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The UK retail industry is facing challenging time. Each week brings news of a high street casualty, with Carpet Right, Toys R Us and Maplin facing closures and Mothercare, Claire’s Accessories and New Look in trouble. Retail sales fell by 0.5% in Q1 2018, so there is a huge need for smart retailers to cut costs and increase efficiency.
One way to reduce expenditure is to review spend management. Goods not for retail (GNFR) plays a key role here, accounting for around 25% of a retailer’s operating cost. Yet GNFR often remains a major source for untapped savings, having rarely been scrutinised like other categories.
Even for companies that have looked at GNFR costs before, there is frequently more potential for savings. This is because many GNFR items fall below minimum spend requirements. Or, products are not included in purchasing categories, leaving the door open for significant ‘maverick’ spend.
Tightening this spend and creating a truly holistic GNFR purchasing strategy can give retailers a competitive edge. Furthermore, reductions are substantial and sustainable, unlike arbitrary cuts imposed elsewhere.
Across every sector, digitisation is shaking up the traditional ways of doing things. Procurement and the supply chain are no exception.
A 2018 survey from Forrester Research – a market research and advisory firm – discovered that 60% of enterprise organisations and 54% of mid-market organisations are prioritising the digitalisation of their procurement and supply chain processes. This is backed-up further by a study by cloud-based solution provider, Jaggaer, which found 52% of the most advanced companies are considering implementing a digital assistant – an AI application programme designed to assist with the completion of tasks.
With the advancement of technologies such as the ‘internet of things’ (IoT), 5G and the cloud, companies are better equipped to capture, share and interrogate data – often in real time. This is enabling enhanced analytical insights and increased efficiencies to be achieved throughout the procurement and movement of goods.
Ultimately, these advances in technology will give companies a dynamic and resilient supply chain operation - leading to increased customer satisfaction and profits.
“Waitrose were sourcing around 150 indirect products from 30 suppliers. They wanted to streamline the process for both ordering and distribution. It also became apparent that too much time was being spent processing invoices, with no real centralisation."
Consolidated purchasing offers a clear solution to better GNFR management. By consolidating you can improve working practices, reduce in-store tasks and allow staff time to focus on service.
Choosing a multi-category specialist will enable you to take the cost and workload out of indirect procurement. For example, we offer a range of innovative GNFR products and have experience working with over 25 high street names.
Moving from multiple vendors to a single, trusted partnership provider will enable you to:
• Reduce the total cost of your procurement
• Reduce workload across your business
• Increase quality and compliance
• Increase control and visibility of expenditure
• Improve distribution across your supply chain
By streamlining your supplier base you can cut the time spent managing purchasing contracts. Processes will be simplified through one order, one invoice and one delivery. You can therefore reduce overheads, refocus key personnel, and optimise store performance.
“New product recommendations and product alternatives provided an immediate reduction in spend for LVMH. By leveraging spend across multiple product and service categories, and utilising bulk buying capability; Tail Management has been able to provide savings of 20%.”
Consolidating suppliers is also highly effective when applied to tail spend. According to the Pareto Principle, the bulk of your supplier base (80%) accounts for 20% of budget. By implementing a tail strategy to manage this group it’s possible to eradicate 80% of your supplier base.
This group is likely to make up a high percentage of ad hoc spend, so taking control of tactical purchasing can be a powerful source of new savings. It also provides an effective way to deal with too many small, non-compliant suppliers. They can be brought together and managed under one KPI-driven agreement.
Embracing a GNFR spend strategy
Adopting a new consolidated strategy for GNFR undoubtedly offers benefits. As well as cost reductions, you can leverage supplier processes and buying power. These will help you to improve in-store efficiency and optimise store performance.
To survive a difficult retail market there are three ways to manage GNFR; buy cheaper, spend smarter and consume less. But all three should be applied in a managed way, to unlock the savings potential of GNFR.