Managing Supplier AI Risk: How to Protect Your Business from Third-Party Misuse

Learn how to mitigate supplier risk and safeguard your business from third-party AI misuse with effective policies and compliance measures.

1. Managing Supplier AI Risk: How to Protect Your Business from Third-
Party Misuse
Unchecked supplier AI use can expose even well-governed enterprises to legal, reputational,
and compliance risks
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.

The AI Policy Gap Between Corporations and Suppliers
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 enterprises. 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

2. 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.
Risks of Unchecked Generative AI Use by Suppliers
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:
Intellectual Property and Content Risks
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.
Off-Brand or Inappropriate Language
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).
Data Privacy and Security Risks
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.

3. 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.
Proactive Steps to Manage AI Risk in Your Supply Chain
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

4. 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.
Engaging Stakeholders to Strengthen AI Compliance
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

5. make sure AI becomes a source of competitive advantage, not a lurking risk, across your entire
value chain.
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