Causes of disruption to supply chains include the following:
- Weather and other natural disasters (such as hurricanes or earthquakes)
- War or terrorism in geographic areas that are home to a supplier’s plant
- Financial instability of a key supplier or shipper
- Wide-spread pandemics (such as COVID-19, SARS, MERS) that affect the entire supply chain
For these reasons, an organization’s ability to achieve its objectives is increasingly dependent on events, processes, and controls that are not visible to the organization and are beyond its control, such as operations and controls at the suppliers. Manufacturers, producers, and distribution companies are looking for visibility across their complex supply chain networks to better understand the risks of doing business with suppliers and the controls the suppliers have in place to mitigate those risks. The failure to manage these risks appropriately can result in
- disruption of key business operations,
- reputational damage,
- fines and penalties,
- litigation and remediation costs, and
- exclusion from strategic markets.
It’s no wonder supply chain risk management has become such a significant issue to many organizations and their stakeholders. Suppliers are also increasingly interested in communicating how they manage the production and distribution risks in their own systems as a way of reassuring the organizations with whom they do business.
Organizations can use the SOC for Supply Chain reporting framework to communicate to stakeholders relevant information about their supply chain risk management efforts and the processes and controls they have in place to detect, prevent, and respond to supply chain threats and risks.
Benefits of a SOC for Supply Chain
Because of their dependence on suppliers, organizations are responsible for understanding the risks of doing business with suppliers and for designing, implementing, and operating controls to mitigate those risks. For that reason, organizations are interested in, among other things:
- understanding the risks identified by a supplier that affect the supplier’s production, manufacturing, or distributions of goods.
- comparing a supplier’s objectives for the production, manufacturing, or distribution of goods with customers’ needs.
- obtaining an understanding of the production, manufacturing, or distribution process of a supplier to better understand the risks of doing business with the supplier.
- establishing IT connectivity with a supplier or business partner, understanding the information security controls implemented by the supplier in order to effectively integrate the security controls of the two entities.
Currently, organizations interested in the systems and controls of their suppliers have to assemble desired information from many different sources, including the following:
- Supplier-provided information
- Site visits, inspections, and other procedures performed by the supplier’s internal audit functions
- Assurance programs (such as International Organization for Standardization [ISO] certifications) performed by third-party assessors
With the introduction of a SOC for Supply Chain framework, however, organizations will find that obtaining a SOC for Supply Chain report from their suppliers is the most efficient way to get the information they need to understand the risks of doing business with suppliers.
Strengthening Your Supply Chain
A manufacturer, producer, or distributor and its customers and business partners are best served if there is a defined set of information intended to enhance understanding of controls over manufacturing, production, and distribution systems. The information in the SOC for Supply Chain report provides useful information to stakeholders while also being:
- comparable between entities,
- scalable and flexible.
One of the critical steps is to evaluate your supply chain and identify potential threats and to critically and objectively assess where weaknesses might lie. By partnering with experts versed in the threats facing organizations and the experience to bring transformative solutions to the table. Alchemi Advisory Group has the unique collective expertise and the experience to partner with you in strengthening your supply chain reliability.