Using AI for Smarter Negotiations

The company deployed an AI-powered chatbot to analyze marketing trends, compare commodity values and competitors’ costs, and negotiate with suppliers. This resulted in a 68% agreement rate, an average cost saving of 3%, and a significant reduction in negotiation time from weeks/months to days.

Client:

Founded in 1962, Walmart is a global retail giant operating a hypermarket and discount department store chain. Leading the pack in international sales, Walmart employs over 2.3 million individuals globally.

The rise of online retail, the increase in the cost of labor, and the difficulty of retaining customers have forced the company to look for qualitatively new solutions. Walmart uses AI technologies for inventory management, customer service, price optimization, and fraud detection.

Problem Statement:

Walmart needed help with its customary supplier negotiation processes. Negotiations took forever, and they couldn’t quickly expand to work with more suppliers. Human errors were a constant worry. There also needed to be more transparency: suppliers never knew how decisions were made.

Communication was another hurdle, especially with international suppliers. With a central place to store information, it was easier to keep track of everything. Finally, with limited data and slow analysis, predicting future outcomes or understanding market conditions was impossible.

Results:

• Participation Rate: 89% of invited suppliers participated in the pilot program.
• Agreement Rate: The chatbot reached agreements with 64% of participating suppliers, significantly higher than the initial target of 20%.
• Expansion: Walmart expanded the program to other regions. The expanded program achieved a 68% agreement rate.
• Average Cost Savings: The chatbot achieved an average of 1.5% cost savings in the initial pilot. (Walmart reported an average saving of 3% in the expanded program.)
• Extended Payment Terms: The chatbot negotiated an extension of payment terms to 35 days for participating suppliers.
• Positive Feedback: 83% of suppliers liked the chatbot negotiation experience.

AI Solution:
Walmart has implemented a chatbot developed by Pactum AI Inc. to automate supplier deal negotiations. Pactum’s system requires Walmart to establish its budget and specify requirements, such as discounts and payment terms.

AI analyzes marketing trends and compares the commodity values and competitors’ costs with the supplier’s requests. Next, the bot closes the deal within days, while conventional negotiations take weeks or months.

The AI deals with transactions involving essential store items like shopping carts, not the everyday products typically seen on the shelves. Pactum technology saves time and money on contacts that are only worth a little bit of time.

While AI helps with the initial analysis and deal proposals, it only partially replaces human negotiators. The bot still needs to work with real people to finalize the agreements. It is indicated that the intricacy of bargaining, or the necessity of human discretion in specific circumstances, continues to demand human participation.

The primary purpose of AI isn’t to eliminate jobs but to make life easier for Walmart’s procurement team. AI frees up time for more complex negotiations and strategic tasks by taking over the routine of more straightforward contracts.

Interesting facts:

• Initially tested in Canada, this tool has been extended to the United States, Chile, and South Africa.
• When the bot faces a difficulty or challenge that it cannot overcome, the negotiation is handed over to a human negotiator.
• Human negotiators can use their experience to train and improve the Pactum AI bot.

References:

1.  Walmart Is Using AI to Negotiate the Best Price With Some Vendors https://www.bloomberg.com/news/articles/2023-04-26/walmart-uses-pactum-ai-tools-to-handle-vendor-negotiations?_x_tr_hist=true
2. How Walmart Automated Supplier Negotiations  https://hbr.org/2022/11/how-walmart-automated-supplier-negotiations

Industry: Retail trade

Vendor: https://pactum.com/

Client: https://www.walmart.com/