Strange Bedfellows: Provenance, Logistics, and Espionage

Article by Tom Serres

Everyone likes a good thriller that weaves a web of intrigue from espionage and corporate cover-ups. But such stories are best left on the pages of novels or the  silver screen. Because outside fiction they represent major threats to the very systems that drive commerce and society.
A recent investigation by Bloomberg has revealed a real-life tale of international intrigue with the global supply chain as the unwitting star. While the third act of the story has yet to unfold, the first two have shed a powerful, disturbing light on the state of modern logistics. This has revealed critical gaps in security and communication that endanger our infrastructure.
Even as the story continues to be contested, the lessons it offers firms and their supply chains remain intact. It exposes critical issues concerning security in the digital world. Provenance impacts nearly every aspect of commerce and is central to the role cognitive supply chains will play in shoring up modern logistics.

Outsourcing Danger

The crux of Bloomberg‘s reporting revolves around the production of domestic network servers. Manufacturer Supermicro used a Chinese subcontractor as part of their supply chain. The People’s Liberation Army was allegedly able to infiltrate production facilities and implant a microchip no bigger than a grain of rice on the motherboards driving the servers. Apple, Amazon, the CIA, and the Department of Defense,  amongst others, had all purchased servers from the manufacturer.
If that were the end of the story, it would be bad enough. But it could be much worse. And although many of the involved parties have disputed elements of the report, it’s important to understand the stakes. Unfortunately, as the Bloomberg piece points out, this could be the tip of the data security iceberg. China accounts for an estimated 75% of all mobile device parts and 90% of PC parts.

The Bigger Picture

Animal Ventures isn’t focusing on this specific story to malign any particular country or corporation. Our goal is to leverage it for a common good. Modern commerce is rife with high expectations and fierce competition. A disconnect in the supply chain leaves companies and industries vulnerable to sudden changes in demand.
Consumers today wield a mighty stick. They can collectively swing entire markets with a few strokes of the finger on a smartphone. In the case of the network server manufacturer, their stock was nearly cut in half in just two trading days after the story hit, accounting for almost 40% of their total market capitalization along with incalculable damage to their brand and reputation.
The macro concerns are obviously even more extreme, where it’s not a single entity put at risk but all of the participants along the supply chain, including the end users. One broken link in the chain can weaken or even cripple an entire logistics network with reverberating consequences. Depending on the industry, much broader implications can result, going so far as national security and the data stability of some of the world’s largest corporations.

Lessons Learned

Not every example will involve such high stakes, of course. Espionage, international affairs, and the data security of our most powerful corporations are for the rarest of cases. However, given the interconnected nature of the modern economy, plenty of other potholes can arise .
Perhaps the biggest lesson is the absolute importance of provenance throughout every stage of the supply chain. Whether speaking of physical inventory or proprietary data, any gaps in communication or security expose all participants to significant harm.
The sheer number of participants in a typical supply chain creates risk, since logistics rely heavily on human trust. With such an intricate and often delicate framework, human error and fraud are fundamental inefficiencies potent enough to stagger the mightiest of firms.

A Disconnected Supply Chain Puts Everyone in Peril

Cognitive supply chains that learn and react agilely are essential. Networks built around blockchain and further bolstered by AI, IoT, and additive manufacturing will create logistics networks with dramatically enhanced security, efficiency, and productivity.
Organizations that implement such technologies proactively stand to reap huge benefits. The innovations central to cognitive logistics can serve as powerful bulwarks against the kinds of harm detailed in Bloomberg’s investigation.
Editor’s Note: This report is the first in a five-part series by Animal Ventures that takes Bloomberg’s investigation as a backdrop for exploring the future of supply chain integrity. Check back in tomorrow to read the next entry, and take a look at AV’s white paper for more insight into the future of logistics and security.