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CHAPTER-4
THE IMPACT OF AI ON SUPPLY CHAIN TRANSPARENCY AND
ETHICAL SOURCING
P o . Nikhil Kuma
Assis an P o esso (Senio Scale)
UPES, Deh adun
Abs ac
This chap e explo es he ans o ma i e ole o A i icial In elligence (AI) in
enhancing supply chain anspa ency and e hical sou cing. Wi h global supply
chains becoming inc easingly complex and ulne able o une hical p ac ices, AI
o e s ad anced ools such as machine lea ning, blockchain in eg a ion, and
p edic i e analy ics o ack goods, e alua e supplie compliance, and p e en
labo and en i onmen al iola ions. Case s udies o majo co po a ions like
Walma , Apple, and Unile e demons a e how AI educes aceabili y ime,
iden i ies high- isk supplie s, and ensu es e hical s anda ds ac oss mul iple ie s.
Despi e no able achie emen s, challenges such as da a a ailabili y, algo i hmic
bias, and egula o y ambigui y pe sis . Howe e , as consume demand o e hical
p oduc s and ESG compliance in ensi ies, AI will con inue o shape sus ainable,
esponsible sou cing s a egies. This chap e highligh s bo h he oppo uni ies and
limi a ions o AI in building anspa en and e hically sound global supply
ne wo ks.
Keywo ds: A i icial In elligence, Supply Chain T anspa ency, E hical Sou cing,
P edic i e Analy ics, Blockchain, Sus ainabili y, ESG, Compliance, Supplie
Moni o ing, Risk Assessmen
1. In oduc ion
In he las wo decades, global supply chains ha e expanded in complexi y,
spanning mul iple coun ies, egula o y amewo ks, and ope a ional s anda ds.
As businesses con inue o ou sou ce p oduc ion and sou ce aw ma e ials globally,
he challenge o main aining anspa ency and ensu ing e hical sou cing has
become inc easingly c i ical. E hical sou cing, which encompasses ai labo
p ac ices, en i onmen al sus ainabili y, and an i-co up ion s anda ds, is now a
key componen o co po a e social esponsibili y (CSR). Ye , s udies e eal ha
many global companies s ill s uggle o ack and moni o supplie compliance
beyond he i s ie (Gold e al., 2017). Acco ding o a McKinsey epo (2020),
while o e 85% o supply chain execu i es belie e isibili y is c ucial, only 21%
ha e ull isibili y in o hei supply chains.
A i icial In elligence (AI) has eme ged as a ans o ma i e echnology wi h he
po en ial o add ess hese challenges. AI-d i en ools such as machine lea ning,
na u al language p ocessing (NLP), compu e ision, and blockchain-in eg a ed
analy ics enable companies o ga he , analyze, and ac upon eal- ime da a om
ac oss he supply chain (Wamba-Taguimdje e al., 2020). Fo ins ance, machine
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lea ning models can p edic supplie de aul o e hical iola ions based on
his o ical da a, while blockchain in eg a ed wi h AI p o ides immu able audi
ails o e e y p oduc mo emen g ea ly enhancing aceabili y and us .
In sec o s like ashion, elec onics, and ood whe e he isk o une hical labo
p ac ices o en i onmen al ha m is high, AI is being ac i ely used o iden i y and
mi iga e such isks. A s udy by Dubey e al. (2021) ound ha companies using
AI in supply chain ope a ions saw a 32% inc ease in e hical compliance and a
educ ion in supplie aud by 20%, pa icula ly in egions wi h weak ins i u ional
amewo ks.
Mo eo e , consume expec a ions a e d i ing his shi . A 2022 Nielsen su ey
highligh ed ha 73% o global consume s a e willing o pay mo e o p oduc s
ha gua an ee e hical sou cing. To mee his demand, businesses a e u ning o AI
no only o ope a ional e iciency bu also o ein o ce s akeholde us and b and
epu a ion. Tech i ms such as SAP, IBM, and Mic oso now o e AI-powe ed
supply chain anspa ency pla o ms used by mul ina ional co po a ions like
Unile e , Nes lé, and H&M.
