Here's How Walmart Used an AI Chatbot to Automate Supplier Negotiations
Procurement leaders are always on the lookout for innovative ways to enhance their operational efficiency and improve their ability to negotiate with suppliers. Currently, artificial intelligence technology holds immense promise in improving these processes, and there's already an excellent example of how it can be done.
By deploying an AI-powered chatbot for negotiations, Walmart has set a groundbreaking precedent in the procurement process. This article explores the remarkable outcomes of Walmart's pilot program, as well as its implications for the future of procurement across industries.
Walmart's AI-Powered Supplier Negotiations
Like most new technology programs, Walmart's negotiating AI chatbot began as an idea. It was implemented a few years ago, but it was very much ahead of its time.
In 2022, Harvard Business Review reported on how Walmart had automated its supplier negotiations using an AI chatbot. AI was already heating up as a topic at the time, and the news was just one more use case for businesses eager to harness the technology.
According to the article, "Walmart deployed AI-powered negotiations software with a text-based interface (i.e., a chatbot) to connect with suppliers." At the time of writing, the chatbot was "negotiating and closing agreements with 68% of suppliers approached, with each side gaining something it values."
The Pilot Program
Walmart began this strategy with a pilot program that lasted three months.
According to another article about the subject, the program "included a variety of stakeholders — 89 suppliers, five buyers, and representatives from Walmart Canada’s finance, treasury, and legal departments — and Pactum, the company that had created the underlying AI technology.”
The pilot was originally focused on products that were not sold to consumers. In other words, the program interfaced with suppliers providing operational resources like fleet services, shopping carts, and other retail equipment.
The Results
The results of the pilot program were significant.
The Harvard Business Review article claimed that "the chatbot was successful in reaching an agreement with 64% of [the 100 tail-end suppliers invited to participate] — well above the 20% target — and with an average negotiation turnaround of 11 days." That's a significant achievement, especially for a novel technology like AI.
On average, Walmart gained 1.5% in savings on the spend it negotiated with those suppliers. It also negotiated an average 35-day extension on payment terms.
Since then, Walmart has expanded its use of the tool to other categories, including "route rate negotiations for transportation and some goods for resale." Furthermore, some mid-tier suppliers now use the chatbot."
Building Off of Walmart's Example
Walmart's example could serve as a blueprint for other procurement departments, especially if they struggle with unmanaged or undermanaged spend. By integrating AI-driven negotiation tools, procurement teams across industries have the potential to transform their operational efficiency and harness more beneficial contractual agreements.
This innovative approach not only streamlines the negotiation process but also unlocks significant cost savings and improves payment terms with suppliers. What stands out from Walmart's implementation is the combination of high success rates in closing agreements and the impressive speed of negotiation turnarounds.
The ability of AI to negotiate with a large percentage of suppliers successfully—far exceeding initial targets—demonstrates its viability as a scalable solution for procurement challenges.
Learn How to Optimize Your Procurement Processes with AI
Walmart's example is just one of many ways AI can improve supplier negotiations and procurement in general.
To learn more about how you can leverage AI in your procurement department, don't miss ProcureCon Supply Chain 2024. It's happening from August 5th to 6th at the Westin Buckhead in Atlanta, Georgia.
Download the agenda and register for the event today.