Supply Chain Risk Management: A Breakdown of the Process + Policy Template
Nine out of 10 companies detected significant software supply chain security risks in the last 12 months, according to a recent survey by ReversingLabs.
Software is just one link in many organizations’ supply chains as well. Since the supply chain poses a significant business risk, it’s essential that organizations have an established process for managing this risk.
We’ll cover what supply chain risk management is, how to set up a process and policy, and what tools can help below.
What is supply chain risk management?
Supply chain risk management is a process companies use to manage supply chain risk. This involves identifying and assessing threats throughout the supply chain — including production, packaging, handling, inventory/storage, transport, mission operation, and disposal — and developing mitigation strategies to protect the integrity, trustworthiness, and authenticity of products and services within that chain.
Supply chain risk includes risks presented by the supplier, the supplied products or services, or the supply chain itself.
Why is supply chain risk management important?
Having a robust process in place to identify and successfully manage supply chain risk is more important than ever as the world becomes more interconnected. Globalization has added complexity to organizations’ supply chains, which means more potential failure points and higher levels of risk. Organizations must manage those risks to maintain their operations.
Supply chain risk is also an issue of national importance. When exploited by foreign adversaries, supply chain risks threaten important U.S. economic sectors and critical infrastructure.
Now that we understand the importance of managing supply chain risk, let’s take a closer look at the types of supply chain risks that exist below.
Types of supply chain risks
A supply chain poses risks that could disrupt your company’s operations. Here are some of the top risks to identify and manage below.
A company faces this type of risk by doing business with a supplier that could face economic issues like bankruptcy, a recession, or work stoppage.
This type of risk involves the susceptibility of a supplier to damage from cyber attacks resulting in loss of data and reputational harm. Cybersecurity risks include ransomware attacks, malware, phishing, denial-of-service attacks, counterfeit file sharing, and even insider threats, to name a few.
Environmental risk refers to environmental hazards that may affect your supply chain. Natural disasters, extreme weather, port closures, and man-made disasters are all examples.
Reputational risk refers to the potential damage to the public perception of an organization in the aftermath of an incident like a data breach. An organization takes on reputational risk when working with third-party suppliers. For example, if it’s discovered that one of your suppliers produces significant carbon emissions or waste, then your company’s reputation may suffer as a result.
Operational risk could involve the business interruption of a third-party supplier that disrupts your own organization’s operation or flawed process, procedures or policies. An example is a truck breaking down for one of your suppliers, which could affect the entire supply chain.
This type of risk refers to changes to technology, personnel, or events that could impact your company’s business strategy or objective. For example, changes to one of your supplier’s operations might not align with your company’s objectives or security requirements.
Compliance risk comes from a violation of laws, regulations, and internal processes that a company must follow. For example, any business that accepts, handles, stores, transmits, or could impact the security of cardholder data must comply with PCI DSS. Failure to comply with these regulations often comes with a hefty fine, so it’s important that any third-party suppliers you work with are also in compliance.
Compliance risk also comes into play depending on the frameworks your organization pursues. If your organization pursues compliance with NIST 800-53, there’s an entire control family around supply chain risk management. Additionally, many frameworks have requirements around third-party vendors and suppliers.
The Ultimate Guide to Federal Frameworks
Get an overview of NIST 800-53 and other common federal frameworks, who they apply to, and what their requirements are.
Supply chain risk management process
A supply chain risk management process is a series of repeatable steps for identifying, assessing, mitigating, and monitoring risks that can compromise the integrity, trustworthiness, and authenticity of services and products within a supply chain. Having a defined process in place can help your organization minimize the likelihood and magnitude of these risks to the supply chain.
Below is an overview of the steps involved in a supply chain risk management process.
1. Identify and document known risks.
To start, identify potential risks that could affect the supply chain, focusing on known risks. Known risks can be identified, measured, and managed over time. For example, you can estimate the likelihood of a supplier going bankrupt by looking at its financial history and quantifying the impact it would have on your organization. Unknown risks are harder to identify, measure, and manage. For example, you may not be able to predict some natural disasters that affect your supply chain, like the explosion of a long dormant volcano.
A list of potential risks to your supply chain should include natural disasters, geopolitical issues, supplier failures, demand fluctuations, technological disruptions, and regulatory changes, among other risks. These should be documented in one place, often known as a risk register.
2. Assess risks.
Once identified and documented, each risk should be assessed based on its probability and potential impact. This will allow you to identify the products and supply chain nodes with the greatest risk or failure potential and prioritize resources to manage them accordingly.
3. Develop strategies for mitigating risks.
Next, develop strategies to mitigate these identified risks. Examples are diversifying suppliers so you aren’t reliant on a single one, creating redundancy in critical processes, and developing contingency plans if a disaster occurs.
When developing these strategies, consider both their feasibility and cost. These will help determine which risks should be mitigated and which should be accepted, avoided, or responded to in another way.
4. Respond to risks.
Now it’s time to implement your chosen risk mitigation strategies. This might include:
- establishing compliance standards for all third-party suppliers
- finding nearshore suppliers
- conducting internal risk awareness training
- investing in technology to improve supply chain visibility
- creating a disaster recovery plan
5. Continuously monitor and improve.
Supply chain risk management is an ongoing process. You have to continuously monitor your supply chain for changes in risk factors and external conditions and regularly review the effectiveness of your risk mitigation strategies and make changes as needed.
