How to Approach Supply Chain Risk Management

Understanding Supply Chain Risk Management

Supply chain risk management is the process of identifying, assessing, and mitigating risks to ensure the steady flow of goods and services. While the immediate benefit of a well-managed supply chain is a reduction in financial losses, the resulting operational resilience can also provide a competitive advantage—helping organizations swiftly recover from widespread disruptions faster than competitors, increase customer trust, and optimize overall performance.

Supply chains are exposed to a wide range of risks, including:

• Disruptions: Inefficiencies in logistics, delays in transportation, and reliance on limited suppliers.
• Natural disasters: Earthquakes, hurricanes, floods, and other environmental catastrophes that halt production and shipping.
• Cyberattacks: Data breaches, ransomware attacks, and supply chain vulnerabilities that impact digital operations and data security.
• Pandemics: Global health crises, such as COVID-19, that disrupt labor markets, production, and demand patterns.

Key Steps in Managing Supply Chain Risk

Supply chain risks are dynamic and, oftentimes, complex. While each organization's supply chain risk management program will be unique, there are a few critical components that every program should aim to include.

Real-Time Supplier Risk Ratings:

Continuous assessment and monitoring are essential for early identification and prioritization of supplier risks. Organizations can start with a recurring cadence to internally evaluate third-party dependencies and identify critical suppliers. In addition to traditional questionnaires, third-party monitoring tools can update supplier risk scores in real time. Example metrics and predictive analysis insights include:

• Financial Health Score: Assess financial viability and potential risks.
• Litigation & Legal Issues: Identify legal cases or disputes involving the vendor.
• Mergers & Acquisitions Activity: Track ownership changes that might impact risk.
• Vulnerability Exposure: Identify open vulnerabilities in vendor systems.
• Data Breach History: Track past breaches or incidents involving the vendor.
• System Downtime & Outages: Measure the reliability and availability of vendor services.
• Geopolitical & Location-Based Risks: Assess risks based on vendor locations.
• Supply Chain Disruptions: Track delays, shortages, and risks in vendor logistics.

Developing Supply Chain Risk Mitigation Strategies:

Disruptions are inevitable, so businesses must create contingency and response plans to prepare. Core components of an effective mitigation strategy include:

• Reducing reliance on a single supplier by mapping out alternative sourcing options.
• Introducing inventory buffers and safety stock to absorb short-term shocks.
• Ensure flexibility in transportation and warehousing with diversified logistics networks.

Operationalizing Supply Chain Risk Management:

Teams commonly face a variety of challenges when attempting to operationalize their supply chain risk management program, like incomplete or outdated vendor data, misalignment across business units, and lack of bandwidth to oversee ongoing assessments, mitigation tracking, and reporting. Shifting away from siloed processes and manual tracking via spreadsheets into a centralized tool that promotes data integrity and collaboration is often the critical first step.

Monitoring and Continuous Improvement:

The nature of supply chain risk is ever-changing and requires risk management teams to continuously monitor and optimize program performance. Conducting regular supply chain audits is critical to detect new weaknesses and assess whether mitigation strategies should be reprioritized to emerging risks. As programs gather more and more performance data, historical analysis is recommended to further refine risk management strategies and improve supply chain resilience.

Best Practices for Effective Supply Chain Risk Management

Reactive supply chain risk management delays response until after a disruption occurs, often leading to higher costs and longer recovery times. The goal is to shift away from a reactive approach to a proactive one, where teams identify, appropriately prioritize, and mitigate risks before they occur. This shift naturally leads to a more resilient supply chain. Additional steps that can be taken to further boost resiliency include:

• Fostering strong supplier relationships to ensure reliability and communication.
• Developing a resilient supply network with multiple sourcing options.
• Investing in supply chain agility to quickly adapt to disruptions.

A critical aspect of any risk management plan extends beyond the governance function to stakeholders, like risk, control, and relationship owners. Cultivating a risk-aware culture and driving accountability requires stakeholder engagement and training. Common examples include risk awareness training for employees and partners and simulation exercises to test response plans. It can also be helpful to create opportunities for cross-functional relationship building to improve collaboration and align risk management efforts.

Addressing External Risks and Cybersecurity Threats

Global Supply Challenges and Regulatory Impacts

Organizations must navigate a variety of global supply changes and regulatory shifts, like tariffs and regulations that impact international sourcing. The complexity of global supply chains is a prime example of how governance, risk, and compliance (GRC) functions cannot be optimized in a silo. In addition to the key steps and best practices in managing supply chain risk mentioned above, supply chain risk management teams must collaborate cross-functionally to keep pace with diverse factors on a global scale.

