Reuters
Walmart will use Pactum's platform to automate negotiations with a small set of the retailer's long-tail vendors.
- The coronavirus pandemic is upending global supply chains, and the looming economic recession could make managing the complex web of vendors even harder.
- Some large corporations are turning to artificial intelligence to help.
- On Thursday, Pactum announced a pilot project with Walmart. The world's largest retailer will use the startup's platform to automate negotiations with a small set of Walmart's suppliers.
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The coronavirus pandemic is decimating global supply chains, as governments impose sweeping restrictions on businesses and companies pivot to remote-work settings.
Tech giants and drugmakers reliant on foreign manufacturers, for example, were forced to delay production and change financial projections after the outbreak shut down many of the operations in the country.
Parts for in-demand items like ventilators are in short supply, making plans to increase production of the lifesaving equipment that much more difficult.
And as a potential economic recession looms over the global recovery efforts, companies could be sent scrambling to source the necessary products as smaller producers shutter or scale back operations and the price of goods rise and fall rapidly.
All of that is thrusting supply-chain management - a typically overlooked and exceedingly complex aspect of the business - into the public eye. And now, the world's largest corporations are exploring new ways to oversee the huge network of suppliers they rely on.
On Thursday, AI startup Pactum announced a pilot project with Walmart. The world's largest retailer will use the Pactum's platform to automate negotiations with a small set of its long-tail vendors - or those that don't make up the largest portion of spend but often represent the biggest percent of overall suppliers.
Pactum's system will effectively allow Walmart to re-sign existing partners or bring on new ones without ever having to actually talk to them. That's a major benefit for corporations that have as many as 60,000 unique suppliers, according to Pactum CEO Martin Rand.
"They cannot pick up the phone and call [the] small suppliers because they would burn up more money in operational expenses than the value of the contracts," he told Business Insider. "They know there is value there but they can't unlock it with people. They can only do it with automation."
How it works
For large companies like Walmart or General Motors, much of the supply-chain management is already automated through platforms provided by SAP and others. But negotiations are largely still done via human communication.
Pactum's platform integrates into those offered by the software giants and can cut contract disputes down from a few days to just 15 minutes, Rand said.
The system, for example, would automatically email suppliers the company has not been in touch with recently or have agreements set to expire to begin discussions. While most are annual, those deals can change should a specific commodity fluctuate wildly in price.
And the subsequent contracts are created automatically by the platform, eliminating a typically human-centric task from the process.
The setup can be arduous, says Rand, and last up to four months because companies need to input a lot of critical backend information - like what terms it would be comfortable agreeing to. But once it is live, the system is learning continuously and improving its ability to negotiate effectively.
Rand declined to provide specifics of the partnership with Walmart, apart from noting it was "a few vendors" that work with the company's US retail operations.
The idea for the startup launched in 2019 came after Rand served as a commercial lead in Europe for the Climate Corporation - the digital arm for agrochemical behemoth Monsanto - and spent most of his time flying between countries to negotiate contracts with food and agriculture companies.
To date, Pactum has raised $1.15 million, according to PitchBook. It's backed by early Skype executives, including cofounder Jaan Tallinn (Rand was a product manager at the video-chat company).
And while right now the company only has four customers, Rand says he is in discussions with a lot of "well-known enterprises."
"The whole economy is in flux and commodity prices are changing so rapidly, so terms need to be renegotiated. And some supply chains are breaking down, so new ones need to be agreed," he said. "It generates a lot of new need for new negotiations."
