The authors have been studying procurement and automation for two decades.i Mary Lacity has conducted more than 50 case studies on enterprise use of automation technologies. Remko Van Hoek and Lacity have been studying early adopters of procurement technologies for three years, including companies using e-auctions, artificial intelligence, and other emerging technologies, such as blockchains. For this article, they interviewed senior executives, business unit leaders, managers of centers of excellence for procurement, buyers at dozens of companies, suppliers, and automated negotiation software vendors.
Executives are often skeptical about automating procurement processes, particularly when they involve negotiations, but automated negotiation tools offer considerable value for all stakeholders and can be used effectively throughout many businesses.
Over the past three years, we have studied modern automated procurement practices at dozens of organizations. We studied technologies that have been around for a while but not widely adopted, such as e-auction technology, as well as newer technologies, such as AI chatbots. Companies in our study that had automated procurement negotiations consistently saved money compared with those engaged in traditional person-to-person negotiations and improved supply chain resiliency by identifying more qualified suppliers. Automated negotiations also increased buyer productivity, allowing buyers to spend less time and energy on tasks that are now handled by software. Suppliers benefited from clarity on how they would be assessed, shorter sales cycles, real-time feedback on their current standing, and confidence that they would be treated fairly, even in situations that involved entrenched incumbent suppliers.
However, implementing a new procurement model and a different approach to relationships isn’t easy. Stakeholders often have legitimate concerns. Business unit heads paying for goods and services worry that automated negotiations will land them the cheapest suppliers (chosen based on costs only), leaving them to deal with shoddy quality, inferior services, and broken supplier relationships. Buyers often reject automation tools because they view negotiations as their specialty and worry about being marginalized or even replaced. Suppliers want opportunities to differentiate themselves on more than just price; nonincumbent suppliers often suspect that buyers use automated negotiations merely to pressure incumbents to lower their prices and thus fear that they do not have a legitimate chance of winning the business.
References
1. For more about assessing sustainability, see C. Searcy, “A Three-Point Approach to Measuring Supply Chain Sustainability,” MIT Sloan Management Review, Feb. 15, 2017, https://sloanreview.mit.edu.
2. R. Van Hoek, M. DeWitt, M. Lacity, et al., “How Walmart Automated Supplier Negotiations,” Harvard Business Review, Nov. 8, 2022, https://hbr.org.
i. C. Mena, R. Van Hoek, and M. Christopher, “Leading Procurement Strategy,” 3rd ed. (London: Kogan Page, 2021).
ii. “Interactive Bidding,” class presentation, Walmart International Advancing Procurement Program, Walton College Executive Education, Bentonville, Arkansas, 2022.
“The MIT Sloan Management Review is a research-based magazine and digital platform for business executives published at the MIT Sloan School of Management.”
