention to risks that affect your cybersecurity and where those risks could cause harm to your organization along the supply chain.

You’ll also need to establish some metrics for measuring risk; whether you decide to use qualitative measurements such as a high/medium/low scale or quantitative metrics like statistical analysis is up to you. Ultimately, you should choose a methodology that’s going to suit your business needs best.

Before you begin the next step, you should also take some time to reference any existing frameworks that might help along the way. Fortunately, a number of risk management frameworks and methodologies are available to use as you build or reinforce your supply chain risk management program.

Start with the National Institute of Standards and Technology (NIST) and the International Organization for Standardization (ISO) for examples of risk management frameworks that can help your organization get started on its own risk management journey.

Step 2: Identify, Assess, and Prioritize Risks

Before you can mitigate a risk, you first have to identify that it exists. During the risk identification phase, your team should participate in table-top exercises to reveal existing risks but also to think about any potential risks that have not yet been identified. This includes making a list of your supply chain risks so that you can begin to analyze them.

You should also take this opportunity to review your service level agreements (SLAs) for each third-party relationship you have, to assure that your vendors are performing as expected and to determine the compliance requirements for your organization. Your organization needs to know which regulations and standards both you and your third parties must meet at all times.

Next, begin the process of risk analysis. Start by conducting a supply chain risk analysis, either in-house or by an independent cybersecurity firm or professional. A risk assessment will help you determine the nature and extent of identified risks along the supply chain so you can classify your contractors by risk and access level.

Ultimately, a cybersecurity risk assessment should provide you with an in-depth analysis of all your cybersecurity risks, including any that are posed by your supply chain network.

Assign each risk a risk level and categorize your supply chain risks by type. Then prioritize those risks according to their respective risk levels. Generally you should deal with the highest-level risks first, and then work your way down the list according to risk priority.

Step 3: Mitigate Risks

Once you know which risks need your attention first, decide how to handle each one. For each risk, you’ll need to decide whether to accept, reject, transfer, or mitigate the risk. For supply chain risk, sometimes the best plan might be simply to find another, less risky vendor.

It’s also important that you query your third parties at regular intervals with risk management questionnaires, to determine whether existing risks have been mitigated properly and to see whether any new risks have appeared. Whether you use a template from one of the existing risk management frameworks or create your own, onboarding questionnaires and regular queries should be designed to help you scrutinize the security controls your third parties are applying to their workflows.

Any third parties with particularly high levels of risk might even require an audit, depending on the answers they provide to your questionnaires. In some cases, you may need to conduct on-site visits whenever necessary.

Step 4: Repeat

After you complete the above steps, you’ll need to begin the process all over again. Supply chain risk management is an ongoing process for every third party along your supply chain; it’s a process that should be repeated often and throughout the third party relationship lifecycle.

Step 5: Practice Continuous Monitoring

Continuous monitoring is a necessary practice because your business partners can – and do – change their processes all the time. Continuously monitoring for changes in your own business, your supply chain network, and changes in regulations and industry standards isn’t an easy task, but it’s a necessary one.

In many cases, due diligence alone isn’t enough for cybersecurity. Continuous monitoring can limit potential cyberattacks and data breaches for both your organization and the third parties along its supply chain.

At some point, many organizations need to admit that they can’t handle the entirety of the supply chain risk management process all on their own. And unless you’re a large enterprise, risk management can be an expensive and time-consuming process that many smaller companies simply can’t afford to do in-house.

For businesses looking for solutions, there’s software that can help. Good governance, risk management and compliance (GRC) software can help you get on top of your risk management program, particularly for cyber risk. With simple and automated supply chain risk management tools, you’ll be better equipped to improve your supply chain network and lessen the burden put on your internal teams.

Manage Supply Chain Risks with Reciprocity ZenRisk

In the wake of severe supply chain disruptions and cyberattacks like the ones on SolarWinds and Colonial Pipeline, it’s time for your organization to take a closer look at your supply chain (particularly the suppliers with privileged access to your company’s assets) and the risks they pose to your business. Fortunately, there are security solutions that are designed to help.

Reciprocity ZenRisk is an integrated cybersecurity risk management solution designed to provide you with actionable insights to gain the visibility you need to stay ahead of threats and communicate the impact of risk on high-priority business initiatives. Turn the unknown into quantifiable and actionable risk insights with built-in expertise that identifies and maps risks, threats, and controls for you, so you can spend less time setting up the application and more time using it.

A single, real-time view of risk and business context allows you to communicate to the board and key stakeholders in a way that’s framed around their priorities, keeping your risk posture in step with the direction your business is moving.

Reciprocity ZenRisk will even notify you automatically of any changes or required actions, so you can be on top of your risk posture like never before. Eliminate time-consuming, manual work and streamline collaboration by automating workflows and integrating with your most critical systems.

Plus, Reciprocity ZenRisk is seamlessly integrated with Reciprocity ZenComply so you can leverage your compliance activities to improve your risk posture with the use of AI. Built on ZenGRC, the Reciprocity product suite gives you the ability to see, understand and take action on your IT and cyber risks.

Now, through a more proactive approach, you can give time back to your team with Reciprocity ZenRisk. Talk to an expert today to learn more about how the Reciprocity Product Suite can help your organization mitigate cybersecurity risk and stay ahead of threats.