How can retailers optimise goods-not-for-resale spend?
Traditionally retailers have focused on direct procurement as the key area to drive growth and profitability. Recently, however, more retailers at pan-European and global level are looking to optimise goods-not-for-resale (GNFR), an area that has historically lacked focus and been poorly managed.
For most retailers, the GNFR spend (which is spend on indirect materials or services such as marketing, fixtures, logistics, facility maintenance and IT) is approximately 12% to 16% of net sales but is often not addressed in a systematic way due to a high level of fragmentation - too many categories, long tail of suppliers and different specifications.
The opportunity, and hence the complexity, often depends on whether the retailer is focused on one single country, or pan-European or global. Bhaskar Neppalli, vice-president at AlixPartners, a leading global business advisory firm, says: “The larger the footprint, the greater the opportunity, but this also increases the cultural and organisational hurdles to get the value.”
There are three things to consider when optimising GNFR, Neppalli says. These are managing demand, managing specifications and improved negotiation of unit prices.
While this sounds straightforward, the problem is that GNFR procurement is typically sub-optimised, done locally by line managers who are not always the best negotiators and tend to go with suppliers they know. Sanjay Bailur, managing director at AlixPartners, says: “Forming pan-European or global GNFR teams can help share best practices and leverage combined spend. However, for some spend categories, local options may still be the best.”
In addition, Neppalli says some of AlixPartners’ clients are saving money via e-auctions, adding: “By aggressively applying all the traditional sourcing levers, we have seen retailers achieve savings of 5% to 15%. This requires harmonising specifications, managing demand and consolidating supplier base.”