Supply Chain Risk Management (SCRM) in the Manufacturing Industry: How to Identify, Assess, and Remediate Third-Party Risk Up and Down the Chain

Blog post Team CENTRL 2021-03-27

Supply Chain Risk Management (SCRM) in the Manufacturing Industry: How to Identify, Assess, and Remediate Third-Party Risk Up and Down the Chain

With automation making its way into every business sphere, risk management has become imperative for all industrial sectors. Unfortunately, the manufacturing industry, a crucial pillar of the world economy, is a prime target of malicious actors. Independent and state-sponsored hacking groups are increasingly resorting to supply chain attacks to target companies in the manufacturing sector.

Today, most companies use smart manufacturing technologies to boost productivity and efficiency. But businesses must rethink their approaches to make “smart and secure” the new manufacturing standard because we cannot be oblivious to cyber risk, specifically the growing supply chain attacks.

The NotPetya and WannaCry supply chain attacks are reminders about third-party cyberattacks’ evolving and sophisticated nature. The threat actors behind these attacks spared no one. Unfortunately, the manufacturing sector got its share of these attacks.

Lack of Cybersecurity Mandates and Regulations

Unlike most industrial sectors, the manufacturing industry lacks cybersecurity protocols and regulations. These deficiencies have exposed manufacturing businesses to higher and more complex cybersecurity threats.

Additionally, the businesses in the manufacturing industry have naturally been global, with their supply chains in multiple countries. And just like other industries, it is growingly a target of cyberattacks mostly stemming from geopolitical power wrangling.

Unpredicted and upsetting third-party cyberattacks have rocked many manufacturing companies during the last ten years. These attacks have forced the manufacturers to recall their products, costing them hundreds of millions of dollars.

Almost all manufacturing organizations target supply chain attacks, including companies in the FMCGs, automobiles, drugs, and electronics manufacturing sectors. Many companies have already lost crucial intellectual property due to data breaches resulting from vulnerabilities in the supply chain ecosystem.

Excessive automation, reliance on third-party vendors, and digitization in the manufacturing sector have exposed the industry to newer risks, such as data breaches and cyber-ransom, in addition to traditional threats like supplier bankruptcy.

The Solution: Next-Gen Supply Chain Risk Management (SCRM)

At the core of the dilemma explained above is a standard trope—the absence of a vigorous and comprehensive process to detect, monitor, and mitigate the increasing third-party risks in the manufacturing industry. That’s where Supply Chain Risk Management (SCRM) has got your back.

But the challenges of SCRM have worsened with increased globalization. Even the most sensitive products, such as defense systems, contain parts and components made in other countries where the primary manufacturer doesn’t know it has a supply chain. With the complex nature of the modern supply chain, a minor vulnerability in one of your vendors’ systems can expose your entire supplier ecosystem to potential disruption.

The traditional and manual SCRM doesn’t protect against the evolving supply chain threats. Your company and every organization in the manufacturing industry require a scalable, versatile, and advanced SCRM built on modern technology.

The next-gen Supply Chain Risk Management platform will provide your business with 360-degree protection against the new threats emerging from the complex nature of your supplier ecosystem. It will allow you to monitor and handle problems in a structured manner, besides identifying and addressing risks before they leave adverse impacts on your business.

The three primary components of a good SCRM are risk identification, risk assessment, and risk remediation.

What are the Five Major Risks in Supply Chain Management?

Supply chain risk management quickly becomes a significant procurement concern due to high-cost supply chain interruptions. Physical damage at manufacturing facilities, natural disasters, strikes and labor conflicts, capacity challenges, delays, inventory stock problems, and erroneous estimates are all examples of present supply chain risks.

These are the five types of risks to watch out for to protect your company:

Strategy Risk

This form of risk entails selecting the best supply management approach. There is no such thing as a “one-size-fits-all” solution; what works for one company may not work for another. Instead, define your company’s strategy from the start, then find and qualify the proper suppliers, relying on trustworthy market research to make the best judgments.

Market Risk

Market risk affects your company’s brand, compliance, financial vulnerability, and market exposure. When you outsource part-production or even entire product lines, you may be placing your company at risk and putting it at the mercy of your suppliers. When outsourcing, customers and important stakeholders scrutinize your organization, not your suppliers, if they offer a subpar product, fail to deliver altogether, or use unethical techniques.

Create a tolerance margin for the quality requirements of a product line and assess the potential impact of a compromise. Then, monitor those lines attentively for early warning signals of problems before they have a detrimental effect on your company’s reputation, ability to follow compliance standards, and bottom line.

Implementation Risk

This sort of risk is associated with supplier implementation lead times, production capacity, and performance ability. Before signing up partnerships, it is critical to understand whom you are working with and their capacity constraints before signing up partnerships. Collaborating with a supplier when your company only accounts for a tiny portion of their sales might mean that you may not receive the degree of attention that you need or require.

Engage with new supply chain partners as soon as possible to acquire early visibility into any risks that may impede manufacturing, lead-times, initial performance, and other critical elements impacting this.

Performance Risk

This type of risk entails recurring supplier quality and financial concerns. When your organization has chosen a supplier, it is critical to evaluate key performance indicators constantly. Companies are always changing, whether via acquisition, a shift in strategy and aims, or going out of business, necessitating ongoing attention and contingency planning for business continuity.

