Grainger has also increased, and expects to continue to increase, its investments in developing, managing and implementing AI, such as large language model technologies. Grainger believes the proliferation of AI will have a significant impact on customer preferences and market dynamics in its industry, and Grainger’s ability to effectively compete in this space will be critical to its financial performance. Grainger also believes that the effective use of AI in its internal operations is important to its long-term success. Grainger is working to incorporate AI capabilities into its digital platforms, as well as across Grainger in its own internal operations, and its research into and continued development of such technologies remain ongoing. As with many innovations, AI presents risks, challenges, and unintended consequences that could affect its rate and success of adoption, and therefore Grainger’s business, and there is no guarantee that Grainger’s use of AI or incorporation of AI capabilities into its business will benefit its business operations or result in solutions that are preferred by its customers. Grainger has invested, and expects to continue to invest, significant resources to build and support its AI products. If Grainger’s digital platforms fail to operate as anticipated or as well as competing products or otherwise do not meet customer needs or if Grainger is unable to bring AI-enabled products and solutions to market as effectively, or with the same speed or in the same volumes, as our competitors, Grainger may fail to recoup its investments in AI or improve its financial performance, its competitive position may be harmed, and its business and reputation may be adversely impacted.
In addition, AI algorithms may be flawed. Datasets may be insufficient or contain biased information. AI models deployed by Grainger or its partners may lead to unexpected or unintended outcomes that could erode trust in its digital platforms and potentially cause harm to individuals or society. These deficiencies and other failures of AI systems could subject Grainger to competitive harm, regulatory action, legal liability, including under new proposed legislation regulating AI in jurisdictions such as the U.S. and European Union, new applications of existing data protection, privacy, intellectual property, and other laws, and brand or reputational harm. Additionally, Grainger’s obligations to comply with the evolving legal and regulatory landscape could entail significant costs or limit its ability to incorporate certain AI capabilities into its digital platforms. Some AI capabilities also present ethical issues, and Grainger may be unsuccessful in identifying or resolving issues before they arise. If Grainger enables or offers AI products or solutions or implement AI capabilities in its internal operations that are controversial because of their impact on human rights, the environment, privacy, employment, or other social, economic, or political issues, Grainger may experience brand or reputational harm or greater team member attrition.