Most, if not all, supply chains are going through a digital transformation that includes many new systems, devices, user logins, and even AI-powered software agents. With this new digital landscape and countless dynamic connections, the question is: can your current digital identity solution handle the load? Indeed, with the advent of Internet of Things (IoT) devices and AI-powered autonomous agents, most supply chains will need to VERIFY, AUTHENTICATE, and AUTHORIZE thousands of these digital “actors” on a daily basis. Are you ready?

This article aims to help supply chain professionals 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.

1. Digital Identity Defined.

It may come as a surprise to many business leaders, but digital identity is now a keystone for supply chain security, efficient operations, and financial integrity. Without a doubt in this modern 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. To better understand the crucial role that digital identity plays, let’s first define what a digital identity. Below is a detailed definition of digital identity.

“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 and what too many still believe is that digital identity solutions are for individuals, such as employees. However, as supply chains modernize, digital identity solutions must also 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.

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

Now that we understand that digital identity is not just for humans, below are 10 examples of why we must have effective, comprehensive digital identity solutions. These reasons illustrate why we need digital identity solutions for everybody and everything that interacts across the supply chain network.

10 Reasons Why Digital Identity Is Important To Supply Chains

• Enables On-Demand, Real-time Data Sharing and Collaboration. For instance, an effective digital identity solution enables the rapid exchange of verified information from trusted sources.
• Enhances Transparency and Traceability in Supply Chains. For example, by assigning a unique digital ID to each product or transport load, stakeholders can track its journey from origin to consumer.
• Improves Operational Efficiency through Digital Transformation. For instance, a digital identity framework can enable the automation of manual processes by securing the interaction between entities such as IoT devices, AI agents, and system APIs.
• Facilitates Trust And Seamless Financial Transactions. Also, a secure digital identity framework enables financial systems to confidently verify the identity of not just people, but the actions of systems and AI agents’ actions.
• 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.
• Accelerates Cross-Border Transactions To Increase Global Trade. For instance, digital identity simplifies the complexities of international trade by ensuring quick and reliable verification of entities involved in the import of goods across borders.
• 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
• Strengthens Data Security and Privacy. Further, a robust digital identity framework protects sensitive supply chain data against unauthorized access and breaches.
• 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.
• 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.

3. The Functions Of A Digital Identity System: Verify, Authenticate, Authorize.

The key functions of a digital identity system include the processes of verification, authentication, and authorization. Without a doubt, these digital identity functions are needed to enable both humans and automation to securely access supply chain networks.

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

For instance, the verification process confirms a physical identity by cross-referencing personal documentation (ex. driver’s license) with biometrics (ex. facial recognition) to create a unique digital identity. This ensures that the digital identity matches the physical person. Ideally, this crucial process is handled by a public authority such as a government agency, businesses, or specialized third-party service providers.

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

Indeed, authentication must be a continuous process to verify a user’s claim to a digital identity. Typically, the authenticator uses methods like passwords, security tokens, or biometric scans. 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.

Authorization determines the specific level of access and privileges a verified user has to digital resources, based on predefined roles or attributes. This often employs role-based access control (RBAC) and the principle of least privilege (PoLP), ensuring users only access what’s necessary for their tasks. 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.

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

While most of us associate digital identity primarily with people, the supply chain demands a far broader application. Increasingly, entities ranging from Digital Twins (modeling products, systems, and processes) to autonomous AI agents and smart robots require their own digital identities. Moreover, this isn’t just for security; it’s essential for operational decision-making and autonomous automation. Below, I’ll detail the key supply chain entities that interact with digital identities. Namely, legal entities, public authorities, autonomous software agents, physical objects, and, of course, people.

a. Legal Entities.

These are officially recognized organizations or companies that engage in supply chain transactions and possess digital identities. For instance, the basis of the legal entity designation could be a business registration or tax IDs. Most importantly, legal entities are the primary transaction party and the source of trust for other actors like employees and autonomous software agents.

b. Public Authorities.

For instance, these entities are often government bodies that regulate and oversee aspects of the supply chain. An example is a customs department using digital credentials to manage import/export activities. Further, a public authority is a primary source for issuing and verifying digital identities like agency-specific identifiers or license numbers.

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c. Autonomous Software Agents.

These are software programs that independently perform tasks within the supply chain. To assure secure transactions, these software agents require digital identities to enable the automation of authentication and authorization. For example, a digital identity framework would be needed for blockchain smart contracts to execute payments automatically. Also, this holds true for advanced AI agents to act autonomously across the supply chain. For more on autonomous automation, click here.

d. Physical Objects.

Moreover, physical objects now need to have unique digital identifiers, such as RFID tags, products, parts, or even smart robots, enabling tracking and authentication. This is crucial for advanced automation to keep track of objects’ statuses and for these physical entities to act with authorization.

e. People.

Individuals within the supply chain possess their own digital identities, such as employee IDs or digital signatures. Indeed, this is essential for employees to receive authorization and to perform their roles. For instance, a warehouse manager might provide biometrics to get secure access to inventory 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. 

5. 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. 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

a. 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.

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

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In this case, 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. Click here for tips on securing sensitive data.

c. 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.

d. 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.

e. Lack Of Trust In Digital Supply Chain Network.

Undoubtedly, distrust in a digital supply chain network will diminish both the adoption of advanced technologies as well as collaboration between supply chain partners.

f. 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.

g. 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.

h. 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.

i. 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.

j. Damage Of Reputation.

Lastly, 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.

6. 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. Below are the key components to consider when identifying the optimal digital identity systems for your organization.

Best Use Of Digital Identity Technology In The Supply Chain

• 3 Types of Digital Identity Architectures: centralized, federated, and decentralized
• Top Corporate Legal Entity Systems: DUNS, GLN, LEI, IBRN
• Verification Methods for Individuals: Varies by country to include descriptive characteristics to biometrics to personal identifiers
• Authentication Techniques: To include passwords and out-of-band devices to name a few
• Types of Authentication Systems: For example, Multi-factor, biometric, or zero-trust

For more information on digital Identity systems and standards, see my article, Best Use Of Digital Identity Technology In The Supply Chain.

More References to Secure Your Supply Chain.

• Logistics Data Interoperability: Advice To Make It Understandable, Usable, Secure
• Data Interoperability Tech: It Is More Than Integrations – It’s Understandable, Secure, And High Velocity Technology
• Traditional Enterprise Data Management Is Floundering To Make Business Data More Valuable, Accessible, And Secure
• Supply Chain Resilience: Ways Tech Can Prevent Risky Disruptions, Stabilize Things, And Make For Quick Recovery

Logistics Data Interoperability: Advice To Make It Understandable, Usable, Secure

Need help with an innovative supply chain solution that leverages emerging information technologies? I’m Randy McClure, and I’ve spent many years helping logistics organizations to make the most of new information technologies. As a supply chain tech advisor, I’ve implemented hundreds of successful projects across all transportation modes, working with the data of thousands of shippers, carriers, and 3rd party logistics (3PL) providers. I specialize in new strategies, proof-of-concepts and operational pilot projects using emerging technologies and methodologies. If you’re ready to supercharge your supply chain or if you are a solution provider, let’s talk. To reach me, click here to access my contact form or you can find me on LinkedIn.

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