Executive Summary

This case study explores the transformative impact of AI in negotiation processes, focusing on experiments and implementations conducted by negotiation expert Keld Jensen and corporate giants like Walmart, General Electric (GE), and Procter & Gamble (P&G). The study reveals that AI, particularly ChatGPT and other AI tools, can significantly enhance negotiation efficiency, structure, and outcomes. Key findings indicate that AI-assisted negotiations lead to quicker agreements, improved deal terms, and substantial cost savings.

Introduction

Traditional Negotiation Methods

Before the advent of AI, negotiations were primarily human-driven, often resulting in inefficiencies and suboptimal outcomes. Human vs. human negotiations frequently deviated from the agenda, struggled with information asymmetry, and were prone to emotional biases. In large-scale corporate environments, such as Walmart’s procurement operations, the sheer volume of suppliers (over 100,000) made personalized negotiations with each supplier impractical.

Losses from Previous Methodologies

The traditional approach led to significant value loss due to generalized, non-negotiated agreements. Around 20% of Walmart’s supplier agreements were standardized without detailed negotiation, leaving substantial value untapped. This inefficiency not only affected cost savings but also limited the strategic flexibility and resiliency of supply chains.

Potential of AI in Solving Negotiation Challenges

AI offers a structured, data-driven approach to negotiation, addressing key issues such as data sharing, real-time strategy development, and emotional management. AI tools like ChatGPT can assist negotiators by providing comprehensive data analysis, suggesting optimal strategies, and maintaining productive dialogues. These capabilities can transform negotiations, making them more efficient and yielding better outcomes for all parties involved.

AI Methodology

Implementation of AI in Negotiations

Keld Jensen’s study, detailed in his book Negotiation Essentials, provides a comprehensive analysis of AI’s potential to enhance negotiation outcomes. The study, conducted in collaboration with World Commerce and Contracting, involved three experimental setups to evaluate the effectiveness of AI in real-world deal-making scenarios:

1. 1. Human vs. Human Negotiation: In this setup, two groups of human negotiators engaged in traditional negotiations without any AI assistance. The outcomes were suboptimal, with negotiations often straying off-topic and failing to reach agreements within the allotted time. Key issues included a lack of openness, limited data sharing, and emotional biases affecting the negotiation process.
      
      

2. 2. Human vs. Human with ChatGPT: In this scenario, one of the negotiating groups utilized ChatGPT to assist in the negotiation process. The AI provided structured data and calculations, helping the negotiators stay on track and focus on the key issues. This setup resulted in more structured negotiations, with the group using ChatGPT reaching an agreement just before the time limit expired. The AI’s ability to provide real-time data and maintain focus was instrumental in achieving this outcome.
      
      

3. 3. ChatGPT-assisted vs. ChatGPT-assisted: This setup involved both negotiating groups using ChatGPT. The AI assisted both sides in real-time, providing data, suggestions, and maintaining a productive dialogue. The result was a significantly more efficient negotiation process, with agreements being reached well before the deadlines. The deals were beneficial for both sides, showcasing the potential of AI to facilitate mutually advantageous outcomes swiftly.

These experiments demonstrated that AI, particularly ChatGPT, can significantly improve negotiation processes by structuring the negotiations, providing clear data, and reducing emotional biases. The structured data-driven approach of AI ensures that negotiations remain focused and productive, leading to better outcomes in a shorter time frame.

AI’s Role in Negotiation Phases

Preparation: AI aids in researching negotiation topics, setting clear objectives, and brainstorming alternatives. By analyzing vast amounts of data, AI helps negotiators understand the context and develop well-informed strategies.

Strategy Development: AI helps formulate strategies, analyze counterpart interests, and plan communication. It provides insights into the opponent’s likely positions and interests, enabling negotiators to craft more effective strategies.

During Negotiation: AI provides real-time advice, creative solutions, and emotional management. It can suggest alternative solutions, keep the conversation productive, and help manage emotions, ensuring that the negotiations remain constructive.

Post-Negotiation Analysis: AI assists in analyzing outcomes and strategizing for future negotiations. It helps in evaluating the success of the negotiation, identifying areas for improvement, and planning for future engagements.

Walmart’s AI Deployment

Walmart implemented Pactum AI to automate its negotiations with tail-end suppliers, focusing initially on goods not for resale. The AI deployment at Walmart involved several key aspects:

Pilot Program: Walmart launched a pilot program in Canada, involving 89 suppliers, five buyers, and representatives from finance, treasury, and legal departments. The pilot targeted suppliers with accurate data on payment terms and opportunities for improvement.

Negotiation Success Rate: The pilot achieved a 64% success rate, with the AI chatbot successfully negotiating agreements with 64% of the suppliers involved. This success rate was significantly higher than the initial target of 20%.

Cost Savings: The pilot

resulted in an average savings of 1.5% on negotiated spend. The AI negotiated better payment terms and secured additional discounts, contributing to overall cost savings.

Scalability: Following the successful pilot in Canada, Walmart expanded the use of Pactum AI to operations in the United States, Chile, and South Africa. The broader deployment increased the success rate to 68% and average savings to 3%.

