Most, if not all, supply chains are going through a digital transformation that will include many new systems, devices, user logins, and even AI-powered software agents. However, the question is: can your current digital identity solution handle the load? With the advent of Internet of Things (IoT) devices and AI-powered autonomous agents, most supply chains will soon need to VERIFY, AUTHENTICATE, and AUTHORIZE thousands of these digital “actors” on a daily basis. Are you ready? How can you secure your digital supply chain and still get things done?

This article aims to help you prepare for this digital identity surge. First, I will outline ten reasons why supply chain leaders must play a crucial role in shaping their organization’s digital identity solution. Next, I will cover the basics of verifying, authenticating, and authorizing various types of digital “actors” on your network. I will also highlight the risks that a comprehensive digital identity solution needs to address. Finally, I will provide references to current digital identity systems and standards relevant to supply chains.

Why Is Digital Identity Important To Supply Chains’ Security, Operations, And Financials?

Digital identity serves as the keystone for supply chain security, efficient operations, and financial integrity. In an era where transactions, communications, and logistics operations are increasingly digital, the ability to accurately verify the identities of individuals and entities across the supply chain is paramount. Indeed, it ensures that:

• sensitive data is accessible only to authorized personnel
• operations run smoothly without interruptions from identity fraud
• financial transactions are protected from cyber threats. 

First, let’s define what a digital identity is from a supply chain perspective. I like this definition:

“A digital identity is an online presence that represents and acts on behalf of an external actor in an ecosystem. An identity could belong to a legal entity, a financial intermediary, or a physical object, for example. Ideally, a digital identity is verified by a trust anchor, or something confirming the legitimacy of an actor, so that those interacting with that actor’s digital identity have confidence the actor is who and what it claims to be.”

World Economic Forum

Traditionally, digital identity solutions mainly focused on individuals, such as employees. However, as supply chains digitalize, digital identity solutions must evolve to address the increasing complexity posed by numerous digital “actors” that require trust validation. Specifically, these actors include organizations, people, “trusted” systems, and even physical objects. So, in the era of global ecommerce, establishing trust in digital identities is crucial for the security, operations, and financial well-being of supply chains.

With this definition of digital identity in mind, below are 10 examples of why digital identity is important for supply chains.

10 Reasons Why Digital Identity Is Important To Supply Chains

1. Enables Real-time Data Sharing and Collaboration.

For example, digital identity facilitates the instant exchange of information. As a result, this allows supply chain partners to make informed decisions swiftly and collaborate effectively.

2. Enhances Transparency and Traceability in Supply Chains.

For instance, by assigning a unique digital ID to each product, stakeholders can track its journey from origin to consumer. Thus, ensuring accountability, traceability, and visibility. Also, this is the first step for a business to create a digital twin that models the real world.

Examples Of Digital Transformation Within Supply Chains – The Best Way To Achieve A High Tech Redesign

3. Improves Operational Efficiency through Digital Transformation.

Digital identity systems streamline processes by reducing manual tasks. Indeed, this is at the heart of digital transformation for a company. As a result, digitalization leads to faster operations and reduced chances of error.

4. Facilitates Trust And Seamless Financial Transactions.

Also, secure digital identities enable stakeholders to verify each other’s authenticity. Hence, this paves the way for smooth and trustworthy financial interactions.

5. Improves Compliance with Regulatory Requirements.

For instance, digital identities help supply chains adhere to legal standards by simplifying the management and verification of compliance documents.

Securing Data Interoperability In The Supply Chain: Can The Government Make For Better Results?

6. Accelerates Cross-Border Transactions To Increase Global Trade.

In the age of ecommerce, digital identity simplifies the complexities of international trade. Indeed, it does this by ensuring quick and reliable verification of entities involved in the import of goods across borders. For more info on Government’s role with supply chains with supply chain interoperability, see my article, Securing Data Interoperability In The Supply Chain: Can The Government Make For Better Results?

7. Builds Trust among Stakeholders in the Supply Chain.

Establishing verified digital identities for all parties increases confidence. Thus, this fosters a reliable and more efficient supply chain ecosystem.

8. Strengthens Data Security and Privacy.

Data Sensitivity: What You Need to Know For Your Business

Further, a robust digital identity framework protects sensitive supply chain data against unauthorized access and breaches. Thus, this ensures privacy and security. For more on data sensitivity, see my article, Data Sensitivity: What You Need to Know For Your Business.

9. Streamlines Supplier Onboarding and Verification.

Digital identities allow for the quick validation of new suppliers. As a result, this reduces the time and resources required for onboarding.

