In a digital world, cyber risks are an increasing concern for businesses – as our colleagues within the InterSys technical group are well aware. This deals with the findings of the government’s Information Security Breaches Survey 2015, which shows both the prevalence and impact of cyber breaches. There’s a lot more businesses can be doing, they note.

There are obvious implications for the supply chain, too. As research by Standard Chartered (picked up by the FT) highlighted, technology has transformed the global supply chain, bringing massive benefits. Radio-frequency identification (RFID) technology and the Internet of things, for example, have made it much easier to track and monitor orders and shipments through the supply chain. Similarly, technology facilitates much greater coordination between businesses.

“Supplier companies can be completely integrated in managing the supply chain. Instead of an ordering department sending orders to suppliers, everybody can be linked directly to inventory management systems,” the report states.

While the benefits of that are obvious, so too are the risks. Increased connectivity, if not properly handled, brings the potential for increased vulnerabilities. Moreover, the reliance on technology exacerbates the potential problems in cases where a breach does occur (one reason, possibly, why the government survey shows the average cost of security breaches soaring).

The other, and related, point is that a company cannot afford to look just at its own cyber security. As delegates heard at the Infosecurity Europe event where the Security Breaches survey was launched, businesses need to work not just on their own procedures and practices, but also with their suppliers.

Experts are urging businesses to work with suppliers to raise the level of their “cyber hygiene” – encouraging them to follow principals such as those laid out by the government’s the Cyber Essential Scheme. The view is based on a number of cases where attackers have targeted suppliers to circumvent big firms’ security.

“Try to be an intelligent customer,” Jon Townsend, head of cyber intelligence and response at the UK’s Department for Work and Pension (DWP), advised the audience. “And if you think suppliers are not meeting your information security requirements, instead of beating them up with the contract, work with them to put it right.”

That’s good advice. As a first step, though, businesses need to have visibility of the supply chain to identify where the potential vulnerabilities are, and identify who has what information. Fortunately, that’s an area where technology can help as well, with the growing market for supply chain management software.

Supply chain risks are once again close to all-time highs, according to the Chartered Institute of Procurement and Supply. The group’s Risk Index assesses risks in 132 countries across a range of categories to calculate the global supply risk score. Only five countries saw operational risks improve in the last quarter.

The index, which runs from 0 (no risk) to 100, is now at 78.7 – up from 23.7 in 1994.

The variety of factors that have driven it up, including political turmoil in Europe and economic slowdown in China, will impact each business differently. However, it is also the result of more general and longer-term trends that have more universal applicability.

As CIPS economist and Cranfield School of Management senior economist John Glen told reporters, supply chain complexity is a big factor: “Supply chains have become a lot more complex in the past 20 years. It’s not necessarily the case that there is more risk out there but that our supply chains touch them more.”

There are no “safe havens” for international supply chains, Glen added.

A lot of businesses accept this. Nevertheless, many companies decide to invest in potentially riskier geographic regions to gain access to emerging market places, where the reward is judged to outweigh the operating risks. In doing so they face challenges such as infrastructure reliability and water scarcity issues, which are becoming critical in many areas. In Latin America, for example, Brazil has suffered a historic drought coupled with a dependency on hydroelectric power, resulting in its regional risk score deteriorating in Q1 2015.

In this context, as we’ve noted, there is the potential to gain competitive advantage from more resilient supply chains. However, businesses face a number of challenges in seeking to build resilience. The first is to know in what areas of the business, skills and solutions to invest, given the complexity of the supply chains, and the fact that innovations aimed at supply chains can be a little hit and miss. Moreover, it is not always easy to address deficiencies even once this is established.

Securing skilled personnel falls firmly into this category. The growing skills gap in supply chains is increasingly acknowledged, and was a key theme in Deloitte’s most recent Supply Chain Survey. Fewer than four in ten (38%) of the executives it surveyed thought their organization had the competencies around supply chains required. Only a slightly higher proportion (43%) considered their supply chain was strong when it came to strategic thinking and problem solving.

Supply chain technology needs to address both these challenges: offering solutions that are proven and that can also deliver answers to skills shortages and the complexity of modern supply chains. For those that accept the importance of the supply chain and the need for investment, such criteria should be central to how decisions to address it are made.

 

Courier group Fedex and researchers at Frost & Sullivan have published an interesting report looking at the importance of supply chains to competiveness for medical device, pharma and biotech manufacturers, among others.

The study opens by noting the supply chain’s importance and also reports encouraging findings from a poll and interviews with 39 high-level healthcare industry executives. These showed 78% recognised that an effective supply chain would be vital to their company’s ability to compete in the next decade.

Despite this, however, the focus of strategic growth in healthcare companies has generally been on acquisitions, restructurings and, particularly, product development.

“[H]ealthcare products companies have sought to gain competitive advantage by leveraging R&D and technology to create superior products and by capitalizing on their marketing prowess… They have often neglected to create a more comprehensive solution for their customers that would plant the seeds for nurturing a true strategic relationship,” the report states.

This is where the supply chain could play a key role, it notes. Companies need to move beyond just thinking about the supply chain in terms of efficiencies; they should also consider its ability to drive growth through developing relationships.

All this reinforces old lessons: The pressure to reduce supply chain costs has in the past threatened, and at times undermined, resilience when applied in a manner that is not proportionate to the risk exposure. Cost reduction has meant closing plants, removing redundancy from the supply chain and reducing stock. Meanwhile, the industry’s focus on mergers and acquisitions hasn’t always helped either, being a contributory factor in a number of cases of drug shortages.

The point is that the cost savings of a leaner supply chain have to be set against the risks. They also have to be set against the competitive advantage gained from a well-publicised, generous finished stock policy for critical drugs that minimizes the risk of vulnerable patients being exposed to product shortages.

This is not an easy balance to strike, but the issue won’t go away. In fact, it’s almost certain to grow. Others have noted the potential impact on pharmaceutical supply chains of medical apps and technology recently introduced by volume providers such as Apple and Google. Furthermore, the growth of the home healthcare market is expected to see the pharmaceutical logistics market increase almost 10% a year to 2019, according to one recent analysis, as companies review their supply chains.

There are no easy answers, but the questions do at least make clear the importance of supply chain resilience – not just in terms of risk mitigation, but also as a potential driver for growth.