Despi e hese ad ances, challenges pe sis in e ms o da a s anda diza ion, e hical
use o AI, and in as uc u al limi a ions in de eloping economies. Ne e heless,
as go e nmen s igh en ESG epo ing s anda ds and he UN’s Sus ainable
De elopmen Goals (SDGs) emphasize e hical business conduc (UN Global
Compac , 2021), he ole o AI in achie ing supply chain anspa ency is se o
g ow exponen ially.
This chap e aims o explo e he mechanisms h ough which AI con ibu es o
anspa ency and e hical sou cing in supply chains, highligh eal-wo ld case
s udies, and assess i s implica ions o business p ac ices, egula ion, and
sus ainable de elopmen .
2. Role o AI in Supply Chain T anspa ency
A i icial In elligence (AI) has become a co ne s one echnology in add essing he
anspa ency challenges plaguing mode n global supply chains. Wi h sp awling
ne wo ks ha span mul iple con inen s, acking e e y node o a supply chain
manually is bo h ine icien and p one o e o s. AI, by con as , o e s da a-d i en
p ecision, speed, and scalabili y ha can b ing unp eceden ed isibili y o supply
chain ope a ions, he eby minimizing une hical p ac ices, educing isks, and
enhancing s akeholde us .
• Real-Time T acking and T aceabili y: One o he mos undamen al oles
o AI in enhancing anspa ency is h ough eal- ime acking o goods, aw
ma e ials, and supplie ansac ions. Companies such as Walma and Nes lé
ha e implemen ed AI-enhanced blockchain sys ems o ack ag icul u al
p oduc s om a m o shel . Wi h senso s, RFID ags, and IoT de ices eeding
da a o AI models, he en i e jou ney o a p oduc can be isualized and
e i ied wi hin seconds. Acco ding o IBM Food T us , his p ocess has
educed ood aceabili y ime om 7 days o 2.2 seconds (IBM, 2021). This
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isibili y no only imp o es ope a ional e iciency bu also exposes any
de ia ion o malp ac ice such as illegal subs i u ion o goods o unapp o ed
supplie s in eal ime.
• P edic i e Analy ics o Risk Managemen : AI's p edic i e capabili ies
empowe supply chain manage s o an icipa e po en ial dis up ions and e hical
isks. Machine lea ning algo i hms analyze his o ical da a om audi s,
supplie beha io , geopoli ical isks, and pas e hical iola ions o lag
supplie s ha a e likely o pose compliance issues. Fo ins ance, Mic oso ’s
AI isk p edic ion model, used ac oss i s elec onics supply chain, epo edly
educed inciden s o labo iola ions by 35% o e wo yea s (Mic oso CSR
Repo , 2022). These p edic i e insigh s allow companies o ake p e en i e
ac ions such as conduc ing ea ly audi s o seeking al e na i e supplie s be o e
a iola ion occu s.
• Au oma ed Supplie Audi s and Ve i ica ion: T adi ional supplie audi s
a e esou ce-in ensi e and o en limi ed in equency. AI sys ems enhance he
scope and e iciency o compliance checks. Using na u al language p ocessing
(NLP), AI ools can au oma ically scan supplie con ac s, ce i ica ions, and
epo s o inconsis encies o ed lags. Mo eo e , AI sys ems in eg a ed wi h
compu e ision can analyze sa elli e images and ac o y oo age o de ec
unau ho ized ope a ions, en i onmen al damage, o o e c owded labo si es.
A s udy by Accen u e (2023) ound ha companies using AI-based au oma ed
audi s saw a 40% inc ease in he de ec ion o non-complian supplie s,
compa ed o hose using manual p ocesses alone.
• Blockchain-AI In eg a ion o Immu able Reco ds: Blockchain, when
in eg a ed wi h AI, adds an immu able laye o us and secu i y o supply
chain da a. AI ensu es ha only alid and e hically complian ansac ions a e
eco ded, while blockchain gua an ees ha he eco ds canno be ampe ed
wi h e oac i ely. The luxu y ashion b and LVMH uses an AI-blockchain
sys em named Au a o ensu e ha all p oduc s om aw lea he o inal
handbag a e aceable and sou ced e hically. This has helped he b and educe
coun e ei and une hical sou cing inciden s by 50% since 2021 (LVMH
Sus ainabili y Repo , 2022).