10. Mitigates Risks of Supplier Identity Theft And Fraud.

By securely authenticating the identities of suppliers, digital identity systems minimize the potential for fraudulent activities within the supply chain.

For more details on why digital identities are critical for supply chains, see UN/CEFACT’s presentation on Digital Identity Standardization for Trade Facilitation.

The Many Supply Chain Entities That Need To Be Verified, Authorized, and Authenticated.

The digital identity ecosystem within supply chains is a complex network involving numerous stakeholders – from suppliers, shippers, and logistics providers to end consumers. Further, each entity plays a pivotal role, and the digital identity of each must be accurately verified, authorized, and authenticated to maintain the supply chain’s integrity. Indeed, this triad of verification, authorization, and authentication forms the bedrock for trust and transparency within the supply chain. Thus, this assures that transactions and interactions are both legitimate as well as secure. In the following paragraphs I’ll break down the functions of a digital identity system and the types of supply chain “actors” that interact with a digital identity system. 

1. Functions Of A Digital Identity System And Who Or What Is Responsible.

In the this section I’ll highlight the key functions of a digital identity system to include responsibilities. To detail, the processes are verification, authenticate, and authorize. Positively, all of these digital identity functions are key to operating a secure supply chain.

a. VERIFY: Confirm Physical Identities and Assign Digital Identities. 

A digital identity system typically includes a verification process. Specifically, this is where an individual provides personal documentation, such as a driver’s license or passport, which is then cross-referenced with biometric data like fingerprints or facial recognition to create a unique digital identity. For example, a bank might use a digital identity verification system to confirm a customer’s identity before opening a new account. Thus, this ensures the digital identity matches the physical person. Now, there are many types of organizations that can do the verification process. This includes public authorities such as a government, a business, or a trusted third party service provider that specializes in verification processing.

b. AUTHENTICATE: Ongoing Validation To Ensure Rightful Ownership Of Digital Identity.

Indeed, ongoing authentication is needed for a digital identity as it is normally used repeatedly in the course of doing business. So, authentication is a continuous process where the digital identity system verifies the user’s credentials. Further, this process happens repeatedly through authentication methods like passwords, security tokens, or biometric scans, every time access is requested. For instance, a smartphone may use a combination of a password and a fingerprint scan to authenticate the owner before granting access to sensitive apps and data. In this case, the organization that is responsible or owner of the digital network or product uses an authentication process to control digital access.

c. AUTHORIZE: Assign the Level Of Privileges and Access to Digital Resources.

After authentication, the digital identity system determines the user’s level of privileges, granting or restricting access to various digital resources based on predefined roles or attributes. In many cases, digital identity processes will use a roles-based access control (RBAC) to assign user privileges to a group of users. Additionally, a common practice is to use the principle of least privilege (PoLP). Specifically, this information security concept maintains that a user or entity should only have access to the specific data, resources and applications needed to complete a required task.

For an example of the assignment of privileges, let’s take a corporate network. Here an employee’s digital identity might allow them access to general company data. Whereas IT personnel are granted privileges to access the secure server rooms and system configurations. 

For more on authorization methods, see PingIdentity’s Authorization Methods. Also, the organization that sets up the authentication process also in most cases is responsible for the authorization process as well. 

2. What Are The Types Of Digital Identity Players That Operate In The Supply Chain.

Most of us, when we think of digital identity, we are thinking of it in terms of people. However, with supply chains there are a wide range of entities to include people that need a digital identity. In fact, more supply chain organizations are starting to use Digital Twins to model physical supply chains to include products, systems, and processes. So, digital identity of almost anything is increasingly needed, not just for security, but for operational decision-making and real-time automation. To detail, below are descriptions of key supply chain entities that can interact with digital identities. Specifically, this includes legal entities, public authorities, autonomous software agents, physical objects, and of course, people.

a. Legal Entities.

First, legal entities in the supply chain refer to officially recognized organizations or companies that engage in transactions and hold digital identities. For instance, this could be a business registration number or a tax ID. Furthermore, legal entities are key in supply chains as they are the primary party involved with a transaction. Additionally, it is imperative that these entities have reliable, trustworthy digital identities. For example, a manufacturing company with a unique corporate identifier that it uses to sign contracts and place orders. Also, a legal entity will be the source of trust for other actors such as employees and autonomous software agents (ASA).

b. Public Authorities.

Public authorities are government bodies that oversee and regulate parts of the supply chain, holding digital identities like agency identifiers or license numbers. For example, a customs department that uses its digital credentials to oversee import/export activities at a country’s border.

Business Automation AI Remake: First Just Tech To Empower Processes And Now Operates Autonomously

c. Autonomous Software Agents.

