A Company Called Pactum Shows The Power Of Artificial Intelligence’s Impact On Walmart And All Retail

The most obvious way that artificial intelligence (AI) can impact retailers is to help consumers choose the right products when they shop. But there’s another less apparent way that AI is affecting retail right now that’s happening in places consumers don’t see. New AI technology from a company called Pactum is a very good example of how retail is changing from the inside out.

What Is Artificial Intelligence?

Artificial intelligence is different from other software in that the program itself performs problem solving and keeps improving itself. Artificial intelligence, like smart people, learns and improves from experience, understands what it did wrong and integrates what it learns into the software so that it doesn’t repeat mistakes the next time around. That’s not just amazing, it changes the way competition happens among creators of AI software. Here’s why: once an AI system is implemented, it self-improves immediately. It’s almost impossible for a competitor with an equivalent program to catch up; the same program created a year earlier will always have a year’s more experience to improve and the later-created program will never be able to match it. That has created a rush to create AI programs because being the second one to the starting gate is a far weaker proposition than in other businesses. The stakes are high to get into the market first with a system that works.

Why Retail Is A Target For Artificial Intelligence

Retail has all the right ingredients to be an AI proving ground: As an industry it’s enormous, with over one million physical locations, 42 million jobs (including ancillary jobs), innumerable daily human interactions and over $5 trillion in U.S. revenue. The scale is important because all the data created by that much activity can only be processed by a machine. It is also a highly competitive industry so AI companies that can offer an advantage to a retailer will find ready customers. All that makes retail a great laboratory for the development of AI.

Now At Walmart

Walmart’s
WMT
size as the largest retailer in the world makes it the perfect place to test and develop new AI systems. And its reputation as a retail technology leader means systems that pass muster at Walmart have bragging rights and will get attention from other potential customers.

A company called Pactum, which began engagement with Walmart in the U.S., has software that can read a contract, understand the priorities of both parties to the agreement, integrate instructions from those parties and negotiate on behalf of one of the parties via chatbot. It works best when there are numerous contracts for relatively small amounts that don’t justify the involvement of expensive professionals to conduct renegotiations. A large company, especially one as big as Walmart, has many thousands of such agreements and numerous negotiation parameters it needs to maximize. Pactum estimates that the average such contract leaves no less than $5000 of value on the table because of time constraints in the original negotiation. Pactum’s software doesn’t care about time and effort. It’s built to maximize the Pareto outcome; that’s where one party can’t get a better deal without hurting the other party. A Pareto-efficient result maximizes the outcome for both parties so everyone is better off when Pactum finishes its work on an agreement. The software allows both sides to recover the value otherwise left behind in a human-to-human negotiation.

The applicability of being able to renegotiate contracts by AI to improve value is enormous and almost every large company in the world has a use for it. Eventually, as the software learns, it will be able to conduct even the most high-level negotiations in ways that generate better outcomes than people could accomplish. The software’s ability to juggle thousands of negotiating issues and trade them off against each other, without human ego or prejudgment clouding the process, will increase the wealth that can be generated from any commercial enterprise with a contract. Travis Johnson, Director of Procurement Technology at Walmart International, told me that, “the use of AI in negotiation could expand to multiple negotiation scenarios across many different areas.”

It is not just Walmart that’s utilizing AI. All the big retailers need ways to get better leverage out of the masses of data they produce every day. And it’s not just in the U.S. that this is happening, the race is worldwide. But Pactum is a good example of the huge impact that AI is having in retail now and what is coming. Its functionality can’t be done by humans, increases efficiency and profitability and enables Walmart and other retailers to be more effective. Because retail is such an ideal place to develop AI, it’s a sneak peek at what the future looks like, not just to retail, but to the world in general. Retail’s scale is so large it’s an ideal AI proving ground. But once built and developed, the limits of AI in retail and beyond aren’t even imaginable right now.

(This article was updated November 23, 2020.)