Exclusive: State of Supply Chain Report Shows Execs Lag in Adopting AI

Meghan Hall
·5 min read

Supply chain executives haven’t connected the dots between artificial intelligence and key goals for the future, like sustainability.

According to Inspectorio’s new State of Supply Chain report, shared exclusively with Sourcing Journal, one-quarter of all respondents said they expect sustainability to be a “pivotal area for future innovation.”

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David Klein, president and co-founder of Inspectorio, said that figure surprised him.

“Sustainability [and] traceability in particular…has been at the top of the agenda for many companies, particularly the ones that [have] a strong presence in Europe. And the more I speak with industry leaders, the more the topic of traceability and sustainability gets pumped up at the top of the agenda for those conversations. So seeing that only 25 percent see sustainability as a critical area for future innovation was definitely lower than I was expecting,” he explained.

Klein said that lack of faith in the way forward for sustainability could be due to a variety of factors, but he thinks one of the main reasons could be prioritization.

“The importance that is granted to sustainability initiatives is a lot more dynamic and sensitive to changes over time. That is, it moves from high on the priority list to low on the priority list very quickly,” he said.

Even though supply chain leaders seem to have questions over whether sustainability innovation will overtake other initiatives, they still rate sustainability as the trend most significantly impacting the supply chain industry.

And to keep up with some of the ESG regulations in place in key markets, like the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) or the U.S.’s Uyghur Forced Labor Prevention Act (UFLPA), organizations continue to up their compliance budgets.

Inspectorio’s data shows that 60 percent of organizations have reported an increase in compliance budgets over the last two years, and an additional 33 percent have reported that their compliance budget has remained stagnant.

About 44 percent of respondents indicated that sustainability is the number one factor altering today’s supply chain industry, with technology advancements not far behind at 32 percent of respondents.

That data aligns with recent Blue Yonder data that showed supply chain executives’ primary investment interests are sustainability and artificial intelligence.

Companies may have a unique opportunity to pair sustainability goals with AI technology, particularly if they haven’t already begun implementing the systems into the supply chain.

Inspectorio’s data shows most organizations haven’t made it to that point yet, though. Less than 5 percent of respondents using AI in their organizations said sustainability was a primary use case.

Klein said there are a slew of clear-cut use cases for AI where ESG ramifications are concerned. For instance, he said, AI can ingest data about a supplier’s operations and compare it to industry standards and regulatory requirements.

“When you’re having to abide [by] a lot of these international standards, you’re subjecting a lot of these factories to have to do so many audits. Audit fatigue is a real problem,” he said. “That’s a very simple, clear use case where AI can help immensely.”

He also said it can help with risk management, which 40 percent of respondents ranked as their top challenge today.

“Today, you’re having a human have to read through all [different documents] to try and make sense of them and say, is this a high-risk facility [or] is it a low-risk facility—is it acceptable or not for production? AI can do that analysis for you so easily,” he said. “The two biggest categories of impact of AI in the sustainability space is on the efficiency and productivity of how programs are being run, and on the thoroughness and quality of risk assessment.”

Even with all the hype around AI, the technology has only begun penetrating the supply chain ecosystem. Inspectorio’s data shows that 23 percent of surveyed organizations have already integrated AI into their supply chain operations, while 77 percent still have yet to implement the systems.

Klein said supply chain seems to be lagging in comparison to other functions and industries.

“It’s almost like, in our industry, we’re late to the game, but we’re moving in the right direction,” Klein told Sourcing Journal.

Among the companies that have implemented AI into their supply chains, one in five said the key objective is data analysis and decision making. An additional 20 percent said the focus is on automation and efficiency. Other, less popular use cases include customer-focused technology, quality and control and traceability.

Six in 10 respondents inside companies that have not implemented AI into their supply chains said the primary reason for the lag is that they lack AI-powered tools. Nearly 30 percent of leaders said they have yet to find compelling AI tools in the market. That could soon change, as companies continue to build new applications on top of foundational generative AI models and capabilities become increasingly specific.

Despite the low adoption rate for AI across the supply chain industry today, respondents showed enthusiasm for the future. Eight in 10 supply chain leaders said technological advancements—primarily AI and ML—will have a significant impact on the supply chain within the next five years.

Klein said he believes a great deal of potential in combining AI with other emerging solutions—particularly IoT technology—as companies’ digital transformation strategies further mature.

“When you have the right IoT technologies paired with the incredible advancements of AI in all of its shapes and forms, be [it] generative AI, be [it] computer vision and others, that’s where you start to unleash a very strong technological advancement in our space,” he said.