Gen AI-Powered Procurement: How a Distributor Countered Double-Digit Price Hikes
Procurement teams are continually challenged by market volatility, escalating supplier prices, and complex negotiations that threaten trading margins. Our client, a market-leading building materials distributor with extensive national presence and a strong reputation for operational excellence faced these pressures acutely when suppliers proposed significant price hikes on core product lines, citing higher sourcing costs.
Retail
Objective: Validating Supplier Pricing to Safeguard Margins
Faced with double-digit price increases, the distributor’s procurement team lacked clear visibility into supplier cost structures. Traditional validation methods required extensive manual data collection, often taking weeks and still delivering incomplete insights—putting margins at risk and straining key supplier relationships.
Approach: Procurement Excellence with GenAI Transparency
Inverto’s approach supported the distributor by leveraging its GenAI solution through three key steps:
1. Rapid Cost Decomposition: Using the Inverto Price Development Challenger, the distributor quickly dissected supplier pricing into specific components—raw materials, labor, overhead, energy, and transportation. Contrary to supplier assertions, GenAI-driven analytics revealed that actual cost movements (notably in steel, energy, and logistics) indicated decreases rather than increases.
2. Human-in-the-Loop Expertise: The distributor’s category experts collaborated closely with GenAI outputs, refining the analysis by applying real-time market indices, adjusting cost assumptions based on contract specifics, and simulating alternative sourcing scenarios. This collaborative approach transformed initial AI-generated insights into actionable, negotiation-ready intelligence.
3. Establishing Transparent, Index-Based Pricing: To eliminate future ambiguity and prevent unsubstantiated cost recovery attempts, Inverto helped the distributor establish a clear contractual pricing mechanism directly tied to relevant market indices. This shifted discussions from subjective claims to objective, data-driven negotiations within defined tolerance thresholds.
Outcomes: GenAI-Driven Procurement Achieves Immediate Savings and Supplier Alignment
- Immediate Cost Reduction: Procurement successfully negotiated a 5% reduction from the initial price hike, immediately protecting the distributor’s margins.
- Strategic Supplier Alignment: The distributor and its suppliers moved towards a collaborative partnership model—jointly reviewing market indices quarterly, sharing efficiency gains, and investing jointly in volume risk mitigation strategies.
- Improved Efficiency: GenAI-driven automation cut manual data-gathering efforts by approximately 40%, allowing the procurement team to redirect their focus toward proactive category management and strategic supplier development initiatives.
Empowering Procurement for Long-Term Success
Through Inverto’s GenAI-powered Price Development Challenger, the distributor transitioned from reactive price negotiations to proactive, data-driven discussions—gaining the transparency, leverage, and efficiency essential to secure margins and foster strategic supplier partnerships.
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