What does it mean to have an algorithm assist you in your procurement negotiations?
Before we look at negotiations, let’s look at getting from A to B
If you are familiar with using a GPS based navigation system, which used to be an individual technology (like in the photo), but now is integrated in any smartphone (for instance in Google Maps), then you are already using algorithms to guide you through the complexity of finding your way from A to B.
If you know where you want to go (your goal), then the navigation algorithm can calculate the best route to get you from where you are to where you want to be. You can even add different constraints (no toll roads) or strategies (scenic route, shortest route, fastest route), so that your goal is reached in a certain way.
While you are driving, the navigation system will give you recommendations (turn left here, continue straight for 10 km, etc.). If you follow the recommendations, you will reach your goal. If, for whatever reason, you decide to pursue another route than the one recommended by the system, then it simply recalculates the route and gives you updated recommendations. In this way, you have both the flexibility of choosing your own route and the safety of having a line of sight to reach your goal with the help of the system.
It gets even better when the navigation system responds to events (such as traffic) in real-time. This make it possible to react fast to new information and adjust your actions, for instance take a different route, without being worried about getting lost.
Thus, the use of the navigation system allows the driver to focus on the actual driving, while having the benefit of the assistance of an algorithm.
Negotiations in procurement
With this familiar use of technology in mind it is now easier to understand what an algorithm for negotiations in procurement can help you with.
In negotiations you also have a goal, a desired outcome of your negotiations, you have a variety of constraints that you need to consider and depending on who you negotiate with, you may have different strategies. Even when you negotiate regularly, conditions change (prices, exchange rates, availability, competition etc.), so you need to update your approach to the negotiation in real-time.
Just like the navigation system, an algorithm for negotiations in procurement helps you reach your goals.
And in the end, that is all you want.
Read more about our Rational Assistant, our AI-algorithm to help you with procurement, here.
Read the blog post (NB: in Danish): "Uopfordret ansøgning: Hvorfor ansætte en algoritme i din indkøbsafdeling" here.
Read our "Simple ideas about" series of one-pagers to find inspiration on AI, innovation, collaboration and more. Find them here.
Reach out to us, if you want to know how you too may benefit from AI-algorithms in your business.