The Benefits and Risks of Generative AI in Supply Chain Management

While there are risks to be wary of, supply chain management experts stand to gain from strategically implementing generative AI as part of their third-party management software toolbox.

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2023 has seen an explosion of interest in artificial intelligence (AI), especially generative AI which utilizes highly sophisticated models to create new content, text, or other media by parsing incredible amounts of historical (or real-time) data. While most of the headlines have been about the consumer-facing “chatbots” like ChatGPT and its competitors that people are using to do everything from write emails to get relationship advice, apparently, nearly every industry is abuzz with anticipation for the ways AI will change the way they do business.

Plenty of innovation and advancement in AI is still to come, but there’s no debate that the technology has already arrived in a very real way. We’ll leave some of the more existential and ethical questions around AI to the folks better suited for those conversations and focus today on the multiple ways that generative AI is set to affect the supply chain. IDC research predicts that over half of G2000 OEMs will have redesigned their service supply chains with AI in mind by 2026.

As with any major advancement, there are a lot of nuances to be discussed. There are benefits and risks to this technology and the many opportunities it presents for supply chain professionals. Let’s get into the details about what supply chain teams can look forward to—and what they should look out for—as this technology becomes more widespread.

Benefit: Stronger Risk Management Capabilities

If there’s one thing AI is good at, it’s detecting patterns and analyzing huge quantities of information. For supply chain professionals, risk management is paramount, and the patterns that AI can detect and present in a detailed breakdown are incredibly valuable in reducing risk. That data can affirm what a company is doing right, what areas need improvement, and even flag risks that are beginning to take shape well before they balloon into a major problem. AI can nip these risks in the bud and provide visibility into patterns that otherwise would have remained unseen, or the technology can be pointed at specific risk areas. For example, some AI and machine-learning products can detect fraudulent documents during onboarding steps that would have slipped by human detection. By contextualizing information from various sources and platforms—CRM systems, ERP platforms, and third-party risk management systems (TPRMs), for example—risk managers will have a powerful tool at their disposal.

Risk: Misinformation and Inaccuracy

The complex natural language processing (NLP) systems powering generative AI models are all trained on large amounts of data. According to BBC Science Focus, ChatGPT’s model was hooked up to 570 gigabytes of text from books, Wikipedia, and many other internet sources—a firehose of text. That’s roughly 300 billion words (which is almost as many as a George R.R. Martin novel!). And, of course, information almost anywhere is subject to bias and is not guaranteed to be accurate—especially if it’s on the internet. Whether it’s inventing events and presenting them as factual, or fabricating sources for references, generative AI has a misinformation problem. We all hope this improves over time, and there’s reason to expect that to be the case, but for now, an additional step of human review for particularly sensitive content created by AI can only help.

Benefit: More Streamlined Compliance Processes

When it comes to meeting sustainability requirements or steering clear of sanctions when managing suppliers, data-gathering, tracking, and reporting have remained heavily manual processes. Generative AI can change all that. With suppliers connected through a single management system and other business platforms, all the data needed to prove that a company meets compliance requirements is accessible to AI (similarly, if some compliance requirements are coming up short, those will be visible as well and can be prioritized for action by risk professionals). Generative AI can understand the requirements, evaluate a supply chain’s worth of data for a company and generate detailed reports that can be submitted to regulatory bodies.

Risk: Over-Reliance on AI

While the capabilities and efficiencies AI promises are exciting, it’s important that any company not overcommit to the technology. Human interaction is and always will be a cornerstone of effective procurement, risk management, and supplier management. There’s no relationship building with AI—the technology is a tool and not a replacement for experts. Becoming too dependent on AI models also carries the risk of a catastrophic breakdown for businesses if the AI system were to go down or regulations are put in place around the technology that limits how or how much it can be used. Without human expertise on hand to jump in in the event of an AI system going down, even a small hiccup could grind processes to a halt, costing a company large sum in lost productivity, relationship damage and more.

Benefit: More Capacity and Time for Employees to Focus on Complex Tasks

Tasks that often boil down to simple busy work can safely be handed over to generative AI. Accessing, tracking, analyzing, and reporting various data points across a supply chain is something that will take no time at all for an AI model but would take many hours of employee time to get done. This represents a major competitive advantage for procurement, risk, and compliance departments, as team members can spend a higher percentage of their time on the more complex, innovative, or creatively demanding tasks that humans are best at. As mentioned above, we’re at a stage of the evolution of AI where a human doing an accuracy check for any AI-generated content is still very important, but saving time on the act of actually generating it in the first place will make a significant difference in productivity and bottom lines.

The remainder of 2023 should prove very interesting on the generative AI front. Generative AI is a transformative new tool that has the potential to revolutionize third-party risk and compliance management. It’s a powerful tool that can help automate tasks, improve accuracy and provide integrative insights coupled with a TRPM platform. Ultimately, it can help businesses save time and money, improve their risk management, and comply with regulations more easily. While there are risks to be wary of, supply chain management experts stand to gain from strategically implementing generative AI as part of their third-party management software toolbox.