The challenge of managing risks within supply chains and third-party relationships has never been more critical. Supply Chain Risk Management (SCRM) and Third Party Risk Management (TPRM) are two practices at the forefront of addressing these challenges, but their distinctions—and the potential of their integration—often go overlooked. SCRM takes a broad view, mitigating risks spanning raw materials, logistics, and final product delivery, while TPRM zeroes in on direct business relationships, ensuring third parties meet standards in compliance, cybersecurity, and operational resilience.
The key to effective risk management lies in the integration of these strategies. By combining the strengths of SCRM and TPRM, businesses can proactively identify and address vulnerabilities across their supply chains and vendor partnerships, ensuring greater security and operational continuity.
Mapping vendors, unifying governance structures, and continuous monitoring can help companies achieve resilience. From contract clauses to zero-trust principles, the following good practice approach, ensures preparedness against disruptions and breaches.
Supply Chain Management (SCM) ensures a seamless flow of goods, services, information, and finances from raw material sourcing to final delivery. Companies that optimise their supply chains often gain competitive advantages in efficiency, cost reduction, resilience, and customer satisfaction.
SCRM encompasses risks across the entire supply chain, from raw materials and logistics to final product delivery. It aims to ensure continuity, security, and integrity, managing risks from geopolitical issues, cyber-attacks, natural disasters, regulatory changes, and supplier failures.
TPRM, on the other hand, focuses on direct business relationships and addresses cybersecurity, compliance, financial stability, and operational dependencies of third parties.
Integrating TPRM into SCRM is essential for effective risk management. This combined strategy allows companies to proactively identify, assess, and mitigate risks across both vendors and the broader supply chain. An inconsistent approach can create security gaps that can be exploited, whereas an integrated strategy ensures greater resilience, operational continuity, and security.
Successful SCRM involves a unified governance and risk structure, defining roles and responsibilities for cross-functional teams from procurement, cybersecurity, legal, and compliance, covering both TPRM and SCRM. This governance structure provides visibility into both third-party and supply chain risks for risk committees and C-suite leaders.
TPRM policies should align with SCRM by embedding vendor risk assessments into broader supply chain strategies. This includes categorising third parties based on the services they provide, such as strategic suppliers, technology providers, and logistics partners. The criticality of the service is determined by the potential business impact of disruptions or breaches.
It’s imperative that third-party vendors meet compliance, cybersecurity, and operational resilience standards relevant to the criticality of their services. The initial step includes mapping out the supply chain and vendors, maintaining an overview of the services provided, including sub-tier suppliers who may impact operations.
Continuous monitoring tools are essential for real-time risk assessments of critical suppliers. These assessments should commence at the start of the engagement and continue throughout the supplier’s service tenure. Early indicators like DMARC (Domain-based Message Authentication, Reporting and Conformance) checks can test the supplier’s email security posture, but comprehensive Threat Intelligence and Risk Assessments are necessary.
Contracts with vendors and suppliers should contain clauses relating to cybersecurity, compliance, and operational resilience. This includes notifications of potential breaches, outputs from security testing, changes in key employees, business continuity policies, and results from security testing.
Implementing security and compliance Key Performance Indicators (KPIs) and Service Level Agreements (SLAs) can help monitor adherence to cybersecurity standards. Zero trust and access control should be considered to limit vendor access to critical systems.
Integrating risk reporting and sharing insights between TPRM and SCRM teams is vital to identify and mitigate linked risks. Physical audits should be conducted on critical third parties within the supply chain to validate and verify risk processes and controls.
Finally, Business Continuity exercises simulating supply chain disruptions and vendor failures should include vendors and suppliers to test and prove integrated practices are adequate. Planning for failures is crucial to ensure preparedness and resilience.
To learn how to gain visibility into your supply chain risks, contact Sapphires consultancy team on 0845 58 27001.