Supplier Feedback: Post-pilot interviews revealed that 83% of suppliers who engaged in successful negotiations found the system easy to use. Suppliers appreciated the ability to make counteroffers and the time flexibility the AI provided, allowing them to think about the negotiation at their own pace.

Operational Flexibility: The AI’s ability to negotiate extended payment terms and improved termination clauses enhanced Walmart’s operational flexibility. This flexibility allowed Walmart to better manage its cash flow and supplier relationships.

The successful integration of Pactum AI in Walmart’s procurement process highlights the technology’s potential to streamline negotiations, achieve cost savings, and improve supplier relationships.

Negotiation Success Rates after AI (%)

Description: Comparison of success rates in different negotiation setups.

Data Points:

• • Walmart’s pilot with Pactum AI: 64%

• • Walmart’s expanded deployment: 68%

AI in Procurement at General Electric (GE)

GE adopted AI to streamline its procurement negotiations, leveraging the technology to manage its extensive supplier base more effectively. The AI implementation focused on:

Reducing Negotiation Time: AI tools were used to automate routine negotiations, allowing procurement teams to focus on strategic deals. This led to a 30% reduction in overall negotiation time.

Cost Savings: By optimizing terms and identifying better value propositions, GE achieved up to a 5% reduction in procurement costs.

Data-Driven Decision Making: AI provided GE with real-time analytics and insights, enhancing the accuracy and efficiency of negotiation strategies.

The successful integration of AI in GE’s procurement process highlights the technology’s potential to drive significant operational efficiencies and cost savings.

AI in Negotiations at Procter & Gamble (P&G)

P&G implemented AI to assist in negotiating with raw material suppliers, resulting in several notable outcomes:

Improved Supply Chain Efficiency: AI streamlined negotiations by automating the data collection and analysis process, leading to a 20% improvement in supply chain efficiency.

Cost Reduction: The AI-driven negotiation process enabled P&G to achieve a 4% reduction in raw material costs, enhancing overall profitability.

Enhanced Supplier Relationships: AI facilitated more structured and transparent negotiations, leading to stronger and more collaborative supplier relationships.

P&G’s adoption of AI in negotiations underscores the technology’s ability to enhance both operational efficiency and cost-effectiveness in supply chain management.

Outcomes and Impact

Efficiency and Speed

The structured approach provided by AI tools like ChatGPT resulted in faster negotiation processes. For example, in the ChatGPT-assisted vs. ChatGPT-assisted setup, negotiations concluded well before the deadlines, showcasing AI’s ability to expedite agreements. Similarly, GE reported a 30% reduction in negotiation time using AI.

Cost Savings and Improved Terms

Walmart’s implementation of Pactum AI led to substantial cost savings and better contract terms. The chatbot’s negotiations achieved an average savings of 3%, demonstrating significant financial benefits. Additionally, the extended payment terms and improved termination clauses enhanced Walmart’s operational flexibility. GE saw a 5% cost reduction in its procurement process, and P&G achieved a 4% reduction in raw material costs.

Cost Savings After Incorporating AI based Negotiations (%)

Cost Savings Achieved

Graph Type: Line Chart Description: Cost savings achieved by different companies after implementing AI. Data Points:

• • Walmart Pilot: 1.5%

• • Walmart Expanded: 3%

• • GE Procurement: 5%

• • P&G Raw Material Costs: 4%

Supplier Satisfaction

Post-pilot interviews revealed high satisfaction among suppliers, with 83% appreciating the AI’s ease of use and the ability to negotiate at their own pace. This positive feedback highlights AI’s potential to maintain and even improve supplier relationships. At Maersk, supplier feedback indicated that the AI-led negotiations were fair and efficient, contributing to better long-term partnerships.

Supplier Satisfactions After using AI (%)

Supplier Satisfaction Rates

Description: Supplier satisfaction rates post-AI implementation.

Data Points:

• • Satisfied Suppliers (Walmart): 83%

• • Unsatisfied Suppliers (Walmart): 17%

Caution

Ethical Considerations

While AI enhances negotiation efficiency, it is crucial to address ethical concerns. AI algorithms can inadvertently learn unethical negotiation tactics, such as bluffing, if not properly monitored. Ensuring transparency and ethical guidelines in AI training is essential to prevent misuse.

Data Accuracy

AI’s effectiveness heavily relies on the accuracy of the data it is fed. Inaccurate information can lead to suboptimal or even harmful negotiation outcomes. Rigorous data validation and continuous monitoring are necessary to maintain AI’s reliability.

Job Displacement Concerns

There is a prevalent fear that AI might replace human negotiators. However, AI should be viewed as an augmentation tool rather than a replacement, enabling human negotiators to focus on strategic aspects while AI handles routine tasks. Walmart, for instance, emphasized that AI freed up procurement executives to focus on more strategic negotiations.

Conclusion

AI has proven to be a game-changer in negotiations, offering structured, data-driven insights that lead to quicker, more beneficial agreements. The successful implementations by Keld Jensen, Walmart, GE, and P&G underscore AI’s potential to revolutionize deal-making processes. By augmenting human capabilities with AI, organizations can achieve significant cost savings, improved contract terms, and enhanced supplier relationships. As AI technology continues to evolve, its role in negotiations is likely to expand, offering even greater benefits in the future.