What Is Supplier Chain Risk Management?

Protecting intellectual property (IP) from theft and safeguarding data takes more than cybersecurity on your systems. Companies procuring equipment with a supply chain must mitigate the risks of offshoring servers, software, or any other infrastructure used to house data and handle private customer information. The process of supplier chain risk management oversees every step in the procurement process to ensure that manufacturers and vendors follow cybersecurity best practices and do not violate compliance.

How to Be Proactive

Companies restricted by rigorous compliance regulations and working with sensitive data must be proactive when ordering equipment. The best way to avoid falling victim to a cybersecurity incident is to create a whitelist of vendors proven to manufacture equipment and components that follow best practices in cybersecurity and compliance regulations. Regularly review the vendor list to ensure that vendors update their procedures to follow any new compliance standards.

Most organizations struggle to be compliant and review vendors. Without the right resources and knowledge, being proactive and performing the necessary supplier chain risk assessment isn’t possible. Third-party professionals can assist organizations in building a whitelist of vendors while keeping their best interests in mind.

When it comes to cybersecurity and risk, you're much better off executing the best practice of proactivity rather than practicing defense.

Proactively assessing risk in your supply chain prevents cyber-attackers from compromising critical components in manufacturing and other areas of your business that rely upon and trust a third-party vendor's integrity.

Performing a Risk Assessment

A supplier risk assessment performed in-house or using a third-party vendor should follow a good strategy. A risk assessment determines if any process in the supply chain poses a threat to data privacy or your intellectual property. Any risk must be mitigated, or the organization could risk hefty fines from compliance violations.

Standard risk assessments often overlook the supply chain even though the wrong vendor can cause serious cybersecurity issues. It may be tempting for organizations to lower costs by working with a cheaper offshore vendor. However, increased risk often destroys any savings. For example, if vendors don’t implement the proper security controls, installing poorly secured equipment could lead to data breaches of your own systems, allowing attackers to steal data by exploiting third-party vendor systems.

Why You Need Supplier Chain Risk Management

Vendors play a key role in supplying critical infrastructure within an organization. Manufacturers that build equipment use third-party vendors to build components. These components are sent to the manufacturer and used to build equipment. Vendors must use manufacturer-specific designs, not add hardware to the equipment that would leave the manufacturer’s products vulnerable to cyber-attacks.

Vendors who supply equipment require a reputation of trust, but even trusted vendors make mistakes. Risk assessment continually validates any equipment to ensure that cybersecurity controls are in place and components are tested for vulnerabilities.

Effective supply chain risk management of your supply chain can help your organization protect its reputation. Risks associated with the supply chain can damage its reputation, impacting revenue from loss of customers and trust in the organization. Offshore attackers exploiting an organization's vulnerabilities can damage its reputation, creating a domino effect where lawsuits pile up and threaten the company's stability.

Consider a server that transfers financial data from the merchant to a banking institution. Attackers at the supply chain could inject tiny microchips used to eavesdrop on data. If the equipment is not reviewed, this component remains undetected. So, the server is installed within the data center infrastructure, saddling it with vulnerabilities. The component could also provide a backdoor to offshore attackers. Should this happen, it could take years before the organization notices suspicious activity.

5 Strategies to Effectively Manage Risk

To effectively detect and mitigate risk, you need the right framework and strategies that define every step in the process. Without a strategy, critical mistakes could leave the organization vulnerable to cyber-attacks, leading to hefty fines for compliance violations. You can follow a few strategies to help perform a supplier risk assessment and manage risk efficiently.

  1. Know Your Suppliers – The first step in risk management is knowing your suppliers. Large organizations can lose track of their vendors, leaving the supply chain open to any attacker. Every business unit that works with a supplier for infrastructure should coordinate with IT to ensure that equipment is tested and validated for compliance.
  2. Know Cyber-Risks from Equipment – With suppliers inventoried, the next step in your strategy is to identify risks associated with each vendor and its products. Performing a supplier chain risk assessment includes assigning a specific priority to each risk and categorizing them into their particular business processes. For example, vendors for financial systems are assigned high priority due to the sensitive data stored on these systems and fall into the financial planning process category.
  3. Calculate Risks – Determining risk requires a professional risk analysis. The formula to analyze risk is:

    Risk = Data Breach likelihood * Impact of a Data Breach / Cost

    The likelihood and impact are determined by professionals who understand cybersecurity and determine if a specific component could be breached. Once all factors in the calculation are determined, and only then can you assess total risk.
  4. Monitor Vendors for Risk – Once you’ve determined risk, continue to monitor vendors and their equipment for future vulnerabilities. Compliance rules change throughout the years, and those changes must be considered as you reassess vendor equipment and your supply chain. Changes to compliance regulations could put any vendor in violation, so continual monitoring will tell you immediately when this happens.

Protecting Data from Supply Chain Threats

After you identify your risks, you’ll find that many threats start with a malicious email targeting internal employees. The biggest defense against supply chain threats is to use email security and protection solutions to stop messages from reaching the intended recipient. You can protect data from supply chain threats that start with an email using several strategies:

  • Use Domain-based Message Authentication, Reporting, and Conformance (DMARC) on your email server. DMARC will detect spoofed senders and stop them from reaching someone’s email inbox.
  • Train users to detect malicious email messages. Security awareness training has shown to reduce risk by empowering users to detect and report malicious email senders.
  • Be responsive to user reports. When users know that they correctly identified malicious emails, social engineering, and phishing attacks, their knowledge and training is fortified.

Because the supply chain vendor is not under your control, you can perform other actions to protect data if one of your vendors falls victim to phishing and other threats. These tips will protect from current threats, but remember that attackers continue to craft new methods to overcome cybersecurity protections. However, the following strategies will help protect your organization from supply chain risks:

  • Know your suppliers. Your suppliers have suppliers, and those suppliers have suppliers. You can better determine your risk and the cybersecurity needed to protect your environment if you know every vendor in the supply chain.
  • Perform a pen-test and audit of equipment. Attackers hide much better when they include malicious circuits and components in your equipment. Any equipment connected to your environment should be reviewed.
  • Use automation to configure equipment. Misconfigurations happen, even from vendors. Any configurations should be automated so that the chance of mistakes is reduced.