6 Benefits of Continuous Monitoring for Cybersecurity
Supply chain risk management best practices
Following the best practices below can help minimize threats to your supply chains.
- Create a supply chain risk management policy. A supply chain risk management policy is designed to define and support the protection and controls of supply chain procedures and processes. It should specify roles and responsibilities and what supply chain risk management capabilities will be implemented.
- Create a supply chain risk management plan. A supply chain risk management plan should provide an overview of the security requirements for your company and describe what supply chain cybersecurity controls are already in place or planned for implementation.
- Take a multidisciplinary approach. The most effective supply chain risk management programs distribute responsibilities and accountabilities for risk management activities and risk across a diverse group of stakeholders that includes IT, Security, Legal, and more.
- Map out your supply chain and identify the most critical systems, networks, and information. Map out your supply chain end-to-end, including suppliers, plants, warehouses, and transport routes. Then, identify the most critical systems, networks, and information in your supply chain and prioritize resources to manage risks to those parts of the chain.
- Incorporate supply chain risk management into employee training. For a supply chain risk management program to be successful, every employee in the organization must adhere to best practices. Organization-wide training can help empower senior stakeholders as well as other employees to identify, assess, and mitigate supply chain risks.
- Complete scenario planning and simulation exercises: Simulate various risk scenarios to understand their potential impact on the supply chain and test the effectiveness of your response strategies. This can be an excellent way to identify and fill in gaps in your supply risk management program before a disaster occurs.
- Track and report key metrics. It’s essential to track and report key metrics that measure the performance of your supply chain risk management program against your organization’s risk appetite and tolerance. Risks should also be tracked and regularly reported to executives and/or a risk board.
- Perform supplier risk assessments. A risk assessment is a key part of due diligence. This assessment process is used to identify any potential risks and better understand how data is shared before entering into a legal agreement with a supplier. It can include anything from reviewing supplier’s compliance reports and the attestations of compliance to requesting suppliers to perform a security questionnaire and reviewing results.
- Add security requirements in third-party contracts. In addition to cost, schedule, and performance requirements, add security requirements to your contracts with third parties. These requirements might cover access control, incident response, personnel security, and other areas and should be part of how you evaluate a supplier’s compliance with the contract.
- Use risk management and/or supply chain software. A risk management or supply chain software can help you continuously monitor your infrastructure to detect and remediate any issues as quickly as possible to minimize the impact of an attempted disruption or attack on your supply chain. It can also help you monitor suppliers’ compliance to security and compliance requirements throughout the supply chain lifecycle and simplify supplier risk assessments.
Supply chain risk management policy template
Still unsure of what your supply chain risk management policy should look like? We’ve created a template that you can use as a foundation for building your own.
Supply chain risk management software
Supply chain risk management software can help reduce the time and effort required to perform supply chain risk management activities, like conducting risk assessments, onboarding suppliers, and continuously monitoring their compliance.
The best supply chain risk management software can help simplify and streamline the following tasks:
- Supplier reviews: Risk management software can allow you to easily store, manage, and review supplier documentation to ensure they’re compliant.
- Supplier risk assessments: Some tools can provide risk recommendations based on the supplier’s assessment information you provide to help simplify the risk assessment process.
- Supplier access tracking: You can easily monitor and track third-party personnel system access using risk management software.
- Supplier Notifications: You should be able to notify suppliers, or be notified by suppliers, in case of any issues or alerts that may affect the supply chain.
- Continuous monitoring: A risk management tool can continuously monitor your suppliers’ security posture and their compliance with regulatory and industry frameworks.
When evaluating supply chain risk management software, look for a solution that offers an easy-to-use platform in addition to a team of security and compliance experts to guide your organization through every step of the supply chain risk management process.
How Secureframe can help companies manage supply chain risk
Secureframe is able to integrate with dozens of vendors and suppliers you're already using, retrieve their security information on your behalf, and provide a detailed report of their risk profile. Secureframe also allows you to document other details such as owners, types of data, and any due diligence notes from your supplier review.
Automating this repetitive, labor-intensive process can greatly speed up the process for evaluating and onboarding suppliers. Secureframe’s team of compliance experts can also help you complete faster risk assessments with auditor-certified security questionnaires.
To find out more about how Secureframe can improve your supply chain risk management process, request a demo of our platform today.
What are the 6 supply chain risks?
The 6 supply chain risks are:
- Economic risk: Bankruptcy, economic recession, or work stoppage
- Cybersecurity risk: Cyber attack results in loss of data and reputational harm.
- Environmental risk: Natural disasters, extreme weather, port closures, and man-made disasters.
- Reputational risk: Potential damage to public perception in partnering with third-party supplier.
- Operational risk: Flawed processes, procedures, or policies that could result in business disruption.
- Strategic risk: Technology, personnel, or events that could impact your business strategy or objective.
What are the 5 key steps in managing supply chain risk management?
Supply chain risk management involves 5 key steps:
- Identify and document known risks
- Complete a risk assessment to identify likelihood and impact
- Develop a risk mitigation strategy
- Develop a risk treatment plan
- Continuously monitor and improve your supply chain risk management