As ChatGPT dazzles the general public with fanciful uses of artificial intelligence, such as writing Hollywood scripts or opining on fantasy baseball and art theory, Walmart Inc. is leaning on AI for a more pragmatic purpose: bargaining with suppliers.
The retail giant uses a chatbot developed by Mountain View, California-based Pactum AI Inc., whose software helps large companies automate vendor negotiations. Walmart tells the software its budgets and needs. Then the AI, rather than a buying team, communicates with human sellers to close each deal.
“We set the requirements and then, at the end, it tells us the outcome,” says Darren Carithers, Walmart’s senior vice president for international operations.
Carithers says Pactum’s software—which Walmart so far is using only for equipment such as shopping carts, rather than for goods sold in its stores—has cut the negotiating time for each supplier deal to days, down from weeks or months when handled solely by the chain’s flesh-and-blood staffers. The AI system has shown positive results, he says. Walmart said it’s successfully reached deals with about 68% of suppliers approached, with an average savings of 3% on contracts handled via computer since introducing the program in early 2021.
Walmart was Pactum’s first customer and one of the few major retailers in the US to adopt AI in its vendor negotiations at all. Like Walmart, Amazon.com Inc. has dedicated account managers for category-leading brands like Nestlé SA and Procter & Gamble Co., but it automates other types of vendor discussions, according to Martin Heubel, a former Amazon executive who now advises brands selling goods on the site. Rival Target Corp. says it doesn’t use AI for supplier negotiations.
“The huge potential is that any kind of company can soon use AI for a problem that normally requires an entire procurement team to handle,” says Tim Baarslag, a senior researcher at CWI, the National Research Institute for Mathematics and Computer Science in the Netherlands. Negotiating used to be a human-only skill, he says, but now AI is just as capable.
Pactum’s software is just one of several AI tools the world’s largest retailer has adopted in recent years as it seeks new ways to save its corporate team and customers time and money. Walmart announced a partnership with Microsoft Corp. in 2018 to work on artificial intelligence and other strategic tech and has been using AI developed by Microsoft-backed OpenAI to offer conversational text-to-shop tools, which the retailer touted in December. A consumer-facing chatbot, which can provide information such as the status of orders or returns, is now used by more than 50 million customers, Chief Executive Officer Doug McMillon said in a letter to shareholders in April.
Walmart—which has more than 100,000 total suppliers—started using Pactum with a pilot for its Canadian unit. The project then expanded to the US, Chile and South Africa. Pactum’s other clients include shipping company A.P. Moller-Maersk A/S and electrical-products vendor Wesco International Inc., among others, according to its website.
Artificial intelligence isn’t a threat to Walmart’s human negotiators, at least not yet. Instead the company is using the tool to squeeze savings from contracts that might not be big enough to justify taking up much—if any—of a procurement manager’s time. Pactum’s software can haggle over a wide range of sticking points, including discounts, payment terms and prices for individual products.
When a vendor says it wants to charge more for an item, Pactum’s system compares the request with historical trends, what competitors are estimated to pay and even fluctuations in key commodities that go into making the item, among other factors. It then tells Walmart the highest price it thinks its buyers should accept, a figure that a human procurement officer can modify if needed.
Then the real negotiation starts. Pactum’s chatbot communicates with a flesh-and-blood vendor on the other side, displaying a series of arguments and proposals the supplier can accept or reject.
“There’s so much data, so much back and forth, and so many variables that can be tweaked,” says Pactum CEO Martin Rand. “The AI bot with a human on the other side will find a better combination than two people can over email or on the phone.”
Suppliers cede profit in at least some of the negotiations, but Pactum says they can get concessions such as better payment terms and longer contracts in return.
Three out of four suppliers that have tested the program told Walmart they preferred negotiating with the AI over a human, the retailer says, though a small percentage said they would’ve liked to negotiate with a person. “Some really like it and are like, ‘This is the best way to do it,’” says Carithers, the Walmart executive. “But I would relate that to people using self-checkout in stores. Some customers love it, but guess what: Some customers want to go to a manned checkout and see a person.”
Although AI software is now being used to help overburdened procurement staffs, at some point humans may be all but taken out of the equation. Pactum is researching how to conduct bot-to-bot negotiations, Rand says. But there are obstacles to making that happen anytime soon. Machines still have trouble making assessments with limited information, and they can’t draw in external details like vendor relationships. So for now, Walmart’s arm-wrestling matches over small contract terms will be man versus machine, however lopsided that will be. —With Spencer Soper
©2023 Bloomberg L.P.
