SOC for Supply Chain: assurance amid mounting risks and complexity

  • May 17, 2024

Vendor security breaches and service outages. Supplier product quality and availability challenges. Consumer privacy regulations. Supplier concentration concerns. In the wake of recent and ongoing supply chain disruptions globally, companies now more than ever should have a clear understanding of how their suppliers are managing multiplying risks and strengthening operational resilience. Concerns regarding product availability and quality are on the rise, as is the focus on security, confidentiality and privacy of shared data. These factors have resulted in an increased demand for assurance that many companies have addressed a variety of supply chain risks.

Meanwhile, in a landscape in which mergers have resulted in fewer companies providing products to more end users, many industries face a growing need to address diversification risk and provide validation that their supply chains can weather major disruptions.

To provide a standard, efficient way for production, manufacturing and distribution companies to demonstrate controls they have implemented to address certain operational risks, the American Institute of Certified Public Accountants (AICPA) introduced a system and organization controls (SOC) assessment framework specifically for supply chains.

Why resilient supply chains matter

A hallmark of a resilient supply chain, particularly for manufacturers, is being able to provide assurance to customers that you are producing products to their exact specifications. This can be especially relevant for companies that build devices or components for healthcare or aerospace — or any industry in which products must consider consumer health and safety. For example, manufacturers of medical devices, such as pacemakers or glucose monitors, must put in place controls to ensure products are manufactured to precise specifications so they work as expected — which could become a life-or-death matter.

Now imagine that an industry leading technology manufacturer outsources packaging production to a specialty packaging supplier. The tech company must share proprietary information about new products with the packaging supplier to enable accurate, curated packaging. In the process, the tech company shares proprietary and highly confidential product specifications and new features with the packaging designer before the rest of the world knows what the gadgets will look like and what they can do. How does the packaging company provide assurance to the tech giant that its intellectual property (IP) will be adequately safeguarded?

In another example, a large retailer and a supplier want to enter into an exclusivity agreement. The retailer may need assurance from the supplier that it can maintain the agreed-on product availability by demonstrating supply chain resilience. If the retailer agrees to carry a certain brand or item, for example, and that exact item becomes unavailable due to unforeseen supply chain disruptions, the retailer might end up with empty shelves where that item once sat, lost revenue, and unforeseen expenses for both companies.

Demonstrating supply chain controls to strengthen trust

The SOC for Supply Chain reporting framework can help in situations like those described above by providing a way to offer greater transparency into how companies are addressing risks within their supply chain. In these reports, suppliers describe their environment, identifying the applicable controls they’ve implemented to address the relevant risks and enhance supply chain resilience.

SOC for Supply Chain reports can help suppliers differentiate from the competition by providing an efficient way to demonstrate their commitment to transparency, risk management and responsible practices by providing:

  • Flexible reporting criteria that allow management to be more intentional about how they define the scope of products or services they want to cover, what risks they want to cover and what controls they think are most relevant to address those risks. Other solutions in the market, by contrast, have been found to be far too prescriptive.
  • Option to report on controls other than those focused solely on data security, unlike other solutions. SOC for Supply Chain reports can also cover availability, confidentiality, privacy and processing integrity — and can be further expanded to include custom criteria, such as regulatory requirements, that apply only in specific industries.
  • Assurance from an independent third party.
  • Reporting on the operating effectiveness of relevant controls over a period of time as opposed to a single point-in-time snapshot.

SOC for Supply Chain reporting can be a powerful tool for organizations seeking to enhance trust and transparency in their supply chains and differentiate themselves from competitors by demonstrating the various controls they’ve implemented to address the risks and enhance supply chain resilience. Amid increased global interdependence, geopolitical uncertainty and digitization, SOC for Supply Chain reporting can help production, manufacturing and distribution companies demonstrate their commitment to transparency, build stakeholder confidence and demonstrate the resilience of their supply chains.

Additionally, due to the wide range of functions supply chain risks can impact within an organization, companies that are proactively addressing these risks are coordinating across functional leaders within IT, information security, customer relations, manufacturing, and logistics to organize a consistent message, share costs and build client-ready assurance that can address multiple needs.

Providing supply chain assurance

For suppliers, SOC for Supply Chain can help reassure customers that you have implemented controls for security, availability, processing integrity and related issues within your supply chain.

Seeking visibility into these controls, your customers might start asking pointed questions, including:

  • Do you obtain independent validation that your controls around security, availability, confidentiality, privacy and processing integrity are adequate?
  • Are you actively seeking to update and strengthen controls to keep pace with rapid advancement of enabling technologies such as AI and automation — as well as industry and government regulations?
  • Are you integrating industry leading practices to improve processes and controls to bolster data and system security and processing integrity controls?

A SOC for Supply Chain report can provide the answers current — and prospective — customers are looking for.

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Jennifer Kosar

AI Assurance Leader, PwC US

Jesse Bachman

Digital Assurance and Transparency Partner, PwC US

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