How AI-powered negotiations can help procurement stay afloat in an inflationary environment.

By Martin Rand, Co-Founder and CEO of Pactum

Negotiations are oftentimes an ignored savings opportunity for large enterprises.  The average Fortune 500 company has $240 million locked in inefficient deals that people can’t renegotiate.  And with thousands of suppliers, they just don’t have the manpower to revisit and optimize these deals. With inflation at a 40-year high and an imminent recession, it is now even more challenging for procurement teams to stay afloat.

There are several strategies and technologies that companies can implement to reach agreements that satisfy all parties during an inflationary environment. The most important? A new category of technology called autonomous negotiations.

AI-Fueled Autonomous Negotiations

Autonomous negotiations technology helps global enterprises better understand the needs of their suppliers.

On average, enterprises have millions of dollars locked in inefficient agreements and unlocking such value is difficult. Global enterprises have thousands of suppliers, yet they can only actively manage 20% of them (their strategic suppliers). The other 80% are left unmanaged because it would require too much manpower and be too complex to negotiate these thousands of contracts.

With artificial intelligence (AI) fueling the negotiation, every possible outcome is evaluated in order to get each party the best deal possible. By considering the existing relationship, contracts of those involved, external information and previous interactions, the technology processes information on a level that humans can’t do themselves     

For example, autonomous negotiations allow procurement teams to leverage AI and negotiation science to reach optimal, mutually beneficial deals with their suppliers.  When it comes to negotiations, the technology helps teams to lower costs and secure shipping and freight capacity. It also supports supply continuity and strengthens supplier commitments as procurement teams can finalize thousands of deals simultaneously.

Added Benefit of AI

Enterprises that are quick to accommodate macroeconomic shifts in their business will outperform their competitors. In the past, changes in the market resulted in hasty retraining of negotiations teams based on new external information, but this is time-consuming and costly. In many cases, the world’s economy changes too rapidly for these teams to consume and apply their new knowledge to new negotiations. 

During an inflationary environment, autonomous negotiations can help create positive outcomes for both sides:

• Adjust deals instantly to the macro environment. Autonomous negotiations can be triggered automatically based on demand, commodity price indices, labor cost indices or any other external or internal data point.
• Fine-tune all supplier contracts to unlock capital. Autonomous negotiations allow deal adjustments annually, quarterly or ad hoc based on data.
• Unlock working capital on a massive scale. Autonomous negotiations allow enterprises to adjust payment terms in the new macroeconomic environment instantly for thousands of vendors.
• Find unmanaged areas of spend within your supply chain and lock in favorable commitments. 
• Focus people on strategic deals, while technology handles the rest. Technology can help your procurement and finance teams focus on important deals where human ingenuity is needed.

As the global economy continues to be disrupted by inflation, autonomous negotiations are making enterprises nimbler. They can react quickly to market changes and employees are allowed to focus on strategy while the machines focus on implementation. In an inflationary environment, autonomous negotiations can provide much-needed savings – and even new capital – in a short time span. By using autonomous negotiations to manage the smaller vendors who make up 80% of a company’s supply base, enterprises will be better prepared to weather the economic storm.

In 2019, CEO Martin Rand and his partners co-founded Pactum, an AI start-up that conducts autonomous negotiations for global enterprises and the creator of the autonomous negotiations market. He previously served as Product Manager at Skype and commercial lead for Europe for The Climate Corporation (owned by Monsanto), where he gained firsthand experience in successfully conducting complex negotiations with culturally and geographically diverse teams.

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