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Will AI replace Procurement in supplier negotiations?

Will AI replace procurement professionals in negotiations? It’s one of the fears haunting the corridors of procurement teams right now. But, not so fast. While it certainly is something on the radar and being worked on, there’s some way to go yet, as we’ll explain.

Enterprise procurement teams are heavily looking into how AI can assist them. Especially those who are early adopters of technology. However, the masses are still going about business as usual.

Then, if we take a look beyond large corporations, it’s amazing that so many mid-sized organisations still to this day have not implemented much automation. We’re talking even simple robotic process automation (RPA), rather than advanced AI algorithms. They’re missing out on ensuring that their processes are being taken care of faster and without human error.

Procurement tech companies perhaps are missing a trick when it comes to competently illustrating the ROI. But the reality is that the ROI is so clear that it’s frightening. Process automation is a massive opportunity.

You’ve got both the elimination of error and the faster, more effective way to speed up processes. Every business can take advantage of this.

We know that rRPA, optical character recognition (OCR) and of course AI can offer huge benefits in more tactical and transactional procurement activities. But, this then begs the question, what about negotiation?

Could AI replace the need for procurement professionals in negotiations? And, if so, to what extent will this happen?


AI, procurement and supplier negotiations: where is this going?

Before we look at negotiation, it’s worth mentioning that there are not many traditional mid-market businesses that have done much on their digital journey.

They might have some OCR for invoice processing or something like that. But it’s still a pretty greenfield picture. Whereas, on the other hand, most Fortune 500 companies have done some sort of digitisation.

They might have done it badly, but most organisations in the enterprise space have at least made a start.

If you look at some of the bigger tech platforms, with SAP Ariba and Coupa being the obvious candidates, they now have put app stores or marketplaces in place. This is a tacit acknowledgement that they can’t be everything to everyone.

Where does AI-driven negotiations fit into digital procurement technology?

This technology will be a point solution. It’s unlikely to be technology that comes built into the larger suite players.

There are more nimble players out there that can do certain niche functions – such as negotiation automation – better than the end-to-end suites can.

On top of this, we need to also consider that a lot of existing category knowledge, in the form of older members of the workforce, is retiring.

How do you replace 20 + years of knowledge?

You’ve got category specialists that have been around for a really long time. People out there who have been doing more or less the same job for 20 years in some cases.

Technology must be able to fill the gap of where that person’s negotiation ability often came from, to compensate for his/her deep knowledge about what he/she was buying. You can’t replace that quickly, and you’re not going to train a new hire with 20 years’ worth of deep category knowledge.

Best case, where HR policies are effective and succession planning has worked, you have maybe a year. In most cases, you’ve probably got anything from a couple of weeks to a few months, depending on the country and the notice period.

So, you’re going to need niche apps and niche solutions to be able to facilitate the younger generation who are replacing these retiring Category Managers. Their negotiation chops won’t be the same as the salesperson from the supplier in many cases, simply because their category knowledge won’t be as deep.

Technology for assisting and running negotiations therefore not just about automated negotiation bots. We’ll come on to this a bit later. It will also be about market intelligence to give them effective ability to plan and execute negotiations. To do this, they need access to the necessary data, and also preparation and planning tools.

So, we must also consider more holistically the technology that will help to aid and equip category managers to negotiate effectively. This is all about equalising the playing field when it comes to commodity and market data.


Will AI replace procurement managers in negotiations?

Now that we’ve covered the context and bigger picture, let’s drill down into the fundamental question. Will we ever be at a place where a robot or a piece of tech will be able to replace a human in a negotiation?

To do this, we need to first evaluate where we are right now. Then, we need to look at where we could possibly, or even probably, get to in the future.

AI in negotiations: Where are we now?

We are now at a place where you could replace all of your tactical negotiations and tactical spend in procurement with a piece of software. It wouldn’t be easy to do, but it’s possible.

There are a few companies out there which can get us there. None of them are budget tools, but they exist. I’m thinking here of apps such as Pactum, Arkestro, Fairmarkit, and also some things that Globality is doing.

It’s not unreasonable to be able to negotiate much, or all, of your tail spend with a piece of software. This is a little bit scary for a lot of people. If you’ve built a career in tactical procurement, you should be very concerned. Your job is only a few years away from being replaced entirely.

You must look at moving into a strategic role within procurement, or otherwise learning a complementary skill. Perhaps start learning how to code in a language like Python, which could open the doors to you working in data analyst or data scientist roles. Or perhaps investigate how to engineer prompts for generative AI, if you’re not really a coding or a maths person.

Evolution of automation: the Procure-to-Pay (P2P) example

In most purchasing departments today, the requisition to PO process is something that still gets managed by people. The rough process is as follows:

  • A free text requisition comes in
  • They go to market and get three bids and a buy, or they just use an e-procurement tool to purchase something from a catalogue.
  • A PO is produced for the negotiated price.
  • Then the downstream goods receipt and invoice-to-pay processes kick in.

All of that, from requisition to PO to accounts payable, can be automated today.

The existing technology is primarily geared towards tactical and tail spend. In addition, apps like Pactum can also be used for negotiating simple legal documents like Non-Disclosure Agreements (NDA). Existing automated sourcing and negotiation software is geared towards one-time spend which can’t be covered by classic e-procurement or outsourced integrator strategies.

