Walmart Inc. and other large companies are now using artificial intelligence "chatbot" programs to negotiate some of their vendor contracts.
Walmart, shipping company Maersk, Wesco International and other Fortune 500 businesses are clients of a startup called Pactum that focuses solely on automating negotiations.
"There are a number of macroeconomic conditions impacting retailers," said Martin Rand, Pactum's co-founder and chief executive. "They need new technology solutions that can help them manage this increasingly complex global environment."
"Supplier negotiations are an underutilized strategy for retailers to manage constant disruptions," Rand said.
Pactum says it "helps global companies to digitally conduct personalized commercial negotiations on a massive scale."
As an example of that scale, Pactum, in a recent news release, cited research that found its intelligent chatbot can run contract negotiations with up to 2,000 suppliers simultaneously, "something no human buyer can do."
Pactum described its work with Walmart in January when the company, based in Mountain View, Calif., was demonstrating its services at a National Retail Federation event.
"Walmart deployed Pactum's autonomous negotiations technology to bring suppliers better terms and improved savings," Pactum said.
Pactum said it had closed deals with 68% of the Walmart suppliers it approached, generating an average 3% savings for the Bentonville-based retailer.
So far, those vendors only supply store equipment, such as shopping carts and office supplies, to Walmart.
Walmart did not immediately respond to a request for comment on its work with Pactum.
However, two Walmart employees, along with two University of Arkansas professors, published an article in November's Harvard Business Review detailing Walmart's work as an early adopter of Pactum's software-powered chatbot, called Pactum AI.
Mary Lacity, a distinguished professor of information systems and director of the Blockchain Center of Excellence at the University of Arkansas' Sam. M. Walton College of Business, was one of the article's authors.
Lacity said Tuesday that many early adopters of AI-powered chatbots start off in low-risk categories such as transportation, equipment and office supplies, and with "tail-end" suppliers."
"If they are successful in the low-risk areas, they gain confidence to venture into other categories of spend and in other territories," Lacity said.
The other authors of the article and members of the research team are Michael DeWitt, vice president of strategic sourcing at Walmart International; Travis Johnson, senior director of procurement enablement solutions, also at Walmart International; and Remko Van Hoek, professor of supply chain management at the Walton College of Business.
As the researchers do more case studies, she said, they're finding that Pactum AI is generic and applicable to "any type of negotiation provided the buyer knows what it wants and can clearly articulate the trade-offs it is willing to accept."
Examples of trade-offs, Lacity said, include the buyer getting a discount on price if it pays the supplier sooner or introduces the supplier to other sales opportunities.
The technology "can be applied to any negotiation between a single buyer and single supplier," Lacity said.
"The buyer must be large enough to warrant the costs, but so far, they can experiment with a proof of concept inexpensively," she said.
In a final note of caution, Lacity said Pactum AI shouldn't be compared with the popular generative chatbot ChatGPT.
"ChatGPT generates outputs with unpredictable results," Lacity said. "Pactum's results are predictable and it will not generate options beyond what the buyer deems acceptable."
Artificial intelligence tools have come under increased scrutiny as their use exploded in recent months following the debut of ChatGPT. Policymakers are trying to pressure companies to implement safeguards around the emerging technology.
Vice President Kamala Harris is scheduled to meet today with the chief executive officers from Microsoft, Alphabet and OpenAI to discuss ways to reduce the risk of harm from developing artificial intelligence technologies.
Microsoft is working to erect guardrails to help mitigate the potential danger from AI tools, Microsoft Chief Economist Michael Schwarz told Bloomberg News. The company is already using OpenAI's ChatGPT in its Bing search product, and Google released its rival Bard chatbot in March.
Schwarz warned that policymakers should be careful not to directly regulate artificial intelligence. "That would be pretty disastrous," he said.
Despite the risks, AI can help make humans more productive, he said. "We, as mankind, ought to be better off because we can produce more stuff with less work."
AI will revolutionize the way most businesses operate, he said, adding that it will take time.
"I like to say AI changes nothing in the short run and it changes everything in the long run," Schwarz said. "That is true for every single technology that came before."
AI is expected to be a key driver of turbulence in global labor markets and will play a role in changes for nearly a quarter of global jobs, according to a World Economic Forum report published this week.
Information for this article was contributed by Bryce Baschuk of Bloomberg News.