Autonomous software agents are software programs that independently perform tasks within the supply chain. Indeed, they need to be equipped with digital identities to automate authenticate and authorize actions. Also, autonomous software agents are nothing new, but with recent advances in AI they are becoming much more sophisticated and versatile For example, a blockchain smart contract that automatically executes payments upon delivery verification without human intervention.

d. Physical Objects.

Physical objects pertain to items within the supply chain that have unique digital identifiers. For example, this could be a RFID tag or serial numbers that enables tracking and authentication. Also, to implement advanced automation such as digital twins, digital identity is key. This is because at the granular level physical objects statuses can change rapidly, Further, physical products can even be transformed as these objects move through the physical supply chain. As an example of a digital identity for a physical object, take a shipping container. It can be equipped with Internet of Things (IoT) sensors and a unique digital ID that provides real-time location updates.

e. People.

People in the supply chain context are individuals who have their own digital identities, such as employee ID numbers or digital signatures. Indeed, they need these digital identities to perform and validate their roles and responsibilities. For example, a warehouse manager who uses their biometric data for secure access to inventory management systems.

For more information and reference on digital identity functions and entities, see World Economic Forum’s Digital Identity, Prove’s What is Digital Identity Verification? A Definitive Guide, and NIST’s Special Publication 800-63-4. 

Digital Identity Risks In The Supply Chain: Mitigating The Unique Dangers.

With the adoption of digital identities, supply chains are exposed to a new spectrum of risks – from data breaches and identity theft to sophisticated cyber-attacks targeting the very core of their operations. Indeed, mitigating these unique dangers requires a proactive approach, combining state-of-the-art technology with stringent policies and continuous monitoring. also, it involves not only safeguarding data with encryption and access controls but also educating stakeholders on potential threats and best practices. What’s more, cultivating a culture of security-first within the digital supply chain is crucial in staying ahead of these evolving risks. To detail, below are 10 examples of significant risks that need to be mitigated within digital supply chains.

10 Digital Identity Risks In The Supply Chain

1. Supplier Identity Theft.

For example in freight brokering, identity theft can result in cargo theft or ransom where criminals pickup a load of cargo versus the actual trucking company.

2. Compromise Of Sensitive, PII, Or Biometric Data.

A breach in a supply chain network can expose Personal Identifiable Information (PII) and biometric data. Thus, this can result in privacy violations and identity fraud.

3. Flawed Authentication Process For Suppliers And 3rd Party Vendors.

Further, weak authentication procedures can allow malicious actors to impersonate legitimate suppliers. As a result, this can cause false payments or data breach by hackers.

4. Unauthorized Data Sharing And Access.

For instance, inadequate controls on data sharing can result in unauthorized access to critical information. Again, this can undermine supply chain security.

5. Lack Of Trust In Digital Supply Chain Network.

Distrust in the digital supply chain network can diminish collaboration between supply chain partners. As a result, this can lead to manual workarounds and delays.

6. Inadequate Monitoring And Auditing Of Digital Identities.

Without proper monitoring, fraudulent activities using digital identities can go undetected. As a result, this negligence compromises supply chain’s integrity in terms of trust and undetected security breaches.

7. Substandard Verification Process For Creating A Digital Identity.

Furthermore, insufficient verification when issuing digital identities can lead to the infiltration of the supply chain by unqualified or fraudulent entities.

8. Centralized ID System Opens Door To Mass Surveillance And Targeting.

Indeed, with a centralized digital identity repository, a government or large corporation could easily implement mass surveillance. Also, a bad actor could use a centralized system to target devastating attacks against individuals and corporations.

9. Restrictive Or Complicated ID System Can Exclude Individuals Or Organizations From Access.

Positively, complex digital ID requirements can prevent small businesses from participating in the supply chain, particularly in the procurement sector.

10. Damage Of Reputation.

A compromised digital identity within the supply chain can tarnish the reputation of a business or individual. As a result, this can lead to loss of trust, revenue, and financial penalties.

Digital Identity Systems And Standards In The Supply Chain.

The technologies, methods, and standards underpinning digital identity in logistics are as varied as they are vital. First, there are 3 types of digital identity systems: centralized, federated, and decentralized. Second, there are a wide range of digital identity standards and systems. Third, there are many methodologies to verify an identity. Additionally, there are many proven methods to authenticate digital identities, some more secure than others. Lastly, there is a wide range of approaches to best securing digital identities. To detail, see my article, Best Use Of Digital Identity Technology In The Supply Chain.

For more like this from SC Tech Insights, see the latest topics on Data and Information Technology.

Data Interoperability Tech: It Is More Than Integrations – It’s Understandable, Secure, And High Velocity Technology