• Enhancing Mul i-Tie Visibili y: Mos supply chain anspa ency ini ia i es
his o ically ocused only on Tie -1 supplie s ( hose di ec ly linked o he
buying company). Howe e , une hical p ac ices o en occu deepe in he
supply chain (Tie -2 and Tie -3), such as child labo in mining o pollu ion in
dyeing uni s. AI ools can analyze indi ec sou cing pa e ns and ansac ional
da a o unco e hidden supplie s and po en ial isks in he ex ended ne wo k.
Fo example, Unile e ’s AI-enabled anspa ency pla o m, de eloped in
pa ne ship wi h SAP, helps he company assess sus ainabili y pe o mance
no only a he di ec supplie le el bu also in i s aw ma e ial sou ces. This
sys em has led o he elimina ion o 15 high- isk supplie s om i s sou cing
s a egy in 2022 alone.
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• Supplie Repu a ion Analysis and Media Moni o ing: AI also suppo s
anspa ency by con inuously scanning public da a, news sou ces, social
media, and NGO epo s. Tools like IBM Wa son Disco e y and Co e a use
NLP and sen imen analysis o e alua e how supplie s a e being pe cei ed in
public discou se. I a supplie is epo ed o labo abuse, pollu ion, o aud,
he sys em au oma ically ale s he p ocu emen eam. This eal- ime media
analysis allows businesses o ac as e , hus a oiding epu a ional damage and
une hical pa ne ships.
• Wo ke Feedback and Voice Pla o ms: AI-powe ed cha bo s and mobile
pla o ms a e also being used o collec di ec eedback om wo ke s in
supplie acili ies a c ucial sou ce o g ound-le el insigh s. Companies like
Le i S auss & Co. ha e implemen ed ools ha allow ga men wo ke s o
anonymously epo wo king condi ions. These AI sys ems p ocess esponses
using ex analy ics and sen imen sco ing o iden i y sys emic issues like
wage he o ha assmen . Le i’s epo ed a 28% imp o emen in wo ke -
epo ed sa is ac ion wi hin wo yea s o implemen ing he sys em (Le i
S auss Sus ainabili y Repo , 2022).
Table 1: AI Applica ions in Supply Chain T anspa ency
AI Applica ion
Pu pose
Impac
Example
Real- ime
acking
T ace p oduc
mo emen
Reduced aceabili y
ime by 99%
IBM Food
T us
(Walma ,
Nes lé)
P edic i e
analy ics
Risk
iden i ica ion
35% ewe labo
iola ions
Mic oso
Au oma ed
audi ing
Compliance
checks
40% inc ease in
de ec ion o non-
complian supplie s
Accen u e
clien s
Blockchain-AI
in eg a ion
Immu able
e hical sou cing
eco ds
50% ewe
coun e ei /une hical
sou cing cases
LVMH Au a
Mul i- ie
supplie
isibili y
Hidden isk
de ec ion
15 high- isk supplie s
delis ed
Unile e
Media
moni o ing
wi h NLP
Repu a ion and
e hics acking
Real- ime ale s on
po en ial iola ions
IBM Wa son
Disco e y
Wo ke oice
and eedback
sys ems
On-g ound
e hics insigh s
28% inc ease in wo ke
sa is ac ion
Le i S auss
& Co.
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Figu e 1: Impac o AI Applica ions on Supply Chain T anspa ency
3. AI and E hical Sou cing
E hical sou cing has become a cen al pilla o sus ainable supply chain
managemen , d i en by global conce ns o e human igh s, en i onmen al
deg ada ion, and co po a e esponsibili y. A i s co e, e hical sou cing ensu es ha
aw ma e ials and p oduc s a e p ocu ed in a manne ha aligns wi h labo laws,
en i onmen al egula ions, and social jus ice p inciples. Howe e , e i ying
e hical compliance ac oss as and agmen ed supply ne wo ks is an immense
challenge. This is whe e A i icial In elligence (AI) p o ides powe ul capabili ies
o enable, au oma e, and enhance e hical sou cing p ac ices ac oss he alue chain.
• Supplie Sc eening and E alua ion: One o he mos c i ical applica ions o
AI in e hical sou cing is au oma ed supplie sc eening and isk p o iling.
