Why Walmart is Turning to AI Tech for Supplier Negotiation
Supplier negotiations can often be a time-consuming, laborious endeavor for retailers and suppliers alike. In fact, KPMG estimates indicate that anywhere between 17 percent and 40 percent of the value of vendor deals is lost due to inefficiencies in the contract negotiation process. One tech company is aiming to use the power of automated chatbots to personalize negotiations on a large scale and save time and money on the retail side, with Walmart already seeing big benefits.
Pactum, an AI-based platform that enables global companies to automate these commercial negotiations, announced it has raised an $11 million Series A round, bringing the company’s total funding to $15 million.
The platform negotiates directly with suppliers on behalf of procurement and merchandising professionals, and can renegotiate merchandising as well as indirect spend deals.
The technology is designed to generate “win-win” deals for both the enterprise and vendor by responding to the priorities of both parties and integrating relevant data and objectives ahead of time, allowing the platform to proactively renegotiate contracts in as little as 15 minutes, spotting changes in variables such as input prices or delivery terms.
Additionally, users can conduct simultaneous negotiations across entire categories or across their entire supply network, reducing the negotiation process time drastically.
With these processes in place, Pactum looks to unlock cash flow and untapped value for retailers rather than generating simple efficiencies. On average, Pactum says this delivers a 4.2 percent increase in profitability. In a single departmental use by a Fortune 500 client, Pactum was able to unlock working capital at a rate of $1.5 million per month, it said in a statement.
CEO and co-founder Martin Rand told Sourcing Journal that while some enterprises have built their own decision support systems for sourcing professionals, which can aggregate and give a digest of the necessary levers to human negotiations, Pactum integrates with these systems as a source of data for automated negotiations.
“Most of the time, it is difficult for people to focus on more than three to five negotiation terms,” Rand said. “However, we have seen that after we start working with our customers, the system can make sense of up to 25 such ‘tradable terms’ including rebates, warehousing terms, co-marketing allowances, shipping mode, etc., that can be exchanged for value for both sides.”
This is beneficial as prices and terms can evolve and change rapidly. Since the AI uses updated information in real time on every negotiation, a retailer can change its corporate negotiation strategy, and all new negotiations will reflect the new values instantly, the company says.
With a live dashboard, users can review and monitor results and negotiations in real time, and also import new KPIs, metrics and measures to assess the success of subsequent negotiations.
Following successful partnerships with Walmart, major CPG firms, and industrial distributors, Pactum says that its Negotiation-as-a-Service (NaaS) offering is now open to all potential customers.
Earlier this month at the Ai4 Retail, Supply Chain and Marketing Summit, Travis Johnson, Walmart’s director of procurement technology, explained how the company’s Canadian operation conducted automated negotiations with hundreds of long-tail suppliers, with the AI platform identifying and accepting accurate “successful” negotiated payment terms.
Although Johnson didn’t note the solution by name during the event, he said 20 percent of confirmed suppliers reached a deal via the platform, with Walmart Canada calculating a 4x ROI in the process. Ahead of the negotiation process, Walmart identifies acceptable tradable terms upfront such as what the supplier could agree on and what Walmart is willing to pay.
New monetary value generated for most of the renegotiated deals at Walmart ranges between 2.8 percent and 6.8 percent, according to Rand.
Walmart’s example shows where retailers, particularly larger ones, can gain potential value from automated negotiation. Pactum says the increased efficiency that the long-tail supplier negotiation process brings represents a $200-$500 billion opportunity for Fortune 500 companies.
“Pactum’s technology is best suited for highly commoditized and fragmented sectors such as grocery, general merchandise, pharmacy and home goods,” Rand said. “The apparel industry is less fragmented and there is more subjectivity in the buying process, so this sector has not been our first area of focus.”
But that priority could change as the company continues to expand and seek out new clients. Pactum already says it is using the funding to scale the deployment phase of its AI automated negotiation platform in response to significant demand. The company aims to rapidly expand its team to partner with a number of major organizations, further hone its automated technologies and expand the application of its platform into a range of new industries.
“The deployment of the system takes about three months, which has currently been the bottleneck for growth,” Rand said. “With this funding, we can create several dedicated deployment teams so we can onboard more enterprises simultaneously.”
As technological advances normalize reaching supplier agreements with the help of a computer system, Pactum believes its technology can be easily deployed in other use cases such as employment contracts, licensing or rental agreements.
The round was led by European venture capital firm Atomico, with participation from Metaplanet, the investment firm of Skype co-founder Jaan Tallinn, Checkout.com chief technology offiecer Ott Kaukver, TransferWise chairman and co-founder Taavet Hinrikus, and Teleport co-founder Sten Tamkivi. Existing investor Project A also followed on as part of this latest round, and Atomico partner Ben Blume will join Pactum’s board.