New year, new strategy to combat economic uncertainty? Not so much. Procurement leaders are relying on the same standard playbook as they, along with the rest of the world, continue to anticipate a recession: cut indirect expenses, consolidate spend and force better payment terms. But this strategy often results in win-lose supplier negotiations, strained customer relationships and burnt-out employees, leading to further financial hardship.

As companies reflect on the abundance of business disruptions throughout the past year, cutting costs and optimizing processes to ensure resilience in the face of economic uncertainty is top of mind for 2023.

A negotiations strategy fueled by artificial intelligence provides a holistic approach to manage economic hurdles, while positively impacting the bottom line. But to avoid financial losses in 2023, procurement must influence the finance department to rethink its approaching to negotiations. Finance leaders must start looking at the procurement function as a department that can deploy an AI-based approach to weather economic uncertainty.

It’s time to break the status quo.

The successful navigation of economic turmoil begins and ends with an effective negotiations strategy. Negotiations are ubiquitous — the basis for all value creation for enterprises — yet the majority of them are mismanaged.

Global enterprises have millions of dollars locked up in inefficient contract agreements, because their procurement departments only have the time and resources to actively manage 20% of supplier contracts. The other 80% are overlooked, settling for general agreements and leaving valuable tradable terms on the table.

Historically, humans are the primary negotiators, reaching out to each individual supplier to negotiate price, supply security and other tradable terms. The problem, however, is that the pace at which the global macro-environment changes, and the amount of data available to procurement teams, is too complex for humans alone to comprehend. For example, it can take humans 100 hours to prepare for a single negotiation, as they sift through all of the historic and forecasted information in both internal and external databases. When tasked with managing tens of thousands of suppliers, this strategy is simply not feasible.

PWC estimates that AI investment will add $15.7 trillion to the global economy by 2023. As finance leaders look to technology investment to drive savings and efficiency, AI negotiations have enormous potential to revolutionize how businesses negotiate. 

ChatGPT burst onto the scene in late 2022, showing the world endless possibilities for AI to make organizations more efficient. Business leaders are now reevaluating how AI technology can make them more resilient in the face of a recession.

Specifically, by using an AI-powered chatbot interface, teams can integrate autonomous negotiation technology into their tech stack, allowing them to draw on AI and negotiation science to reach mutually beneficial deals with suppliers every time.

Walmart is one of many Fortune 500s using intelligent chatbots to automate its supplier-contract negotiations. The chatbot reaches out to suppliers via e-mail, asking specific questions and offering options aimed at better understanding the suppliers’ needs and preferences. It then negotiates based on predefined trade-offs, developing optimal agreements for both parties. Using autonomous negotiations, Walmart has been able to successfully close deals with 68% of its suppliers in the U.S., Chile, and South Africa, generating an average savings of 3%.

Most importantly, autonomous negotiations allow businesses to secure the best bottom-line value in the shortest amount of time. Instead of renegotiating annually, these negotiations can be initiated on an ad-hoc basis as the economy fluctuates, allowing businesses to be more agile. The technology simultaneously negotiates thousands of contracts, learns from supplier preferences, brings new tradeable terms to the equation (such as payment terms, costs, services levels and contract length. Autonomous negotiations help finance leaders justify key technology investments.

In the current troubled financial environment, turning data into savings with autonomous negotiations is a counter-cyclical innovation that can mitigate the impact of inflation. Finance leaders should consider the tool as a critical technology investment to derive greater value from their supply chains. But simply implementing AI-powered negotiations won’t create immediate results. Finance leaders should consider the following three steps to achieve ROI.

Ensure buy-in from the C-suite. People drive transformation. Without end-user buy-in, AI innovation will fail every time. With today’s economic forecast, chief financial officers are under pressure to cut costs, allocating funds to only the most strategic tech investments. Because of this, the first step to success is demonstrating how autonomous negotiations increase revenue, improve supplier relationships, and enhances procurement’s productivity.

Additionally, while AI can help pared-down procurement teams do more with less, it’s important that employees understand that this transition won’t render them obsolete. Instead of replacing employees, AI eliminates the mundane aspects of a procurement executive’s job, allowing humans to focus on strategic, high-level initiatives that drive business forward.

Precisely define your negotiation strategy. Upon gaining end-user buy-in, you must align internally on your negotiation strategy. What do you want to improve (say, payment terms), and what are you willing to trade (such as termination notices)? As the chatbot interacts with your suppliers and learns their specific preferences, it will create counteroffers based on your predefined tradeoffs. To ensure mutually beneficial agreements are consistently met, you must be specific on the terms you are willing to accept.

Think big, start small. Once your strategy is in place, introduce the chatbot to a small number of pre-approved suppliers to test the effectiveness of your set script and tradeoffs. Based on supplier feedback, make the necessary adjustments to the AI and scale the program. The more interactions the chatbot has, the more it learns and the more valuable it will become for your supplier negotiations.

The value of autonomous negotiations goes beyond the immediate impact to one business. The technology has the potential to create value across the entire economy, and maybe even increase the world’s GDP, by creating new value in contract agreements and moving supply chains closer together. The shrinking of supply chains will have a drastic impact on how Fortune 500s and their suppliers manage ongoing economic uncertainty. 

Martin Rand is co-founder and chief executive officer of Pactum.