Instead of a Buyer calling up or emailing suppliers to squeeze a couple of percent out of a non-strategic, non-core purchase, you can now engage some tech do automate this process. It’s therefore reasonable to assume that this will make the classic plant or location-based tactical buyer role redundant. And probably sooner than we think in tech-driven companies.

So, will tactical spend and tactical negotiations be replaced by a robot? The answer today is yes, absolutely, we’re already there.


The future: can strategic sourcing and complex negotiations be automated?

But can complex negotiations be replaced by a robot? Well, looking at it today, the answer to that question is definitely no. There is no technology out there currently that can effectively perform complex negotiations.

For example, there’s a professional services agreement that we want to negotiate that’s spread over a series of years. We have different, complex milestones, and there are different things that need to be negotiated at each milestone.

That kind of complex AI hasn’t been built….yet.

Will we get there one day?

If you’d asked me this a couple of years ago, I would probably have said “no”. And yet, here we are, about a year-and-a-half after the introduction of ChatGPT. It’s not too far-fetched to predict that we’ll probably get there at some point.

Most people would have said 10 years ago that there’s no way tactical spend could be automated. But we’re pretty much there today. Even though not many companies have invested in the technology, the systems and the talent to be able to facilitate this just yet.

So, if we think about the speed at which things are developing and improving in the AI space, I think it’s naive for us to say it will never be possible. The question is how long will it take?

The debate I suspect will increasingly focus on how long it will take to get there. Will it be 5, 10, or 30 years? Nobody knows for sure. But it would be foolish to ardently say that we’ll never get there.

Which then brings us on to the next big topic.

Will AI ever be able to emulate emotional intelligence?

Will bots at some stage be able to have the emotional intelligence to deal with a lot of cultural differences in negotiation? It takes skill and aptitude that is not black-and-white to negotiate between nationalities, between cultures, between how high the stakes are for the buyer versus the seller.

If you think of the Porter’s Five Forces model, for example, which looks at relative buyer and supplier power, and the barriers to entry in a specific industry. My prediction is that something like this will be the most complex part for AI or for a robot to replicate. Especially when we consider how the outcome of any negotiation may affect the business using sensitivity analysis.

Having a bot performing “if this, then that” type of scenarios will require having to program salient interpretation of wider business impact. This is where we’re almost approaching the final frontier.

Will AI replace Procurement entirely by then in negotiations? It’s certainly a possibility.


How will this affect negotiation training?

So, how will all this impact how negotiation training businesses pitch their services to procurement, and indeed, to sales professionals?

I posed this question to Mark Raffan, owner of Negotiations Ninja, a training business based in Calgary, Canada. Mark is also the host of the Negotiations Ninja podcast. He replied:

“There’s an in-between phase. We don’t know at what point is it going to be fully autonomous to do really advanced negotiations. But there is an in-between phase that I think is more likely, and I think is almost 100% likely that’s going to happen, where you have artificial intelligence-assisted negotiations. So, you have information and the AI is suggesting things to you and learning things in the negotiations and is assisting you in your negotiations. This avoids you, the Buyer, having to do as much research, forecasting or modelling.

All of those things, I think, are highly likely. I’m very pro the implementation of technology in negotiations. Anything that can give you a leg up and can help you in your negotiations should be something that should be looked at.

There are a lot of negotiation purists that I argue with on an ongoing basis about this that say things to the effect of, It’s never going to happen. But the reality is the AI-assisted stuff is happening now. A lot of people need to think about how they could utilize technology-assisted negotiations. They need to be thinking about how to include technology in what they’re doing right now.

We spoke about Lavenir AI, for example, and while they’re not quite there yet, it’s very interesting to think about how we could utilize artificial intelligence within even negotiation training.

We think about this stuff every day. Your company is literally about procurement technology. So we both have a bias. We think about it way more than the average procurement person. So therein lies the problem.

Whereas the average procurement leader, or the regular CPO in a regular manufacturing company, is probably just thinking about how to improve process. Or how to resolve supply chain challenges for raw materials. They’re not really thinking all that much about how technology is going to take them to the next level, not really.”


Where do we go from here with AI in procurement negotiations?

Mark made a really valid point. Most procurement leaders are challenged with firefighting operational issues, up-skilling team members or filling talent gaps. It’s normal that many of you have only heard of a handful of tech companies.

The reality is there are over 400 of them. And a few of them are really at the cutting edge of automating negotiation processes. Albeit, as I mentioned earlier, currently for more tactical and transactional negotiations as it currently stands.

Does that mean it will stay this way? Definitely not.

We have to balance all of this excitement with the cold reality that CPOs like you are just trying to juggle a lot of issues and still deliver their numbers. You’re just trying to get a better process in place, or trying to secure supply of raw materials. Maybe you’re not necessarily thinking about tech or the implementation of tech just yet.

We’re starting to get there. Some organisations are way more advanced than others. But we’re not there yet, especially not when we look at the mid-market.

It’s therefore likely that before companies start to look into the “sexy stuff”, like will AI replace procurement with automated negotiation technology, they’ll first look to tackle more mundane challenges. In most organisations, these are:

  • Automating P2P
  • Digitising sourcing events
  • Making it easy to onboard new vendors
  • Supplier Relationship Management (SRM)
  • Contract Lifecycle Management (CLM) software.

The journey will definitely be slow, with sprints and slowdowns. However, to assume that all negotiations will never be automated would be foolish.