Is Supplier Data Exposing Your Business to Financial Risk?

The procurement function relies heavily on extensive supplier data to ensure continuity, efficiency and productivity across the supply chain. But for all its advantages, supplier data can be a double-edged sword. Those very systems designed to improve processes and build supplier relationships are also exposing businesses to significant cyber risk. 

And it’s not just the risks posed by direct suppliers either. Businesses must also account for the vulnerabilities associated with fourth-party vendors – suppliers of their suppliers. 

Consider Toyota’s 2022 supply chain attack, where a cyber intrusion halted production for 24 hours at 14 plants in Japan. The attack was traced back to a software supply chain attack on an independent third party. This proves that even the most fortified organisation can be undone by vulnerabilities outside of their own walls. This case, along with mounting evidence from around the globe, clearly illustrates these glaring vulnerabilities. 

Yet many companies – particularly smaller, less cash flush ones – are leaving their doors wide open to cyber breaches through inadequate oversight of their supplier data. According to the UK Government’s Cyber Security Breaches Survey, only 14% of small businesses, 29% of medium businesses and 56% of  large businesses monitor risks from suppliers or their wider supply chain.

There is no doubt that it is a complex web, and a tricky gap to close. But there are steps you can take to reduce your exposure and minimise the risk. Below we explore how supplier data can create financial risks for your business and share strategies to mitigate these threats.

But First – What is Third-Party Cyber Risk?

Third-party cyber risk refers to the potential threats and vulnerabilities introduced into a business’s systems by external partners, vendors, or suppliers. These risks stem from the fact that third-party vendors – especially those with access to sensitive data or key systems – may not have the same robust cybersecurity measures as the organisations they work alongside. These risks can manifest in many ways, including data breaches, ransomware attacks, and unauthorised access to confidential information.

What are the different types of financial risks associated with supplier data breaches?

The average global cost of a data breach in 2023 reached $4.45 million (and up 2.3% from $4.35 million in 2022), according to IBM’s annual Cost of a Data Breach Report. This financial toll can be attributed to a number of factors. 

• Operational disruption: Data breaches can bring operations to a grinding halt, causing significant delays in production or service delivery – just as Toyota experienced during its 2022 supply chain attack.
• Regulatory fines: Non-compliance with data protection regulations can lead to hefty fines if breaches expose sensitive information.
• Loss of revenue: Interruptions or compromised suppliers can result in lost sales and missed business opportunities.
• Reputational damage: A breach linked to a supplier can erode your customer’s trust in you, impacting your company’s reputation and long-term financial stability. And if one of your suppliers is involved in a scandal, your company’s reputation could suffer by association too.
• Cost of remediation: Investigating, resolving, and recovering from a data breach can incur significant costs, including legal fees and compensation to affected customers.

It’s clear that these types of damages should be avoided at all costs, but how can you protect against third-party risks when you don’t control those systems? After all, cutting off all data sharing isn’t a viable solution.

Protecting your Business from Third-Party Risks

Conduct thorough supplier risk assessments

Before onboarding any vendor, take time to carefully evaluate their cybersecurity measures to ensure they can adequately protect sensitive data. This includes reviewing their security policies, data handling procedures, and any previous incidents of data breaches. 

Implement continuous monitoring

Cybersecurity threats evolve fast, and a vendor’s security posture can change over time. By regularly reviewing the cybersecurity measures of your suppliers and their third-party vendors, you will be better positioned to identify any new vulnerabilities and get the visibility needed to catch emerging risks early and intervene before they escalate into major issues.

Use contractual safeguards

Protect your business by including strict cybersecurity requirements within your contracts. These should outline security standards for suppliers, including data encryption, access controls, and breach notification protocols. Clear contractual obligations help ensure that your suppliers maintain the same level of security diligence as your own organisation.

Prioritise critical suppliers

Not all suppliers carry the same level of risk, so it’s important to identify high-risk vendors, such as those who handle sensitive data or play a vital role in your operations. Ensure these suppliers have strong contingency plans, including incident response protocols. This helps minimise the impact of potential breaches.

Adopt multi-layered security

Even with the best vendor management, breaches can still occur. Strengthening your organisation’s own cybersecurity measures, such as implementing firewalls, encryption, and regular security audits, creates a multi-layered defence. Keeping internal systems secure limits the impact of supplier-related breaches, even if a third party is compromised.

Focus on incident response

A cyber breach is not a matter of if but when. Businesses with well-established response protocols are far better equipped to contain breaches. More than ever, your business must be prepared with a dedicated cybersecurity team or partner. They can significantly strengthen your incident response strategy, reducing both the financial impact and recovery time.

Fortify against third party supply chain attacks

Supplier data is rich in insights, operational efficiencies, and strategic opportunities, but it also brings costly and disruptive risks. The best way to protect your organisation is to scrutinise your suppliers from the outset and ensure your business has a comprehensive, multi-layered cybersecurity strategy that includes rigorous oversight of suppliers, continuous monitoring, and strong incident response plans. 

With a plan like this in place, you will be ready to detect, respond to, and recover from potential threats, and stay resilient even as these threats evolve.