Cyber Risk & Supply Chain Management

supply chainSupply chain management involves the coordination of the flow of goods, from the transaction and storage of raw materials, to checking inventory and shipping finished products. Supply chain weaknesses are one of the biggest threats facing businesses – particularly those involved in manufacturing or retail. Cyber risks can undermine effective supply chain management, with research showing that disrupting a supply chain cuts the share price of the affected company by an average of approximately ten percent.

Bearing in mind that international supply chains (and transport infrastructure) are the skeleton of economic growth, trade and the basic functioning of an increasingly interconnected global economy, anything that can reduce cyber risk has an economic payoff.

What are cyber risks and how do these risks impact supply chains?

For the last few years the Supply Chain Risk Initiative, spearheaded by the World Economic Forum, has sought a deeper understanding of the systemic vulnerabilities to international supply chains and transportation channels. The initiative urges companies around the globe to shift from a reactive stance against cyber risk to proactive steps to risk management.

Supply chains can be disrupted by external threats or systemic shortcomings. External threats include things like demand shocks and natural disasters, whereas systemic shortcomings include things like information fragmentation and cyber risk. In fact, the escalating cyber risk to supply chains has caused over four-fifths of companies to emphasize the resilience of supply chains, according to research conducted by Accenture.

What are the factors that inform and can help mitigate systemic risks like cyber risk?

Cyber risk can be mitigated to protect supply chains by:

  • Tightening the security at every step along the supply chain;
  • Creating resilience in strategy, partnerships and information technology

Benefits to Addressing Supply Chain Risks

Of course, the economic ramifications of cyber risk and systemic vulnerabilities to supply chains vary by the industries in which they take place. A company that leans on logistics, for instance, has different risks. Irrespective of the industry in which cyber risk occurs, however, cyber risk can usually expose customer accounts and intellectual property in a way that puts company finances and reputation in permanent jeopardy.

Research from Zurich shows that over half of disruptions in supply chains accrued because of information technology or communications shortcomings between suppliers and buyers. This finding highlights the importance of curbing systemic vulnerabilities and cyber risk at the beginning of the supply chain especially. That said, risks at all levels should be addressed because information technology pervades every step along the supply chain ladder.

Unfortunately, these systemic vulnerabilities to supply chains are expected to increase as the US economy and global growth once again accelerates. While companies should understand the risks of external threats, the lion’s share of future cyber risk will come from systemic failures to secure customer data and proper IT functioning at all levels of the supply chain.

Checking that each vector of your supply chain is airtight and trustworthy is an important ingredient in significantly reducing cyber risk. Addressing shortcomings in vendor management can also reduce cyber risk and systemic vulnerabilities – producing growth as an offshoot.

Being proactive in combating systemic vulnerabilities is essential in cutting down losses in share prices due to supply chain disruptions; moreover, addressing systemic vulnerabilities now rather than after-the-fact will spur growth, trade and expansion.

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