TL; DR: Even companies with strong internal AI policies face risk if suppliers use generative AI without safeguards. This post outlines how to identify and mitigate supplier AI risk through onboarding, policy alignment, and education.
Last year, we emphasized the importance of not just establishing a policy around the use of generative artificial intelligence but also educating employees about the importance of compliance. Internal teams aren’t the only potential risk, however.
Many of the suppliers that organizations rely on — especially smaller firms — lack safeguards around LLMs. This gap can put even well-governed companies at risk by introducing vulnerabilities via third parties.
While more than 80% of companies with 5,000+ employees have implemented or are developing AI policies, that number drops sharply among mid-sized and small businesses. Just 35% of those with fewer than 500 employees report having formal guidance in place.
This disparity creates exposure for corporations. You may have robust internal AI rules, but if a critical vendor has none, their use of tools like ChatGPT or image generators could undermine your efforts. An unguarded supplier might unknowingly do things with AI that violate your standards or even laws, and your company could bear the fallout.
What kinds of risks are we talking about? Here are a few examples of how a supplier’s use of generative AI can go wrong:
A supplier using generative AI to draft public-facing content might accidentally include copyrighted material or plagiarized text in deliverables. AI tools can unintentionally reproduce chunks of copyrighted text, code, or imagery from their training data. They might also generate content that mimics someone else’s brand or logo without permission. This could leave your company exposed to copyright infringement claims or brand reputation issues if such content is published under your name.
Without careful oversight, AI-generated content might contain language that doesn’t align with your brand voice or values. Generative models are known to sometimes produce biased, incorrect, or offensive outputs if prompted incautiously. For example, an AI-written product description or social media post from a vendor could inadvertently include insensitive or misleading phrasing. That not only clashes with your company’s values, but it could also offend customers or violate compliance standards (e.g., ethical guidelines or advertising regulations).
Perhaps the biggest concern is suppliers’ mishandling of sensitive data with AI tools. Imagine a third-party firm that has access to your confidential information (customer data, source code, etc.) and feeds some of it into a public AI service. If they use an LLM like ChatGPT without precautions, the information they input might be stored on external servers outside their control.
This is not a hypothetical scenario – for instance, Samsung engineers inadvertently leaked proprietary source code by uploading it to ChatGPT, leading the company to ban internal use of the tool. Many organizations in high-security industries (finance, defense, etc.) have outright restricted or banned ChatGPT for such reasons. If your supplier runs personal or confidential data through an AI model, it could violate your data protection agreements, industry regulations, or even data privacy laws.
In short, third-party AI misuse can result in legal liabilities, regulatory non-compliance, data breaches, or reputational damage for your enterprise. And these risks are heightened in sectors with privacy-heavy contracts or strict compliance requirements (healthcare, finance, government contractors, etc.).
Even if your company has strong internal controls, a vendor’s AI slip-up can become your problem.
Organizations with heavy compliance obligations or sensitive data flows would benefit from engaging suppliers proactively on AI usage. Don’t assume vendors “know better.” Instead, take a few concrete steps to set expectations and reduce third-party risk:
Integrate AI Use and Compliance into Vendor Onboarding
Treat AI risk as part of your third-party risk management from the start. This could mean updating vendor due diligence questionnaires to ask how a supplier uses AI in their work, and what controls they have in place.
If you run a vendor certification or onboarding program, include a section for AI compliance. Require suppliers to attest to following your AI usage guidelines (e.g., not inputting your data into public tools without permission). Essentially, fold AI considerations into the same onboarding checklist where you address data security and privacy.
Share Clear AI Usage Expectations
It’s critical to communicate your standards to suppliers in plain language. Provide a written guideline or policy (tailored to your organization’s needs) that outlines acceptable and unacceptable AI use in work they do for you. For example, you might forbid using generative AI for certain high-risk tasks or require that any AI-generated content be reviewed by a human for accuracy and bias. Some enterprises are even adding specific AI clauses in contracts.
Notably, Cox Enterprises implemented a supplier AI policy that requires vendors to disclose and get approval before using AI on Cox projects, prohibits using Cox data to train AI models, and mandates using secure, segregated AI instances for any Cox data. In other words, suppliers must meet the same rigorous standards as internal teams.) By clearly stating expectations – whether through a formal contract addendum or a simple do’s-and-don’ts memo – you help smaller partners understand what’s required to stay in compliance with your company’s values and rules.
