As of October 2023, Pactum is mostly focused on Procurement negotiations that can be divided into two groups: Industry agonistic (horizontal) and industry specific (vertical). Industry agnostic falls into three categories – supplier level, contract level and order level. While industry specifics fall into Retail, Logistics, and other categories. Pactum’s Negotiation Suite of products covers the entirety of industry agnostic procurement use cases.
For the supplier level agreements, we have the Commercial Terms product. These deals are valid throughout the lifecycle of the supplier and are aimed at enhancing the overall terms and conditions of the partnership. Our use cases involve working capital improvement for payment terms and early payment discounts, also establishing rebates and discounts, or improving allowances like freight, marketing and logistics. Quite often these terms are governed by a separate contract, like Business Terms Agreement, or Operational Terms Agreement.
Too often, these crucial terms are sidelined and forgotten when dealing with non-strategic suppliers in both direct and indirect spend. Pactum shifts this narrative by managing thousands of negotiations simultaneously, helping our clients adhere to industry benchmarks effortlessly.
How one of our client’s Senior Director sees the working capital use case:
”Negotiating payment terms is not something Category Managers get excited about. It’s uncomfortable if not done as part of a full negotiation. Embracing Pactum’s advanced AI solution for our long-tail payment term negotiations was a game-changer. The results exceeded our expectations, and nobody complained about not having to deal with it.“
No supplier feels left out anymore. The reason behind their high satisfaction involves different incentives they are often introduced to. These include cross-sell to different divisions, product uploads to e-catalog, invitation to strategy meetings, faster invoice resolutions, etc.
For the contract level agreements, we have the Contract Cost product. These agreements are about specific deliverables over time in the context of a signed contract. We can negotiate many different contracts with a single supplier. The use cases cover both the renewal of the existing contract or establishing a new one across different verticals. For example, IT and SaaS contracts, MRO services, Facility Maintenance from Plumbing to Landscaping. Use cases also include negotiations during or after the RFQ e-auction or bidding process.
They are usually signed for between 1-3 years and apply to specific line items. Besides pricing, the terms can involve quantity, contract length, delivery timelines, lead time, payment terms, termination notice, warranties, incoterms, etc.
It can be quite heavy work for humans. Take facility maintenance. One enterprise can have hundreds of facilities, each with hundreds of service providers, that offer tens of line items, where each line item has different rates, which all need to be renewed at different times. In reality, enterprises want their procurement contracts to be kept up to date, and they want the best value from their suppliers. But they struggle to hit and maintain either of those goals due to the immense amount of human resources this requires. Besides pricing, as most of the contracts remain out of date, it is a question of “when” not “if” they wait for the next legal exposure.
While writing this blog post, we finished another annual negotiation cycle for one of our Fortune 10 accounts where Pactum AI negotiated with over a thousand suppliers. To sum up the result with a single number: $12M in bottom line savings.
As a human, we think again – well, if we won $12 million, that means that the suppliers lost $12 million, right? The zero-sum thinking is one of the most common biases we have. In reality, suppliers go through different terms, preferences, and even offer bids to other locations that quite often can multiply their revenues. This is what yet another supplier told the client: “Awesome on this new way to chat and do bidding. I’ve been a supplier for you for 23 years and this is the best way yet. Thank You!”.
For the order level agreements, we have the Purchasing product. Purchasing is about one-off purchases that are not covered under a contract and don’t require a relationship with the supplier. They are transactional and quite often fall outside the purview of established contracts.
Pactum supports a variety of ways of negotiating off catalog purchases – whether it’s negotiating with a single supplier to improve the terms of the quote before issuing a PO (Spot Buying use case), tactically reaching out to additional suppliers to get competitive pricing (Tactical Sourcing use case), or negotiating already existing quotes from a competitive bidding event.
The terms are usually simple – just the cost of items and payment terms. Pactum’s Purchasing product can help you manage your completely unmanaged spend without any extra manual effort (fully automated single source or competitive negotiations through system integrations), or make the management of one-off purchases easy and seamless through the Negotiation Suite.
Usually, it only takes up to two weeks to set up the product and our clients kick off through manually uploading requisitions and suppliers to our Suite and sending out negotiations. After the initial trials though, spend management system integrations with SAP Ariba and Coupa make it all seamless – new requisitions are imported, negotiations sent out, and results updated in the systems without any human effort.
The entire tail-end procurement suddenly becomes transparent, suppliers and requisitions machine-readable, each purchase data mapped automatically, and human labor time saved per issued Purchase Order. And it becomes easier for the supplier to conduct their day to day business: “More comfortable doing the negotiation this way compared to how things were before.“
We have now covered all the horizontal, industry agnostic procurement negotiation use cases. Let’s now dive into some industry specific verticals. Industry specific are already more complex by their nature. In another blog post I explained how they belong to level 3 and level 4 of AI Intelligence. Our experience is the strongest in retail and logistics due to our early clients like Walmart and Maersk. However, we have also already entered into other direct cost negotiation verticals, including automotive, manufacturing, services.