Monitor your suppliers continuously to minimize interruptions caused by bankruptcies and liquidations, performance concerns, ownership changes, labor strikes, geopolitical upheavals, and other variables. In addition, good supplier relationships, monitoring, and communication technologies will be beneficial.

Demand Risk

This sort of risk involves swings in demand and inventory inventories. Many suppliers are eager to take on new possibilities; however, eagerness does not always imply that they are in the greatest position to produce and meet your needs.

Keep a watch out for signals that your suppliers are overburdened with new contracts. Set expectations from the start and plan for contingencies if providers fail to deliver.

Understanding supply chain risks allows your firm to take appropriate action when necessary. The Supply Chain Risk Management process should be an inherent aspect of sound business practice to deal with expensive supply chain interruptions. It is critical to address the proper risks and employ the right methods from the start and regularly monitor and assess them to ensure success.

Risk Identification

Supply chain risk management starts with the accurate identification of the risks in the first place. Risk profiling and monitoring are the active components of a robust risk identification process.

The standard method to identify vendor risks involves mapping out the value chain of all your essential products, vendors, and processes. During this phase, you’ll pinpoint each node in your supplier ecosystem for vulnerabilities, from material suppliers to plants and electronic components to software.

You must enter the identified risks in a risk register and continuously track the threats in the next step. You’ll also have to keep a record of your supply chain areas where you don’t have enough data for investigation.

The resulting risk profiles will help you identify the possible cybersecurity threats your company may experience. The threats can emerge from flaws in your or your vendors’ systems, networks, software, and digital assets that malicious actors can use to steal your data and damage your business.

The common cyber risks to look for include data breaches, DDoS attacks, malware, SQL injection, and identity theft. But there are other risks that many manufacturers disregard. For example, think about human error! An unsuspicious employee of one of your vendors may click on a malware link, exposing their system and your business to severe threats.

Besides monitoring your existing vendors, it is vital to properly vet your new third-party vendors for security flaws during the onboarding process. You never know when one of your suppliers may misuse your crucial data or when cybercriminals will target your business through your vendors.

What is a Risk Matrix?

A risk matrix (also known as a risk diagram) is a diagram that depicts hazards. The potential risks are split based on their likelihood and impacts or the level of harm, allowing the worst-case scenario to be assessed at a look.

In this respect, the risk matrix should be viewed as the outcome of risk analysis and appraisal, and it is thus an essential metric of your project and risk management program.

All risk matrices have the same fundamental form. They are tables or grids (usually 5x5) that display the chance of risks happening along the Y-axis and the severity of their repercussions along the X-axis. Each axis runs from very low to very high.

A color-coded approach highlights levels of danger inside a risk matrix. For example, a low total risk level threat is color-coded green. It is displayed in yellow or orange if it is medium. The color red represents an overall high danger. This traffic light system makes it simple to comprehend risk levels.

Risk Assessment

After identifying your supply chain risks, you have to thoroughly slice and dice those risks to determine the potential effects on your manufacturing business. The most crucial vendors are the ones that have the potential to impact your business reputation, sales, and bottom-line.

Depending on your manufacturing niche, the assessment can be broad or narrow; however, it must be synergic and collaborative. You must design the evaluation to set a high-security standard, identify the existing securities in place, and examine the areas that need improvement to prevent supply chain disruptions.

Generally, the goals of supply chain risk assessment include:

  • Reducing data breach threats posed by your supply chain members
  • Examine whether the existing supply chain security is enough to protect your data and company from supply chain attacks
  • Find out how your suppliers interact with your systems, data, networks, and digital assets lifecycle
  • Determine how the members within your supply chain ecosystem interact with each other
  • Get the confidence to onboard new and critical vendors

Risk Mitigation

Eventually, companies in the manufacturing industry can create preventive and reactive action plans to cope with the identified and assessed risks. These action plans will act as the foundation for and describe the measure to mitigate the risks, secure your supply chain, and protect your business.

It is vital to understand that third-party vendor security is a collective responsibility. As such, you have to involve all of your vendors and suppliers in the risk mitigation process and promote the policy of shared accountability. That requires the application of meticulous cyber hygiene standards to every member in your supply chain that has the privilege to access your systems, networks, and data.

Several manufacturers hit by the NotPetya attack suffered operational downtime because they had ignored patching their systems. Even though system updates can lead to temporary outages, disruptions resulting from supply chain attacks last for an extended period and are expensive. For this reason, you must calculate the cost of downtimes resulting from possible cyberattacks during the risk mitigation process.

Automate Your Supply Chain Risk Management With Vendor360 Software

Supply chain risks in the manufacturing industry are here to stay and even evolve in sophistication, mainly because most manufacturing businesses are becoming excessively interconnected and digitized. As a result, companies using modern risk management solutions will be better equipped to traverse these difficulties with ease.

CENTRL’s Vendor360 Supply Chain, Risk Management software is an advanced platform for your manufacturing business to identify, assess, monitor, and mitigate all sorts of third-party risks.

This versatile and scalable software collects your vendor data and automates the assessment and monitoring processes, giving you complete control over vendor selection and onboarding.

Take Vendor360 on a test drive with a live demo or learn more about the software.

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