Offer Training and Resources
Many small businesses are still building their AI literacy. Rather than just handing down rules, consider providing educational resources to help suppliers use AI safely and ethically. This could include short training modules, guidelines on how to avoid AI pitfalls like not sharing sensitive data or checking for plagiarism in AI outputs.
By investing in your suppliers’ understanding of generative AI best practices, you reduce the chances they’ll make an ignorant mistake. It also shows that you’re a partner willing to help them improve, strengthening the relationship. Often, translating complex standards into practical steps (with examples) is key so that non-technical or smaller firms can actually implement your guidance.
Remember, setting clear expectations up front and asking the right questions on an ongoing basis (through periodic vendor assessments or check-ins) are critical to mitigating risk. You might institute an annual review where top suppliers confirm their compliance or update you on any AI tools they’re adopting. Providing consistent reinforcement – through contract clauses, regular reminders, and spot audits – will keep third-party AI use on your radar before problems occur.
Managing AI risk in the supply chain isn’t about creating fear or extra friction – it’s about education and partnership. We help companies strengthen AI compliance by educating and engaging key stakeholders, both internally and externally. Our approach goes beyond generic “how to use AI” content, focusing instead on safe, ethical use of AI that aligns with your specific expectations for supplier conduct.
From on-demand e-learning modules to live interactive workshops, we provide training tailored for various audiences, including your vendors and contractors. We also develop supplier-facing communications and onboarding materials that clearly convey your AI usage guidelines in accessible terms.
Because we have experience supporting hard-to-reach audiences, such as small businesses with limited resources, we know how to break down complex AI policies into practical, actionable guidance. The goal is to reinforce your standards without creating friction or overwhelming your partners. By bringing specialized strategic expertise, we ensure that everyone touching your business – employees and third parties – is on the same page about responsible AI use.
Ready to safeguard your enterprise & strengthen supplier relationships?
By proactively addressing how your suppliers use AI, you can close the compliance gap, protect your organization’s interests, and enable innovation to continue safely. Let’s work together to make sure AI becomes a source of competitive advantage, not a lurking risk, across your entire value chain.
Smaller vendors are often early adopters of tools like ChatGPT because they offer efficiency without requiring technical expertise. But many lack formal AI policies. Without guidance, they may unknowingly expose your organization to risks such as IP infringement, data leaks, or reputational harm.
Common risks include copyright violations, misuse of confidential data, biased or inaccurate outputs, and brand misalignment. Since suppliers often handle customer-facing content or sensitive information, improper AI use can directly affect your company.
Yes. Even if your internal policies are strong, your organization may be held responsible if a supplier’s actions lead to regulatory breaches, contractual violations or public backlash. Third-party accountability is increasingly emphasized in emerging AI regulations.
Ask during onboarding, procurement, or periodic reviews. Include AI-related questions in vendor assessments and require disclosure of tools used in content creation, data handling, or customer interaction.
That’s a sign it’s time to start asking. Supplier intake forms, contract updates, and annual recertifications are good entry points. You don’t need a full audit to begin — just clear expectations and proactive communication.
Not necessarily. A blanket ban may limit innovation. Instead, define acceptable use: require human review, prohibit use of sensitive data in public LLMs, and ask vendors to disclose their AI use when relevant to your projects.
At minimum: disclosure requirements, prohibited AI use cases, data handling protocols, expectations for human review, and alignment with your internal standards. Contractual language should reflect these points, supported by onboarding and training.
Use concise, accessible formats: one-pagers, short videos, or simple FAQs. Offer examples of what’s acceptable and what’s not. Framing AI compliance as a shared standard—not just a rule—can reduce resistance.
Integrate expectations into onboarding workflows, provide written guidelines, and include AI-specific language in procurement documents and contracts. The clearer and earlier you communicate standards, the lower your risk.
Start with clarity and simplicity. Provide a short training module, reference guide, or FAQ tailored to supplier concerns. If needed, offer live support or office hours. Education builds compliance without adding unnecessary friction.
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