Retail Cost negotiations are just fascinating. They are so complex for humans. You must delve into every item level, understanding the entire assortment by its profit margins, sales, performance indicators, competitor pricings, and even understanding the cost model and which commodity fluctuations affect each item. And then you have these negotiations happening sometimes bi-monthly. As a category manager, you are living the life in crazy Excel sheets figuring out if the price increase from $6.35 to $8.17 is justified or not. Then you need to set up negotiation strategies and frame your argumentation based on data. Then you go back and forth with emails, reacting to supplier’s counter arguments and building up new evidence.
Our clients used to tell us that these negotiations are a form of Art, something that machines cannot handle. Until they did. I can proudly say that we have demystified the art of negotiations in retail. Our AI is reading data in real time, from commodity fluctuations to margin changes, and triggers negotiations at the right time for the correct items, using the negotiation levers that are backed by actual data. Hereby, I would like to give a big thanks to two people who have been our partners in Retail – Travis Johnson from Walmart and Kaspars Karaševskis from ICA.
The use cases of Retail negotiations involve proactive cost reduction, reactive cost avoidance, annual revisions, promotional prices and a distinct category of Electronics negotiations, wherein the price of each device decreases monthly. The hottest topic today is getting the costs back to pre-covid levels as most of the commodity prices have been declining for months already.
This is what a supplier shared with us most recently: “I really liked it, comfortable to use, much faster than sending 100 emails. It’s the first time encountering this type of negotiation, but I would like to do it again in the future.“
Logistics is the last product we cover today. We have all witnessed how the industry’s volatility depends on external macroeconomic events. This means that no existing agreement on rates, lanes or contracts are valid for too long a time for at least one side of the deal. As a result, shippers frequently find themselves in need of immediate agreements on new deliveries and new contracts for frequent lanes. Our two use cases cover both needs: Full Truck Load (FTL) Spot Load and FTL Lane Contracts.
FTL Spot Load solves the urgency of securing a spot load when there is no time for carrier procurement, and as a consequence, avoids inflationary prices. The solution helps teams to find a suitable carrier fast with a great price. Sophisticated Machine Learning algorithms use data in the client’s carrier base to find the best carrier available and its pricing algorithm guarantees a fair negotiation that secures a good rate for the client.
The results are just astonishing. Besides saving a lot of time with back-and-forth emails, it gives 96% lane conversion with an average of 22% cheaper rates compared to any human test group so far. It is possible because the right carrier is selected and the price is adjusted dynamically based on each previous negotiation.
Furthermore, carriers love it as each time they provide a quote, it has a high likelihood of success, and the entire negotiation process takes just a minute to complete. Their average Customer Effort Score is 4.6 out of 5 – at the end of the day, it’s all a new business opportunity for them. They say things like “Functions perfectly, it’s easy and intuitive,” “Excellent way to negotiate,” “Simple & Effective, good process,” etc.
FTL Lane Contracts use case solves the arduous task of price reviews across numerous lanes for an annual contract or a shorter period of time. I know many people like Excel, but I find that going through thousands of lanes for different pricings is not what humans are made for.
Pactum helps companies to effortlessly price their Request for Proposals, negotiating with carriers in parallel at the same time for each lane. The AI-algorithms take care of the automations so procurement departments can focus on growing their accounts.
All in all, what is very different in Logistics use cases compared to everything else we have covered is that the negotiation scripts are much shorter and to the point. Most of the magic happens behind the scenes through smart carrier selection and pricing algorithms.
We have now covered some of the most advanced Pactum products and use cases that altogether cover approximately 30% of the total global commerce. As we grow, we keep working on new bespoke solutions that will be standardized and added to our existing Use Case Catalog. Keep an eye out so you don’t miss a thing!
Turning traditional enterprises into AI-driven platforms
This is the first and only Use Case Catalog for Autonomous Negotiations. We have a 10-year product roadmap plan that outlines the priorities of which use cases get standardized and productized in which order. On a higher level, we are the most mature with Procurement Industry-agnostic use cases and followed by Procurement industry specific verticals. It was just a year ago that it took 5 months for a team of 3 people to go live with one use case. Today, the standardized use cases require a week of configurations by a single person. It is likely the fastest time to (big) value enterprise SaaS solution on the planet, in history.
The 4 Levels of AI Negotiation Intelligence guide our clients through a non-disruptive process of AI adaption. As Pactum is not an expert in each industry vertical, we don’t expect our client’s to be AI or negotiation tech experts. This is a collaboration on how we turn every traditional enterprise into an AI-driven technology platform that beats every competitor by enhancing automation, agility and profitability.