How to Proactively Manage Third-party Vendor and Supply Chain Risk in a Digital World

  • December 15, 2022
chains breaking

Forty years ago, the logistician Keith Oliver coined the term ‘supply chain.’ Since then, supply chains have become increasingly sophisticated, global, and complex. As a result, supply chains enabled phenomenal growth in businesses and industries while introducing increasing risks — especially in third-party risk vendor management.

The global pandemic provided real-world visibility into the potential impact of supply chain disruptions, and businesses are adjusting to the new landscape. According to the 2023 27th Annual Third-Party Logistics Study, among the businesses shipping products, 80% have taken (or are planning to take) action to rebalance inventory levels; 69% have executed (or are in the process of executing) changes to supply sources.

The growing importance of technology in the supply chain

Among businesses that provide shipping services (known as third-party logistics providers, or 3PLs), 87% say shippers are placing greater emphasis on technology solutions. For example, transportation management solutions for planning and scheduling lead the list. This trend reflects efforts to strengthen supply chain resilience in the face of potential future pandemics, geopolitical issues, and other real-world concerns.

More broadly, the growing focus on technology to connect disparate parts of the supply chain provides opportunities to improve the quantity and quality of data moving through the supply chain. This focus also creates new attack surfaces for threat actors to target. This phenomenon is not new; businesses in every industry are increasingly digitizing and expanding their attack surface. However, supply chain technologies can be designed explicitly for end-to-end connectivity between multiple businesses. Despite current efforts, new attack vectors will inevitably be in the process.

Increasing cyberattacks aimed at the supply chain industry

Threat actors have caught on to the implications of supply chain cybercrimes. Our 2022 Global Threat Intelligence Report forecasts five significant trends across the global threat landscape, with attacks shifting to critical infrastructure and supply chains. In fact, attacks on transport and distribution have doubled, moving transport and distribution into the top five most targeted industries for the first time — a bold but undesirable leap from 11th place the previous year.

The report also recommends steps businesses throughout the supply chain can take to mitigate risk. For example, a best practice with any third-party software or hardware is to adopt a Zero Trust approach. Implementing a Zero Trust approach allows leaders to prioritize security early in the design stages of a product and continue to prioritize security throughout the product's lifecycle.

Addressing compliance and third-party vendor risk to strengthen supply chain resilience

Earlier, we noted that approximately seven in ten businesses that ship goods to their customers are looking for new sources for materials. Having multiple sources offers breathing room should the first source fail to deliver. If those supply chain partners happen to distribute geographically, they cannot all be affected by weather or geopolitical events. However, organizations must determine whether a partner can deliver the needed materials in the correct volume.

Additionally, there is an entirely different level of third-party vendor management and risk to undertake before including a partner in the supply chain.

There are three key steps for proactive third-party vendor risk management:

  1. Monitoring your partners: Performing due diligence on each potential partner is critical. The goal is to document verification that a partner abides by any applicable governmental regulations, to identify who the partner says they are, and to ensure that they are not leveraging the financial ecosystem to aid in financial crimes. A robust governance model or an ESG program to understand the social impacts is beneficial in monitoring and identification.

  2. Measuring impact proactively: Businesses need to have the ability to predict supply chain impact instead of being reactionary. Understanding the issues and risks, such as delivery delays, can help businesses mitigate risks.

  3. Having a remediation strategy: Businesses must be able to quickly develop a remediation strategy to fix supply chain issues and proactively switch to alternative channels should partner issues arise. For example, businesses can terminate partner relationships and quickly replace them.

These steps can help business address compliance issues and third-party vendor risks to proactively strengthen their supply chain. With the increasing global complexity of supply chain due to today’s challenges and digital acceleration, businesses must also consider and address security, compliance, and third-party risk factors. Proactive third-party vendor risk management is critical in business continuity and can result in more significant positive social and sustainability impacts.

Learn more about our Risk Management and Compliance Consulting practice.

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Karan Dave
Karan is a Director with NTT DATA’s Risk and Compliance Practice. He is a value generation and compliance-focused risk professional with over 15 years of experience partnering with banks globally, providing risk advisory and digital transformation services. He has helped various start-ups and mid-size and large banks globally in Asia, Europe, and North America across all Retail and Commercial banking areas, including Deposits, Lending and Leasing, Trade Finance, Treasury, and Branch banking.

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