Many cyber-savvy organizations are familiar with System and Organization Control (SOC) assurance reports. They demonstrate to both your organization and your clients that you are committed to rigorous security and internal control practices. Overseen by the American Institute of Certified Public Accountants (AICPA), there are different SOC offerings for specific use cases, as my colleague Jeff Thomas makes clear.
What I find most people don't know, however, is that there is, shall we say, a new SOC in town. Until now, SOC reports have primarily focused on service organizations, leaving organizations that develop, build and distribute products somewhat out in the cold. So, in addition to the SOC reports most used for service organizations, the SOC for Supply Chain assurance report is now an option specifically tailored for supply chain management.
Many believe the ease and speed of data use, in all efforts at creating, compiling, transferring, understanding, analyzing, and responding, defines the modern supply chain's efficiency and effectiveness. Without accurate and timely data, no other aspect of supply chain management can be fulfilled. Accordingly, there's no doubt that supply chains, as they continue to be laterally integrated across organizations, have become significantly more complex over the years. This makes them more vulnerable to cybersecurity risks than ever before.
In alignment with many industry supply chain leaders, I believe that cybersecurity is the #1 threat to an organization's growth. Everyone can recall examples of ransomware attacks, upstream supplier breaches, or the unauthorized disclosure of intellectual property. They're just as crippling whether the attack is targeted toward you or toward a third-party on which you rely.
Supply chain breakdowns like these can lead to various challenges, including lost revenue, reputational harm, and litigation. Further, with each new organization that joins the ecosystem comes an added element to the risk that the supply chain overall may not be able to meet its obligations.
Here's the other problem: current assurance and certification models for manufacturing operations typically don't contemplate these risks. SOC for Supply Chain provides a key solution. This SOC report can be leveraged to (a) assist the dominant partners (or nucleus firms) in raising the overall maturity of the supply chain controls, (b) assist an outsider organization wishing to demonstrate that their introduction to the ecosystem will not introduce undue risk, or (c) assist with assurance that the organization's supply chain can deliver on its commitments.
Something else that people involved in the production, manufacturing, and distribution cycles don't seem to know yet is that SOC for Supply Chain doesn't just describe the internal procedures and systems related to the production, manufacturing, or distribution of a product. It can also provide detail on how the relevant internal controls are designed and operated as they pertain to each of the five core components of trust.
I'll outline how these five constitute a powerful communication tool that explains your organization's supply chain risk management efforts and the effectiveness of your internal controls.
- Security. The supply chain's foundational security controls to guard itself against disruption, damage, unauthorized access, and/or unauthorized disclosure of information.
- Availability. The supply chain's capacity for the operations necessary to deliver on relevant obligations, the most common being to develop specific quantities of products and make them available to customers within a specific period of time. This includes the necessary components for operation, such as raw materials, data, operating environments, and qualified resources.
- Confidentiality. The controls in place to protect any confidential information the supply chain makes use of, such as the organization's or business partners' intellectual property.
- Privacy. The controls in place to appropriately adopt Generally Accepted Privacy Principles (GAPP) concerning any personal information the supply chain uses.
- Processing integrity. The controls that mitigate the risk that the objectives of the supply chain will not be achieved because of failures in the production process. Think of this as the ability of the supply chain to produce products that can be reasonably expected to achieve their specifications.
What I've learned is, whether it's anything from pharmaceuticals, software, robotics, or logistics, supply chain leaders think that a modern internet-enabled approach to supply chain operations and data sharing is the most critical initiative required to support post-pandemic recovery. Executing this paradigm shift, however, is not without risk. The good news is that a SOC for Supply Chain assurance report can strengthen your internal controls and grow the confidence your partners have in your ability to meet your obligations.