Negotiating with a robot

The American supermarket chain Walmart recently announced that it is using an AI chatbot to negotiate with suppliers. "This is just the beginning. Negotiation AI will become very big”, says CWI researcher Tim Baarslag, who has been working on negotiation algorithms for years.

Publication date
4 May 2023

Walmart, the world's largest supermarket chain with over 11,000 stores, uses a chatbot developed by the American company Pactum AI Inc. The company offers software to help large companies automate negotiations with suppliers. The retail giant specifies its budgets and needs, and then the AI communicates with human suppliers to close deals. Walmart does this not for the products on its shelves but for necessities like office supplies and shopping carts. This saves the supermarket chain a lot of time – negotiations take days instead of weeks or months. Also, procurement costs have dropped by 3%.

"Purchasers do not negotiate about these types of goods on a daily basis because they are needed less frequently. Therefore, they have less experience," says senior researcher Tim Baarslag. "The AI calculates in milliseconds what an acceptable price is for each product, taking into account historical trends and how quickly you need it. Human buyers can sometimes spend days emailing back and forth about a suitable price for the items."

Enormous potential

For Baarslag, who has been working on software development since 2010, these are exciting times. "My colleagues and I predicted years ago that these types of AI bots would eventually come, and now they are here. There is enormous potential for negotiation software. Procurement is an essential activity for many companies and is one of their largest expenses. In 2021, 95% of European companies offered goods and services without the help of computers. This leads to less good results, higher costs, and very labor-intensive processes."

According to Baarslag, soon any company will be able to use AI for negotiations that would normally require a full procurement team. "Negotiation used to be a skill that only people had, but now AI is becoming just as proficient."

Two bots bargaining with each other

He is currently researching with a Vidi subsidy from NWO how to allow an AI bot to negotiate with multiple suppliers at once. It seems to be a matter of time before bots take over the negotiation process completely. Will procurement teams then become redundant? "Two bots bargaining with each other and independently closing a deal is ultimately the goal. But we are not there yet."

Baarslag knows from experience that AI still struggles with certain parts of negotiation, such as accurately assessing the value of a relationship between a company and a supplier. It also faces challenges in predicting the future impacts of a negotiation. “For instance, AI may not be able to fully grasp the concept of granting a customer a concession now to maintain their loyalty and secure future orders. This is an area where AI has not yet achieved mastery.”

Final say

At companies currently using negotiation software, the AI bot still bargains with humans. "Now, the bot is an advisor that provides support during online negotiations. The human has the final say on the price and accepting the deal. That will gradually change. Instead of a suggestion, the bot's proposal may eventually become an automatically approved negotiation."

Tim Baarslag
Tim Baarslag