Zoom in on Cyber Risk

The interconnected nature of business networks, their systems and their data leaves suppliers and the primary organization open to threats and attacks that broadly fall under the category of supply chain cyber risk. Cyber attacks have only increased in recent years, and even a minor breach can damage a company’s operations, finance and reputation due to how much sensitive information has been digitized. This risk only deepened with the emergence of generative AI (GenAI), which has given cybercriminals a new tool to engage in malicious activities. These factors explain why the World Economic Forum includes AI-generated misinformation and disinformation and cyberattacks in its top 5 risks for 2024.

Therefore, cybersecurity supply chain risk management (C-SCRM) is growing in importance, as illustrated by Deloitte’s recent TPRM survey that puts cyber and information security risks at the top of procurement organizations’ concerns.

Find our in-depth guide to third-party and supply chain risk management with accompanying free download here.

What causes cyber risk?

Cyber risk inherently comes with the presence of a digital infrastructure. The reasons may vary from a teenager who hacks for kicks to those with a more pointedly criminal aim, such as blackmail or stealing credit card information, to businesses or state entities engaged in attempts to gain information on their competitors’ activities or disrupt them. Regardless of why one may engage in hacking a supply chain, the digital nature of these systems means there are digital threats.

Many organizations have taken serious precautions to guard their own systems. Their systems extend to their suppliers and along their supply chain, however. If these points of entry are hacked, it could impact the buying organization. In 2020, for example, the software company SolarWinds was hacked, and before realizing the damage, it had passed malware onto its clients, which included Cisco and the United States Department of Homeland Security, through an update. A less dramatic problem could be that a hack simply leaves a supplier unable to carry out their deliveries.

Cyber risk also encompasses regulatory issues. If a supplier handles a buying organization’s customer data in a way that violates the European Union’s General Data Protection Regulation (GDPR), the buying organization could face legal ramifications as well.

How cyber risk affects your business

It might take a while for a business to notice a cyber attack. When cyber risk happens, though, the impact can range from inconvenient to devastating (especially if it took a long time to notice it):

• Legal and regulatory compliance: Breaking data protection and other regulations can result in direct fines that could cost millions.
• Direct revenue and profit loss: An attack may force a company to pay customer compensation or suffer production shortfalls, shutdowns or disruptions in the supply chain that stops sales.
• Reputation and brand: Customers may stop using a company’s digital tools, like an online store, if they do not trust that they will be safe while using it.

How to mitigate cyber risk

Because widespread cyber risk is still relatively new — compared to the risk of natural disasters, for instance — the processes organizations use to identify, track and assign ownership of this risk is less well-defined. Obviously, that has to change.

Businesses can begin by understanding their n-tier supply base and examining who could pose a cyber risk to their supply chain. Following that, steps, such as contractual clauses and mandatory cyber-risk reviews, could help reduce the likelihood of a risk’s realization. The more general risk-mitigation strategies, such as ensuring they have a back up supplier, also always helps.

A crucial difference between general risk mitigation and cyber risk mitigation is that the suppliers who require their attention are not necessarily the most strategic ones. The most important suppliers are those who deal in the most sensitive data, such as a marketing firm or a data processing one. A cyber attack on a tactical supplier who deals in data will harm them more than a large-scale supplier who sells their goods.

Even after they have identified potential risks, a company still has to respond to them. And, as with all risk events, speed is key. If a supplier has suffered a major data breach, the buyer needs to know as soon as possible so that they can respond quickly and appropriately.

Conclusion

Supply chain cyber risk is a risk type that is inherent to today’s digital economy. From attacks to ignoring data regulations, weak links in a firm’s network can open its business to financial, reputational and operational harm. A buying organization needs to know its supply base, especially those that handle sensitive data and so pose greater risk. From there, it can include mitigating actions, such as assigning risk ownership in a contract, and quick reactions to respond to these risk events.