Develop contingency and resilience plans: Partner with operational resilience and business continuity teams to create plans that include alternative logistics and suppliers while also identifying, establishing, and maintaining critical inventory reserves to withstand regulatory disruptions across different regions. When it comes to response, work together to establish rapid-response teams and service level agreements that support continuity in times of sudden trade policy changes and supply chain shocks.

Monitor compliance and optimize contracts: Work closely with legal and compliance teams to track evolving trade policies, sanctions, and tariffs. Strengthen contracts and supplier agreements with clauses that allow for flexibility in tariff-related price adjustments and provide exit strategies for high-regulatory-risk regions.

Foster productive, external relationships: Establish relationships within trade associations and regulatory bodies to anticipate and respond to policy shifts. Keep risk top-of-mind by engaging suppliers, logistics providers, and regulatory advisors in risk management discussions. Reduce the impact of tariff-related risks by partnering with financial institutions to explore mitigation strategies, such as duty drawback programs.

Enhancing Cybersecurity in Supply Chain Management

Understanding the cybersecurity posture of third-party organizations, let alone fourth-party and Nth-party vendors, is challenging. The complexity of identifying dependencies and assessing risk across diverse standards, all while working with limited resources, leads most organizations to focus on tier-1 vendors (direct suppliers). Yet history has proven that the impact from an Nth-party incident can lead to significant disruptions and losses. How can teams enhance visibility and response?

Identifying Nth-party vendors: This can often feel like the most challenging aspect of supply chain risk management. Luckily, there are several approaches teams can take to increase visibility and accountability.

• Partner with legal to refine supplier contracts so that tier-1 vendors must disclose their critical suppliers during onboarding. It is also recommended to require tier-1 vendors to assess and monitor their suppliers for cybersecurity, compliance, and operational risks.
• Leverage supply chain risk intelligence platforms to help map out indirect suppliers and identify which should be monitored.
• For digital supply chains, leverage Software Bill of Materials (SBOM) analysis to detect dependencies and vulnerabilities.

Leverage continuous monitoring tools: Many cybersecurity controls lend themselves to continuous monitoring based on their binary nature. A variety of tools exist to help supply chain risk management teams monitor:

• Security Rating Scores – Aggregated security posture based on risk factors.
• Vulnerability Exposure – Identifies open vulnerabilities in vendor systems.
• Data Breach History – Tracks past breaches or incidents involving the vendor.
• Network Security – Measures firewall protection, encryption, and intrusion detection.
• Endpoint Security – Assesses how vendor systems manage endpoint protection.

Standardize cyber-related risk assessments: Supply chains often incorporate a diverse set of organizations, ranging in size, location, and industry. This can lead to inconsistencies across cybersecurity best practices. A critical aspect of supply chain risk management is establishing consistent and effective standards, assessment methodology, and response. Consider incorporating the following best practices to overcome common challenges:

• Internally adopt a proven framework for cybersecurity best practices (like NIST CSF and SP 800-53) and assessing third parties (like SIG Core).
• Collaborate with vendors to establish clear incident response plans and service level agreements.
• Leverage a GRC platform that can aggregate third-party intelligence, standardize assessments and recurring cadences, and unite workflows across compliance, continuity planning, and incident response.
• Update security awareness training to educate employees on role-specific supply chain risks. Building a risk-aware culture will lead to a more secure vendor ecosystem.

Key Supply Chain Risk Management Takeaways

Effective supply chain risk management requires a proactive approach that integrates predictive analytics, robust contingency planning, and cybersecurity measures. Organizations must continuously assess risks, diversify suppliers, and implement automation tools to enhance supply chain resilience. LogicGate’s Risk Cloud provides businesses with a comprehensive risk management solution to:

• Aggregate insights across business units, suppliers, and third-party monitoring tools
• Automate risk assessment, mitigation, and incident response workflows
• Streamline compliance with evolving regulatory requirements
• Strengthen supply chain cybersecurity measures

By leveraging LogicGate’s advanced and aggregated risk management capabilities, businesses can secure their supply chains, mitigate disruptions, and maintain operational continuity in an increasingly complex global landscape. Request a demo today to learn more.