AI in the supply chain is not living up to its potential due to several gaps, according to a recent survey, the State of Supply Chain Report 2026.from Inspectorio.

The survey results, based on responses from 200 retailer and brand professionals across the global supply chain, highlighted challenges and opportunities in traceability, sustainability, product integrity and compliance. 

Stress of managing compliance 

Regulatory compliance is creating unprecedented organizational stress; more than half of respondents ranked the strain of executing on compliance requirements as “4” on a 5-point scale.

Additionally, compliance budgets have plateaued, even as regulatory requirements continue to grow. Only 50% of survey respondents reported that their 2026 compliance budgets increased, compared to 75% in 2025.

Audit fatigue 

Suppliers are managing overlapping, inconsistent audit requirements from multiple customers and regulators simultaneously. Without a multi-tiered, interdisciplinary approach to compliance, supplier goodwill and capacity are being consumed by duplicate effort.

• Measurement systems aren't built for product-level proof. Emerging regulations, particularly the EU Digital Product Passport (DPP), require that data is traceable to specific products, materials and transactions. The gap between how data is currently structured and what regulators will require is significant — and most organizations have not yet closed it.

AI faces organizational hurdles

The primary obstacles to effective AI adoption are insufficient data quality, change management gaps and lack of cross-functional integration. Organizations are deploying AI onto fragmented data environments and expecting transformative results. The research shows this consistently does not work.

The organizations reporting the strongest AI outcomes share a common characteristic: they are unifying their production chain data — quality, compliance, sourcing and sustainability — before scaling AI applications on top of it. Examples include:

• A global manufacturer reduced corrective-action administrative burden by roughly 60%, avoiding an estimated $2.46M per year in handling effort, while faster closure reduced open-issue exposure by approximately $1.96M per year.
• A Factory Risk Prediction deployment also enabled lower-risk suppliers to shift toward self-inspection, saving $4.8M through reduced third-party inspection bookings.

Sourcing diversification erodes progress in sustainability

37% of respondents shifted sourcing to new countries or regions in response to tariffs. The survey also revealed that 37% of respondents added secondary suppliers for critical products and 33% renegotiated supplier pricing or terms.

However, every time production moves to a new supplier, the sustainability infrastructure built at the prior location — supplier assessments, environmental audits, chemical compliance history, labor certifications — is left behind. Organizations are making sourcing decisions based on trade economics without accounting for the compliance cost of starting over in a new geography, with significant negative impact.

Traceability is seen as a regulatory requirement, not a competitive advantage

Only 21% of organizations have a multi-tier strategy for traceability; 79% are reactive to regulatory requirements. The majority of respondents allow their traceability strategy to be driven by regional directives, meaning traceability programs are scoped to what is currently required rather than taking a proactive approach with potential supplementary benefits related to supply chain visibility and resilience.