How AI Is Transforming Negotiations

April 16, 2024

First of a two-part series

By Vinay Pandey, CPSM

Successful deal-making requires purchasing and procurement managers to understand both the science and the art of negotiation.

The science is about gathering information, synthesizing data, planning and preparing, establishing goals and priorities, and simulating negotiation scenarios. The art is about building relationships, establishing trust, striving for a win-win approach, listening actively, communicating effectively and understanding emotions and body language.

Charm and wit will always play a role in negotiations. But the science of negotiation offers procurement organizations and supply managers a powerful new weapon: artificial intelligence (AI).

The first step in the science is to conduct an internal search of historical contracts with suppliers and supplier competitors to create a baseline of the facts. The next step is to perform such external market intelligence activities as collecting clean sheet data to perform cost intelligence and develop market insights. The final step: Align internally on negotiation goals, strategy, scenarios and approach and then evaluate scenarios to identify the value of potential negotiation levers.

From Fact Packs to Winning Strategies

These steps will radically change with the introduction of AI, which will automate multiple aspects of the process and simplify and streamline negotiations. Some aspects of this negotiation engine could include:

Fact pack creation. AI can seamlessly gather and analyze data from internal and external sources, building a comprehensive “fact pack” that empowers negotiators with relevant information and market insights. For example, AI can sift through mountains of data, uncovering hidden patterns and generating predictive insights on market trends, competitor behavior and potential negotiation pathways.

Scenario simulations. AI can model and simulate various negotiation scenarios, allowing negotiators to test different approaches and identify potential outcomes. This enables the negotiators to anticipate challenges and develop effective responses. For example, by running multiple simulations of potential scenarios, negotiators can anticipate counterarguments, prepare alternative approaches, and refine their tactics.

AI excels at modeling these scenarios, allowing for real-time adjustments and stress-testing strategies. Scenario simulations help negotiators decide what approach they will use to initiate the negotiation.

Winning strategies identification. AI can analyze data and predict successful negotiation paths, tailoring personalized strategies based on the other party’s profile and market conditions. AI’s role in winning strategies identification is not about dictating a singular path, but providing a dynamic toolbox of possibilities. For example, AI will generate a spectrum of strategies that negotiators can leverage to determine the path forward.

Negotiator persona development. AI in the future could even craft a virtual “negotiator persona,” analyzing individual strengths and weaknesses to suggest optimal communication styles and tactics. For example, AI could craft personalized “negotiator personas” that leverage psychological profiles and communication styles to maximize effectiveness and build rapport.

Unleash AI for Smarter Negotiations

It is time to forget crunching numbers and sweating scenarios. AI will supercharge the science of negotiation by transforming mountains of information into laser-sharp insights, revealing market trends, competitor vulnerabilities, and even personalized “winning strategies.”

So, the science of negotiation will be smarter, simpler and more efficient, requiring less effort and time. More importantly, AI will provide purchasing and procurement managers with invaluable insights and strategies that were previously unimaginable in negotiations.

The second article in this series, “Why AI Can’t Replace Human Skill in Deals,” is scheduled to appear in the April 23 edition of Inside Supply Management® Weekly.

(Image credit: Getty Images/Ilya Lukichev)

About the Author

Vinay Pandey, CPSM

About the Author

Vinay Pandey, CPSM, is a director of commodity management at Dell Inc., managing purchase and procurement of software to drive strategic partnerships, purchasing and negotiations.