The Importance of Gauging the Security Protocols of Your Third-party Suppliers

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Inventory-based businesses often rely on third-party suppliers for seamless and complete functionality of their organization. From raw materials to equipment, these third-party suppliers are often the critical backbone of an inventory-based business, facilitating the smooth flow of goods and supplies from production to distribution. And while the security of your own organization might be airtight, there’s a potential security risk when working with third-party suppliers which is often overlooked, and which many supply-chain businesses lack protocols around. 

In this article, we’ll discuss the state of security protocols for third-party suppliers in supply chain organizations, explore the potential risks that come with a lack of protocols and discuss how organizations can be more secure.

The State of Security Protocols & Third-Party Suppliers

Warehouses and other inventory-based businesses often work with third-party suppliers in many different capacities. Some examples of these can include transportation and logistics, packaging suppliers, software providers, maintenance services and materials suppliers. But how often do inventory-based businesses ensure that their vendors are secure? 

One recent study of the supply chain revealed that more than a fifth of companies (21%) do not conduct security assessment checks of their third-party suppliers before they sign a contract with them. The survey also found that:

  • More than a third of the organizations surveyed do not conduct an assessment to understand the effect a disruption or security breach would have on their business. 
  • Thirty-three percent (33%) of participants do not conduct regular assurance activities with their suppliers, so they can’t confirm whether they’re currently secure. 
  • Twenty-three percent (23%) of suppliers don’t have formal agreements with their vendors, with appropriate security clauses in place.
  • Almost a third of organizations in the survey don’t have their own supplier security policy. 

While the report was specifically “not designed to shed light on the security posture of individual suppliers,” it demonstrates some of the “challenges and opportunities” in the field today.

Further research has also found that overall, a majority of organizations have been impacted by a cyber breach, and that “misses” in third-party risk management are hurting organizations. 

Are Third-Party Suppliers a Potential Security Risk? 

When it comes to third-party suppliers, do they really pose a potential security risk in your organization? The unfortunate reality is that even your most trusted vendors can pose a potential security risk – whether they realize it or not. 

There are a few main ways that third-party suppliers can potentially compromise the security of your business. Primarily, there is the potential for digital security risks. With the digitization of inventory management and the rise of e-commerce platforms, the reliance on interconnected networks of suppliers has become more pronounced, making the protection of proprietary information and trade secrets essential. This means that a third-party supplier who is connected to your network or who has access to it might be able to improperly view, collect and use data from your business. 

It also means that if that vendor is subject to a security breach, the breaching party could also access your network, through the connections to the first vendor. 

Some of the types of risks that inventory-based businesses should be aware of include data breaches, which can lead to the exposure of sensitive information, such as product specifications, pricing details, and customer data, resulting in financial losses and reputational damage. 

While cybersecurity is typically a priority in inventory-based businesses, there is also the question of physical security. Anyone who has access to a warehouse or facility could also pose a potential security threat, because they might be able to improperly access data, technology or even inventory, while visiting your facility in-person.

Why Security Matters to Inventory-Based Businesses

If you trust your vendors and work well with them, do security protocols with your third-party suppliers really matter? The truth is that any vendor can present as a potential security threat, due to the interconnected nature of your work with them. And unfortunately, a security breach could expose internal trade secrets or information and compromise various aspects of your business. This could lead to damage such as financial losses and delays in production or distribution, for example. 

When there are lax security protocols, it’s not only the business that is at risk: your customers are also at risk as well. That’s because inventory-based businesses have a plethora of customer data at their fingertips, from credit card numbers to physical addresses. If customer data is compromised, it causes a risk to the customer directly and could lead to dissatisfied customers. It then also leaves the inventory-based business on the hook for resolving the issue. It might take financial resources, legal action, or additional steps to eventually resolve and remedy a leak involving customers’ data.

Best-Practices for Strengthening Security with Third-Party Suppliers 

When collaborating with third-party suppliers, there are several steps inventory-based organizations can take to strengthen security and reduce the risk of security breaches.

Some of those best practices include: 

1. Ensuring there are security clauses in your contracts to safeguard information

Initially, when working with third-party suppliers, there should always be a contract in place. Secondly, those contracts should always include security clauses, specifically designed to safeguard inventory information. These clauses should include provisions for things such as data encryption, access controls and incident reporting, ensuring that suppliers adhere to specified security standards throughout the supply chain.

These clauses should also include a clear definition of responsibilities and liabilities, which can help enforce accountability, and incentivize suppliers to prioritize robust security practices when working with your organization. 

2. Partner with vendors which prioritize security 

Not all your third-party suppliers will prioritize and value security equally. When selecting a supplier, your best chance of a secure relationship is by choosing to work with an organization which has already developed and codified security practices. For example, when partnering with StockIQ for an inventory management system, vendors can choose whether they want to host it on the cloud, or if they want an on-premise installation (which allows organizations to enjoy the security and control of their own data center). 

Additionally, StockIQ offers advanced security features, including the ability to configure different users with distinct roles and the ability to access different sets of data. You can also configure external users so that they can only see the data that is appropriate for them to see. 

3. Conduct regular audits to insure continued adherence to security standards 

Regular security audits and assessments can be useful for monitoring third-party suppliers’ compliance with industry-specific security standards and regulations. By conducting evaluations of security protocols and practices used by third-party suppliers, organizations can assess how well their vendors are adhering to their security agreements and can identify any potential gaps or vulnerabilities and proactively address them. Audits can encompass data handling procedures, access controls, and employee training, fostering a culture of continuous improvement and vigilance in maintaining the security of inventory data.

4. Establish security training programs for employees and third-party suppliers

Inventory-based organizations can establish their own security training programs designed for both their employees and third-party suppliers, to create a cohesive approach to security. These training programs can emphasize the importance of adhering to security protocols, what security proficiency looks like, how to recognize potential threats and how to effectively address and remedy security incidents.

By understanding the role that third-party suppliers play in your organization’s security and how to execute best-practices for strengthening security, organizations can build a strong defense against security threats. They can also ensure the collective responsibilities of all stakeholders in safeguarding data. 

StockIQ: A Secure Solution

Today’s intelligent inventory-based businesses need intelligent supply chain planning solutions. But it’s not enough for a solution to be effective: it also needs to be secure.

StockIQ is a supply chain planning suite targeted at manufacturers and distributors which provides you with advanced tools that allow you to run efficiently, improve demand forecast accuracy, and reduce inventory levels, all while keeping your operations as secure as possible. 

Find out how StockIQ can help you improve visibility and provide unmatched service to your customers – all while helping you remain as secure as possible. Contact us today. 

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