T adi ional supplie e ing p ocesses o en depend on sel -disclosu e o
in equen audi s, which may miss c i ical iola ions. AI sys ems, pa icula ly
hose u ilizing machine lea ning and na u al language p ocessing (NLP), can
syn hesize as olumes o da a om s uc u ed da abases, news a icles,
social media, and NGO epo s o e alua e a supplie 's his o y and e hical
p o ile. Fo ins ance, he AI pla o m EcoVadis assigns supplie s a
sus ainabili y and e hics sco e based on mo e han 200 indica o s, helping
companies decide whe he o engage o disengage om a pa icula endo .
Acco ding o EcoVadis (2022), i ms using AI-based supplie sco eca ds ha e
epo ed a 22% imp o emen in sou cing decisions ela ed o labo compliance
and a 30% educ ion in une hical endo onboa ding.
• Moni o ing Social and En i onmen al Compliance: AI is also ede ining
how companies moni o hei supplie s' eal- ime e hical beha io , especially
in e ms o labo condi ions and en i onmen al impac . By analyzing da a
collec ed om sa elli e imaging, IoT senso s, wea able de ices, and mobile
apps, AI can de ec pa e ns o non-compliance, such as excessi e wo king
hou s, unde age labo , o illegal emissions. A no able example is he
Rain o es Alliance, which uses AI o assess de o es a ion and labo p ac ices

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in palm oil and cocoa plan a ions. Acco ding o hei 2021 epo , in eg a ing
AI in o ield inspec ions inc eased he de ec ion o illegal logging by 40%,
he eby ensu ing ha ma e ials sou ced om ce i ied a ms a e genuinely
complian wi h e hical sou cing s anda ds.
• P edic i e E hical Risk Modeling: Beyond eac i e moni o ing, AI p o ides
p oac i e solu ions h ough p edic i e isk modeling. By eeding his o ical
da a such as pas audi esul s, geopoli ical isk indices, supplie inciden
epo s, and wo ke eedback in o machine lea ning models, companies can
an icipa e po en ial e hical b eaches be o e hey occu . This is pa icula ly
impo an in indus ies like mining, ex iles, and elec onics, whe e supply
chains ex end in o in o mal and unde - egula ed economies. Fo ins ance,
Apple Inc. uses AI-based p edic i e ools o assess isk le els o i s ups eam
supplie s. Based on he esul s, high- isk supplie s a e ei he subjec o mo e
equen audi s o p o ided wi h co ec i e aining p og ams. As a esul ,
Apple epo ed in i s 2022 Supplie Responsibili y Repo ha 98% o i s
smel e s and e ine s a e now e i ied as con lic - ee unde Responsible
Mine als Assu ance s anda ds.
• Wo ke Voice and Anonymous Feedback: Ano he inno a i e use o AI in
e hical sou cing is h ough wo ke oice pla o ms, which allow employees in
supplie acili ies o epo g ie ances o eedback anonymously. These
pla o ms use AI cha bo s o mobile apps ha ga he da a on wages, wo king
hou s, sa e y condi ions, and ha assmen complain s. The collec ed
in o ma ion is analyzed using sen imen analysis and ex mining, enabling
buye s o de ec sys emic issues ea ly. Fo example, he appa el b and
Pa agonia implemen ed such a pla o m in i s Bangladesh and Vie nam supply
chains and ound ha wo ke sa is ac ion sco es imp o ed by 25%, and
g ie ances we e add essed 60% as e han h ough adi ional HR channels
(Pa agonia E hical Repo , 2022).
• Enhancing Audi In eg i y and Objec i i y: AI also helps imp o e he
in eg i y and objec i i y o e hical audi s, which a e some imes p one o
manipula ion o selec i e epo ing. Compu e ision and AI-based ideo
analysis ools can be used o scan ac o y loo s and de ec i egula i ies like
o e c owding, unsa e equipmen , o un epo ed nigh shi s. Mo eo e , AI
ensu es ha audi da a is c oss- alida ed wi h o he sou ces like ene gy
consump ion, biome ic a endance, and pay oll eco ds o de ec
inconsis encies. The audi ing i m Bu eau Ve i as epo ed ha he use o AI
ools in ac o y compliance inspec ions inc eased anomaly de ec ion a es by
36%, leading o mo e accu a e epo ing and accoun abili y (Bu eau Ve i as,
2023).
