Getting Ahead of AI Compliance as a Supply Chain Leader
While the use of advanced technology to streamline operations has indeed produced these business benefits, AI is also playing a powerful role in helping procurement organizations keep up with and stay ahead of stringent and constantly shifting compliance rules and regulations.
In this blog post, we’ll define AI compliance in procurement, key aspects of AI compliance, best practices to stay compliant, the risks of being non-compliant, and Arkestro’s commitment to compliance and data safety.
How AI Ensures Real-Time Compliance in Procurement
In the just-in-time supply chain, companies are increasingly using AI and machine learning to ensure their procurement processes comply with all regulatory, contractual, internal policy, and sustainability compliance, also known as the four pillars of procurement compliance.
It does this by continuously monitoring supplier data, identifying potential compliance risks through real-time data analysis, and alerting procurement teams to potential issues with contracts, supplier performance, or regulatory changes.
AI’s ability to continuously learn and adapt to new or updated regulations gives procurement teams real-time guidance, automated compliance checks, and the flexibility to quickly adjust strategies as regulations change.
Beyond the legal requirements, AI-powered procurement compliance also covers ethical concerns such as the fair treatment of suppliers, sustainability practices, and diversity, equality, and inclusion (DE&I) initiatives. AI compliance ensures that AI-driven decisions are transparent, fair, and aligned with company goals, which helps build a more ethical and sustainable supply chain, enhances a company’s reputation, and establishes trust with its stakeholders, customers, employees, and investors.
Proactive Risk Management: AI’s Role in Strengthening Procurement Compliance Standards
AI is transforming compliance into a proactive, data-driven practice, identifying potential risks in real time and offering procurement teams smarter and more efficient ways to stay on top of regulations and ethical standards. Here are some of the key ways AI is revolutionizing procurement compliance.
- Contract monitoring and analysis: AI-powered systems can automatically review contracts for compliance to ensure they meet legal regulations and internal policies, flagging potential issues that might violate compliance regulations, like non-standard clauses or problematic terms.
- Real-time compliance checks: AI monitors procurement activities as they happen, catching issues like unauthorized purchases or unapproved suppliers before they become bigger problems.
- Risk assessment and supplier evaluation: AI algorithms can sift through massive amounts of supplier data — including financial stability, compliance records, and environmental impact — to identify red flags before engaging with them and ensure that only compliant suppliers are chosen.
- Data analysis and pattern recognition: By analyzing large datasets, AI can identify patterns or trends that might signal fraudulent activity or non-compliance with regulations.
- Automated alerts and reporting: AI systems can generate alerts when potential compliance issues are detected, enabling swift corrective action and providing detailed reports on compliance status.
- Supplier performance evaluation: AI can assess supplier performance by analyzing metrics like delivery times, quality standards, and compliance history, helping companies stay ahead of any supplier-related challenges.
4 Ways Non-Compliance Can Negatively Impact Business
Compliance isn’t just about following rules — it’s about safeguarding organizations from the costly risks of non-compliance. Non-compliance, whether on an organization’s part or a supplier’s, can have serious consequences. Here’s what non-compliant organizations can expect.
- Harsh legal actions and expensive fines: The legal ramifications of non-compliance can be severe. Businesses caught violating laws and regulations risk sanctions and legal action from customers, employees, regulators, and governmental institutions, leading to steep penalties, fines, and litigation.
- Business disruptions: More than fines or penalties, the biggest financial cost of non-compliance is business disruption. This is because non-compliant organizations are often forced to implement compliance changes before they can resume business. Non-compliance can also lead to costly operational inefficiencies, such as hiring lawyers, implementing new systems, and training staff.
- Supply chain disruptions: Non-compliant suppliers can disrupt the just-in-time supply chain by failing to deliver goods on time, providing poor-quality products, or causing delays due to non-compliance issues. Delays or interruptions in deliveries due to non-compliant suppliers can lead to production stoppages and, ultimately, customer dissatisfaction.
- Brand reputation risks: Non-compliance can severely damage an organization’s reputation — especially when news of a compliance scandal goes viral — resulting in a loss of trust from customers, investors, stakeholders, and partners. Revenue can also take a hit, as customers are likely to switch to competitors they deem to be compliant and trustworthy.
Subscribe to news from Arkestro.
No spam, just relevant procurement news and tips. You can unsubscribe at any time.
Best Practices for Ensuring Procurement Compliance
Here’s what organizations must do to ensure that their procurement team gets and stays compliant:
Develop clear compliance policies: Organizations need to create detailed and comprehensive policies that explicitly outline all compliance requirements, regulatory guidelines, ethical standards, and internal guidelines that procurement teams must adhere to.
Implement internal controls: Internal controls are the processes and policies that ensure that procurement operations adhere to all legal requirements, industry standards, and ethical guidelines. These controls help mitigate risks, prevent fraud, promote accountability, and give an organization a better understanding of its risks and vulnerabilities.
Offer training and education: Procurement teams should receive ongoing training on relevant laws, regulations, ethical standards, and internal protocols to ensure they know their procurement duties and responsibilities and are up-to-date with the latest developments in procurement compliance.
Schedule regular compliance audits: Consistent and regularly scheduled audits can assess the effectiveness of compliance programs and identify areas for improvement. Audits can be conducted by an internal team or external experts.
Create an approved supplier list: It’s important for procurement teams to develop a list of approved suppliers that have met the organization’s compliance standards and are approved as safe service providers. Criteria may include important just-in-time supply chain aspects like quality of goods, fair pricing, timely deliveries, precise quantities, and ethical practices.
Arkestro’s Commitment to Procurement Compliance and Data Security
One of the best ways procurement teams can be assured of compliance is to partner with the procurement and supply chain experts at Arkestro. Our Predictive Procurement platform adheres to a strict AI/ML governance model to ensure that all AI development efforts conform to the appropriate ethical, privacy, and compliance standards.
Compliance also means safeguarding the confidentiality and integrity of sensitive customer information. We’ve achieved SOC 2 Type II compliance and are ISO 27001 Certified, which highlights our commitment to providing enterprise-level security for all sensitive customer data secured in the Arkestro system.
Internally, we maintain robust security measures by conducting regular security assessments to identify and resolve vulnerabilities and potential security weaknesses. Additionally, Arkestro employees attend annual security awareness training to foster a compliance-conscious culture and ensure our workforce is better equipped to recognize and respond to security threats.
AI Compliance: The Key to Sustainable and Responsible Procurement Practices
AI-driven procurement compliance is a vital business element that drives sustainable and responsible practices. By embracing AI compliance, supply chain leaders reinforce the integrity of the procurement process and strengthen relationships with suppliers, stakeholders, and the public. This, in turn, leads to stronger supplier relationships, increased operational efficiency, and long-term sustainability in the marketplace.
Want to learn more? Contact Arkestro to see how you can harness your existing data foundation with Arkestro’s core patented 3 science technology to increase agility, accelerate savings, and empower faster, data-driven decisions, and help you stay compliant.