When you’re the largest retailer in the United States by revenue, you have to be excellent at procurement. To stay on top, Walmart Inc. is now employing artificial intelligence (AI)-powered software that uses a chatbot to negotiate directly with suppliers. The software issues standard terms, which are generally nonnegotiable but offer realistic selling opportunities to vendors. Previously, having Walmart buyers negotiate with low-spend supply chain partners would not bring value. But now, AI is upending traditional negotiation practices.
This concept was tested in Canada last year with Walmart suppliers of goods not for resale, such as fleet services, carts and other equipment used in stores. As the company already had accurate data about payment terms, the segment was ideal for a pilot. In the end, Walmart was able to reach agreements with 64% of participating suppliers, which was well above the 20% goal. The average turnaround time for an agreement was 11 days, and the company achieved 1.5% savings and extended payment terms to 35 days on average.
Both Walmart and its partners see real potential. In fact, more than 80% of suppliers say the system is straightforward and that they enjoy easily making counteroffers. They also appreciate feeling more informed and less like they’re being pushed into a quick decision because they can consider Walmart’s original offers at their own pace.
Walmart has since extended the pilot into the United States, Chile and South Africa. According to Forbes, the chatbot has reached deals with 68% of participating suppliers and achieved 3% average savings. It's programmed with precise boundaries of what the buyer is willing to concede to reach desired terms, including payment, termination and business-expansion guidelines. Already, the chatbot runs 2,000 concurrent negotiations, and it learns from every single one.
Analysts believe this AI tool has the potential to markedly change the role of buyers so they may focus on strategic relationships, moderating exceptions and continuous improvement. On the other side of the coin, however, is the fact that less-flexible negotiating terms may be unfair to partners. But for Walmart, this is in line with its overall procurement approach. In fact, The Wall Street Journal reports that the company recently warned suppliers that it would be pushing back on any attempts to raise prices.
All of this is tipping the balance of power back to retailers, who were at the mercy of suppliers during the demand spikes of the past few years — and not just Walmart: Target and Amazon are taking a similar approach, demanding discounts and even canceling orders. It seems that, amid a slowing economy and a glut of inventory, retailers are swiftly regaining the upper hand.
It takes a community
As the world of procurement continues evolving, ASCM has the education and training you need to compete. The Supply Chain Procurement Certificate program enables both entry-level and experienced professionals to expand their knowledge and skills. Learners gain a foundational overview of procurement fundamentals, sourcing strategies, supplier relationship management, negotiations practices, evaluation metrics and more.
Furthermore, as supply chains keep evolving, we will continue experiencing ripple effects everywhere. There’s no doubt that these challenges must be managed in collaboration and as a supply chain community. One of the greatest benefits of ASCM membership is our ASCM CONNECT Community. It includes unparalleled networking opportunities, professional development support, thought leadership and fascinating dialogue. Join the conversation and connect with your supply chain colleagues today.