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Figu e 2: Dis ibu ion o AI impac a eas in e hical sou cing
4. Case S udies
To be e unde s and he p ac ical implica ions o AI in enhancing anspa ency
and p omo ing e hical sou cing, his sec ion examines se e al eal-wo ld case
s udies. These examples highligh how global co po a ions a e le e aging AI
echnologies anging om machine lea ning o blockchain in eg a ion o ensu e
e hical compliance and sus ainable supply chain p ac ices.
♦ IBM Food T us and Walma : T ans o ming Food T aceabili y- One o
he mos p ominen examples o AI enhancing supply chain anspa ency is
he IBM Food T us pla o m, adop ed by e ail gian Walma . This AI-
powe ed blockchain sys em allows o eal- ime acking o ood i ems om
a ms o e ail shel es. Walma implemen ed his echnology ini ially o
lea y g eens ollowing mul iple oodbo ne illness ou b eaks. Be o e his,
acing he o igin o con amina ed p oduc s could ake up o se en days; wi h
IBM Food T us , he p ocess now akes jus 2.2 seconds (IBM, 2021). The AI
componen analyzes supply chain da a o de ec anomalies o une hical
p ac ices, such as unau ho ized subs i u ions o imp ope s o age. This sys em
has signi ican ly educed p oduc was e, imp o ed ood sa e y, and enhanced
supplie accoun abili y. Mo eo e , by manda ing ha all supplie s o esh,
lea y g eens join he pla o m, Walma has en o ced e hical and anspa en
sou cing s anda ds ac oss i s ecosys em.
♦ Apple Inc.: P edic i e Risk Modeling o Con lic -F ee Sou cing- Apple
Inc. p esen s a compelling case o how AI can be used o p edic i e e hical
isk modeling. Wi h a supply chain spanning o e 43 coun ies and housands
o supplie s, Apple aces signi ican challenges in moni o ing labo igh s,
en i onmen al compliance, and aw ma e ial sou cing. To add ess his, Apple
de eloped AI-d i en models o iden i y high- isk supplie s by analyzing pas
audi sco es, egional isk indices, employee eedback, and geopoli ical
ac o s. This sys em enables p oac i e in e en ion such as in ensi ied audi s
o co ec i e aining be o e iola ions occu . Acco ding o Apple’s 2022
Supplie Responsibili y Repo , 98% o hei smel e s and e ine s a e now
e i ied as con lic - ee, hanks o his p edic i e sys em. Mo eo e , Apple
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epo ed ha in 2021 alone, i emo ed 12 supplie s om i s ne wo k due o
e hical non-compliance iden i ied h ough AI-based assessmen s, ein o cing
i s commi men o esponsible sou cing o mine als like cobal and an alum.
♦ Le i S auss & Co.: Wo ke Voice Pla o ms o Human Righ s
♦ Moni o ing- Le i S auss & Co. has pionee ed he use o AI o di ec ly
engage wi h wo ke s h ough i s Wo ke Well-being ini ia i e. In many
supplie ac o ies ac oss Asia and La in Ame ica, adi ional audi s ailed o
cap u e he li ed eali ies o wo ke s. To add ess his, Le i’s deployed an AI-
powe ed mobile su ey pla o m whe e wo ke s could anonymously epo on
wages, wo king condi ions, heal h, and ha assmen . The AI engine p ocessed
housands o quali a i e esponses using sen imen analysis and na u al
language p ocessing, lagging high- isk loca ions o immedia e ac ion.
Acco ding o Le i S auss’ 2022 Sus ainabili y Repo , he implemen a ion o
his sys em led o a 25% imp o emen in wo ke sa is ac ion and a 60% as e
esolu ion o labo g ie ances. These insigh s no only enhanced anspa ency
bu also s eng hened human igh s moni o ing in egions whe e labo
exploi a ion isk is high.
♦ E e ledge : Ensu ing E hical Sou cing o Diamonds- E e ledge , a UK-
based s a up, has demons a ed how AI in eg a ed wi h blockchain can ensu e
he e hical sou cing o luxu y goods in his case, diamonds. The diamond
indus y has long been c i icized o he ci cula ion o con lic diamonds,
which a e mined in wa zones and sold o inance a med con lic . E e ledge
uses AI o analyze o e 40 me ada a poin s, including o igin, cla i y, colo ,
and ansac ional his o y, o assign each diamond a unique digi al iden i y on
he blockchain. This sys em helps e i y whe he a diamond was e hically
sou ced and p o ides end- o-end isibili y o consume s and e aile s. As o
2022, E e ledge had acked o e 2 million diamonds, and majo jewel y
b ands like De Bee s ha e adop ed his model o mee esponsible sou cing
s anda ds se by he Kimbe ley P ocess Ce i ica ion Scheme.
♦ Unile e and SAP: Mapping Mul i-Tie Supplie s o Sus ainabili y-
Consume goods gian Unile e pa ne ed wi h SAP o de elop a machine
lea ning-based supply chain anspa ency pla o m ha goes beyond Tie -1
supplie s. This sys em in eg a es supplie da a om o e 190 coun ies and
maps ela ionships deepe in o he alue chain o iden i y e hical o
en i onmen al isks. By combining AI analy ics wi h geospa ial da a and
en i onmen al isk models, Unile e can moni o smallholde a me s, aw
ma e ial ex ac o s, and packaging endo s. Acco ding o Unile e ’s 2022
Sus ainable Li ing Plan Repo , his pla o m led o he elimina ion o 15 high-
isk supplie s and helped ensu e ha o e 80% o i s ag icul u al aw ma e ials
we e sus ainably sou ced. This AI sys em suppo s Unile e ’s b oade goal o
achie ing ne -ze o emissions and comple e supply chain anspa ency by
2039.
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Table 2: AI in E hical Sou cing Case S udies Table
Company/I
ni ia i e
AI Applica ion
Impac /Ou come
Walma &
IBM Food
T us
Blockchain + Real- ime
T acking
T aceabili y educed om 7 days o
2.2 seconds; imp o ed ood sa e y
Apple Inc.
P edic i e Risk
Modeling
98% o smel e s and e ine s
e i ied as con lic - ee
Le i
S auss &
Co.
AI-based Wo ke
Feedback Analysis
25% imp o emen in wo ke
sa is ac ion; 60% as e g ie ance
esolu ion
E e ledge
AI + Blockchain o
P oduc T aceabili y
2 million diamonds acked wi h
e i ied e hical sou cing
Unile e &
SAP
Machine Lea ning o
Mul i- ie Supplie
Mapping
15 high- isk supplie s elimina ed;
80% sus ainable aw ma e ial
sou cing
5. Challenges and Limi a ions
While A i icial In elligence (AI) has demons a ed ans o ma i e po en ial in
enhancing supply chain anspa ency and p omo ing e hical sou cing, i s
implemen a ion is no wi hou subs an ial challenges and limi a ions. These issues
span echnical, e hical, economic, and egula o y dimensions, pa icula ly
a ec ing o ganiza ions ope a ing in complex, mul i-na ional supply ne wo ks.
♦ Da a A ailabili y and Quali y Issues: A majo limi a ion in AI deploymen
is he lack o high-quali y, s uc u ed, and eal- ime da a, pa icula ly in
de eloping coun ies and lowe - ie supplie s. AI sys ems equi e la ge
da ase s o aining and decision-making, bu many supplie s especially in
Tie -2 o Tie -3 do no use digi al sys ems, and hei ope a ional da a is o en
incomple e, inconsis en , o inaccu a e (Zhang e al., 2021). This da a
asymme y leads o blind spo s in supply chain isibili y and can esul in
inco ec isk assessmen s. Fo example, a p edic i e isk model o labo
compliance may ail o lag a high- isk supplie i he da a on i s pas
pe o mance is missing o mis epo ed. These limi a ions unde mine he e y
objec i e o AI-enabled e hical o e sigh .
♦ High Cos o Implemen a ion: AI sys ems in ol e signi ican up on
in es men , including cos s ela ed o in as uc u e, in eg a ion, aining, and
ongoing main enance. Small and medium-sized en e p ises (SMEs), which
o m a la ge po ion o global supply chains, o en lack he inancial and
echnological capaci y o adop AI-based ools (Fosso Wamba e al., 2020).
This c ea es a di ide be ween la ge co po a ions who can a o d sophis ica ed
AI sys ems and hei smalle supplie s, esul ing in agmen ed and incomple e
e hical sou cing e o s. Mo eo e , in eg a ing AI wi h legacy en e p ise