BCG and Inverto: AI helps retailers unlock procurement and costs savings

In response to various market shifts, cost reduction has become vital for survival in the retail sector. However, rather than implementing just budget cuts, forward-thinking businesses are turning to AI to structurally transform their expenditures and fund long-term growth initiatives.

A report from Boston Consulting Group and its procurement subsidiary Invertoreveals that retail companies are facing heightened financial strain due to high inflation, rising wages, supply chain disruption driving up costs, and fierce competition from discount brands.

Part of the solution to these challenges lies in reducing costs by accelerating digitalization, automation, and sustainability initiatives. The report identifies three key levers that can deliver both rapid and significant impact.

AI plays an important role across all three areas, and its influence is expected to grow as adoption increases and organizations become more mature in their use of the technology. The study found that most respondents were enthusiastic about AI’s potential, with only 16% saying they were not considering using AI in procurement processes. However, adoption remains at an early stage, with 72% of organizations still in the initial phases of implementing AI in procurement.

Optimizing direct procurement

Direct procurement, which typically makes up 60% to 75% of total retail revenue, is one of the most important areas in which retailers can look to cut costs.

The report found a significant gap in traditional buying methods, noting that 86% of procurement professionals feel overwhelmed by administrative tasks during annual negotiations.

The majority of buyers express they would like more data and factual arguments for negotiations to strengthen their position, but also admit they lack the analytical skills needed to extract these insights manually.

In order to bridge this gap, companies are using AI tools to continuously track fluctuations in raw material costs and evaluate supplier profitability at an individual item level. This automated intelligence allows corporate buyers to enter negotiations equipped with precise benchmarks, enabling them to confidently counter unjustified price increases.

The report gives the example of a major non-food retailer that successfully implemented an automated tracking system. That led to an improvement of two to three percentage points in addressed merchandise costs while identifying saving opportunities nearly four times faster than previous manual methods.

“It’s essential to be proactive,” said Simone Hilbring, managing director at Inverto. “Retailers need to monitor price fluctuations continuously and react quickly to market changes. This is where automated, AI-powered raw material tracking becomes a game-changer.”

Maximizing operational efficiency

Beyond the procurement of physical goods, labor and operational expenses represent another heavy burden for modern retailers. Isolated technology projects yield limited financial results, meaning companies achieve the greatest success when they execute end-to-end organizational transformations using AI.

For example, AI is making a big splash in marketing operations. Complex tasks such as campaign planning, content production, and asset localization – which historically required weeks of coordination – can now be finished in less than a week. Various AI use cases across marketing departments can offer major benefits.

Automated content creation tools can now generate advertisement copy, images, and video assets within a matter of hours, which reduces dependency on external marketing agencies and cuts production costs by up to 50%.

These tools help companies boost customer conversion rates by up to four times by optimising targeting. By automating repetitive administrative tasks, retailers can reallocate up to 80% of their personnel hours toward strategic growth initiatives rather than manual execution.

Savings from indirect spend

The third lever for cost cutting is in indirect procurement. These expenses include operational costs like logistics, information technology, facilities management, and corporate utilities, which generally consume 10% to 15% of overall retail revenue. Despite the significant amount of money allocated to these areas, corporate leaders frequently overlook indirect spend.

While direct sourcing optimizations usually yield only modest improvements, adjusting indirect spend can lead to double-digit percentage savings. Retailers often struggle with a lack of spending transparency, fragmented purchasing across different departments, and unverified internal demands, all of which create hidden financial waste. AI data processing can provide complete visibility over cost structures in this field.

In-depth data analysis can eliminate around 5% of hidden shadow costs in warehousing and transportation alone. When combined with strategic tenders and rigorous demand management, retailers can capture massive efficiencies across multiple sectors. Specifically, the findings show potential savings of up to 15% in logistics through lane benchmarking, 16% in media planning, and 15% in IT.

“There is no doubt about it: While the retail industry is increasingly facing rising costs and intensified competitive pressure, a retailer’s long-term success requires more than just reducing its cost base,” said Hilbring. “By strategically leveraging AI tools and transforming entire business and functional areas, retailers can significantly enhance their cost efficiency.”