Negotiation is a fundamentally human act between two or more people. When it comes to vendor negotiations, this is driven by the prior (and future) relationship between human counterparties. While digital processes can support this mission, if a key decision maker involved in a vendor negotiation goes on vacation, changes jobs or gets hit by a bus, the negotiation will stall or scramble to reach a conclusion. It’s a good reminder that no matter what role AI plays in a negotiation, the negotiation process and award decision are driven by humans.
However, as procurement undergoes rapid digital transformation, here are three factors likely to impact the process of a negotiation:
1. People
- Retirement Wave: Double-digit percentages of the current procurement workforce will reach retirement age in the next decade.
- Rise of Millenial Managers: The new generation of procurement leaders grew up using delightful digital apps and demand user-friendly business processes.
- Changing Talent Profile: The talent demand for advanced data analysis and business strategy will only become more acute as a result of technology diffusion.
2. Technology
- Spread of Digital Procure-to-Pay: Vendors must send fully digitized and machine-readable formats in order to get paid. (No, this does not mean emailing PDFs.)
- Popularity of Cloud-Driven Solution Unbundling: Different digital apps from different providers that communicate and aggregate data via APIs rather than having one centrally integrated back-end platform from a single technology partner.
- Adoption of Fully Integrated (or Outsourced) Data Cleansing and Unification: Enterprises will stop devoting expensive corporate IT bandwidth toward cleansing, integrating and unifying their data with a central directory, and instead will either hire data scientists or outsource.
3. Process
- Ubiquity of Tenders, Bids and Auctions: Seizing the opportunity created by CRM, all high-performing buyers will enforce competitive tendering processes even with preferred suppliers.
- Adoption of Automated Vendor Compliance/Management: Chasing down stray documents from vendors for compliance purposes is not a good use of anyone’s time, and buyers and contract managers with the ability to automate document collection tasks will do so.
- Adoption of “Know Your Vendor” (KYV) Risk Management SLAs: Procurement negotiation teams will be expected to identify red flags and opportunities with their strategic vendor partners in advance of an award rather than reacting to surprises under suboptimal conditions.
Recently, I had a fascinating discussion with an executive who stated unequivocally that certain procurement negotiation activities will always be done via in-person meetings between buyers and vendors.
Actually, I quite agree with this statement. The true purpose of AI is to make human negotiators more effective by reducing their time spent on busywork (rather than removing humans from the negotiation process). This insight about how technology can augment and empower procurement teams (rather than displacing them), is of fundamental importance.
For those participating in the vendor negotiations, it is likely that their companies book travel through a digital app that aggregates and discounts airline tickets. It is also likely that the hotel and ride to the meeting are also booked via digital apps. Thus, the technology stack that supports this “in-person meeting” is being mediated by a variety of digital apps (many of which already leverage AI), apps that support (rather than displace) the crucial in-person business negotiation by reducing the number of low-value transactional tasks and phone calls.
Now, this is the interesting question: Is the company that relies on those apps to get their people from point A to point B to enable the vendor negotiation really going to accept that the best tools they can give their procurement negotiator are a legal pad, an email account, a smartphone and an Excel spreadsheet? Negotiations are such high-leverage activities that companies will buy their procurement negotiators the best tools for the job.
Today, this means AI delivered via a digital app.
Given that digital apps are changing the business process of every other enterprise department, it is unlikely that procurement negotiators will be the sole exception to this trend. The application of AI to market and vendor data analysis doesn’t mean that in-person negotiations will end, rather it means that negotiations will happen not just differently, but hopefully faster, better and with fewer email chains and ever-changing spreadsheets.
Region:
