Tail Management | Indirect Procurement & GNFR

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Indirect procurement & GNFR Best practice for indirect procurement

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Author Steven Paul 020 8774 3415 steven.paul@tailmanagement.co.uk OfficeTeam Ltd Unit 4, 500 Purley Way, Croydon, Surrey CR0 4NZ Internet: www.officeteam.co.uk Email: marketing@officeteam.co.uk Phone: 020 8774 3415

What is Indirect procurement?

Indirect Procurement is the sourcing of all goods and services for a business that enable its activity. Or looking at it another way, the goods and services classified under the umbrella of indirect procurement are commonly bought for consumption by internal stakeholders (business units or functions) rather than the external customer or client. Indirect Procurement categories include: • • • • • • • •

Office/business supplies and services (such as office stationery, EOS, print) IT related services (hardware, software) Professional Services (consultants, advisors) Marketing related services (media buying, agencies) Travel Management HR related services (recruitment agencies, training) Facilities Management and office services (Telecoms, furniture, cleaning, catering, printers) Utilities (gas, electricity, water)

The overarching classification of ‘Indirects’ can vary from business to business and increasingly the distinction between what is a ‘Direct’ cost and an ‘Indirect’ cost can become blurred when looking at such expenditure items as Fleet and Transportation.

What is GNFR? GNFR is defined as “Goods Not For Resale” and is a retail-centric term covering the sourcing and procurement of all goods and services a retailer requires to enable it to function as a business. This is its indirect procurement as oppose to its direct procurement of GFR (Goods For Resale) which is the stock that it retails direct to its customers.

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Best practice procurement Within all businesses effective procurement can deliver the following benefits: • Reduction in the cost of goods and services – cost savings can be generated across direct and indirect purchases • Improved process efficiencies – reductions in workloads leading to time and cost savings • Stakeholder service improvements – reduced process times and improved responsiveness for internal and external stakeholders • Visibility and control of expenditure – increased compliance and reporting provides increased visibility of spend supporting decision making within the organisation Within most businesses there is a clear focus on the direct supply chain.

This is particularly true in retailers where the GFR supply chain and the gross margin generated from this direct procurement is the key business driver. The importance of direct procurement to all levels of a company ensures senior management and board level involvement and accountability. The direct/ GFR supply chain becomes an engrained core business process. Procurement becomes the key decision maker within the supply chain creating clear visibility and transparency within the organisation. Long term supply chains are usually established with preferred compliant suppliers and these relationships are developed. Margins are established with a clear view to expenditure, profit and customer value (taking into account soft factors such as brand value).

Retail specific procurement Most UK retailers already have extensive experience in managing their direct GFR supply chain, however with limited time and resources available many retailers have however neglected or failed to address their indirect GNFR supply chain.

A 2009 poll of more than 1,300 UK companies found that more than a third of the businesses surveyed had taken no steps to save money across the indirect supply chain. This was despite 84 % recognising that significant cost savings could be made. Companies stated lack of time and insufficient resources as the major causes of companies failing to focus on cost cutting measures.* Alternatively some retailers have attempted to apply these GFR principles to the GNFR supply chain with little success due to fundamental differences between the two processes.

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*Source: YouGov Supply Management July 2009

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“In the typical company, indirect procurement accounts for 60% to 80% of all purchasing transactions.”

Why indirect procurement represents an area for innovation According to the Chartered Institute of purchasing and supply companies spend between 30-80% of their turnover on the procurement of goods and services. “In the typical company, indirect procurement accounts for 60% to 80% of all purchasing transactions.”* Therefore it is clear that optimising the GNFR supply chain and indirect procurement can deliver substantial cost savings and increase profits across the business, as well as delivering a number of additional benefits to your retail business.

Retail specific procurement Most UK retailers already have extensive experience in managing their direct GFR supply chain, however with limited time and resources available many retailers have however neglected or failed to address their indirect GNFR supply chain.

A 2009 poll of more than 1,300 UK companies found that more than a third of the businesses surveyed had taken no steps to save money across the indirect supply chain. This was despite 84 % recognising that significant cost savings could be made. Companies stated lack of time and insufficient resources as the major causes of companies failing to focus on cost cutting measures.* Alternatively some retailers have attempted to apply these GFR principles to the GNFR supply chain with little success due to fundamental differences between the two processes.

*Source: Dale Neef, e-Procurement: From Strategy to Implementation Financial Times Prentice Hall, 2001.

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“80% of your indirect suppliers will account for 20% of your business expenditure�

The Pareto principle applied to supply chain management

The benefits of optimising your indirect supply chain The key benefits of optimising your GNFR supply chain and indirect procurement can be summarised as follows: Reduced costs and increased profitability The principal benefit of optimising GNFR procurement is the reduction of costs; potentially leading to double digit cost savings and increased profitability. Cost savings can be generated by leveraging bulk buying capabilities, specialist sourcing expertise, improved efficiency, reduced workloads and reduced headcounts. Healthy companies can tap into savings generated through their indirect procurement for a sustainable source of savings to fund development and expansion into new markets and to drive the business forward.

Access to increased specialist product knowledge

This will provide the support that the GNFR procurement team require to meet internal stakeholder needs which is not available in house. This can be particularly vital in non-core/non-routine items.

Increased control and visibility of your business expenditure An optimised GNFR supply chain will provide a retail organisation with greater visibility of the quantity of GNRF products ordered and the costs associated.

This visibility and centralised approach provides increased control of the expenditure at all levels of the business.

Improved business processes

Optimised GNFR supply chains result in improved business efficiency and human resource utilisation through reduced procurement, accounting and logistics workloads.

Improved supplier selection By taking a centralised approach, all suppliers can be selected to suit specific business criteria. Supplier selection can therefore take into account multicategory suppliers. Assessing the total business benefits that partners offer (rather than just cost) will allow you to maximise the efficiency and effectiveness of your business.

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“The management of indirect spend is complex and requires a fundamentally different approach. This spend is highly fragmented across business units, locations and departments.

It spans thousands of end-users and encompasses hundreds of unique sub-categories, all requiring specialized supply market knowledge”*

Reduced risk Improved supplier selection and control, alongside consolidation, leads to more active business partnerships with supplier involvement and accountability.

Alongside this, the centralised internal control and accountability mitigates risk internally, and compliance is increased.

Realising the benefits of best practice for indirect GNFR procurement It is clear that GNFR procurement by its nature covers a large number of diverse products and services across multiple (often unrelated) product categories. These include a number of often unrelated areas such as business supplies, services, furniture, print, workplace, workwear, design, advertising, and logistics, alongside people services (such as recruitment) and utilities costs.

In order to procure effectively a deep understanding of all these products and services is required. It is unrealistic for most retailers’ procurement departments to have this specialist knowledge as an internal capability, particularly when GNFR procurement changes on a week to week basis and non-core purchases are regularly required. GNFR procurement therefore becomes dispersed across the organisation, across both individual business units and occasionally, geographic locations. This leads to a large number of internal stakeholders becoming decision makers for individual products and services. With a lack of board level oversight and involvement, procurement becomes an influencer rather than a key decision maker.

The result is high volumes of low value transactions which are spread across a wide array of suppliers. A recent survey indicated that 54% of retail businesses interviewed were struggling to manage the volume of indirect suppliers they dealt with.** The GNFR supply chain quickly becomes decentralised, complex and convoluted. This means that GNFR supply chains are often characterised by a lack of visibility and control of expenditure.

*Source: Brust, Robert. “Indirect procurement from back office to boardroom”, Business Finance *Source: Nelson Hall

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In situations where the GNFR supply chain is visible, there is often a sole focus on cost as a key driver resulting in short term unsustainable behaviours. This limits a retail organisations ability to effectively monitor and challenge product usage (and consumption), analyse product alternatives or to look for added value, such as specialist product knowledge, which can have a wider influence and more beneficial effect on the business as a whole.

The graphic below illustrates these key differences:

GFR

vs

GNFR

Suppliers numbers

Product & Service catergories

Transaction numbers

Internal stakeholders

Transcation value

Margin control

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54% of retail businesses interviewed were struggling to manage the volume of indirect suppliers they dealt with

How to adopt best practice procurement for indirect procurement The key benefits of optimising your GNFR supply chain and indirect procurement can be summarised as follows: Adopt a new approach to indirect procurement GNFR Procurement should no longer be in the shadow of GFR procurement.

It should become a key focus of all retail businesses looking to increase competitiveness and profitability. Address how GNFR procurement is managed taking into account the skills, expertise, capabilities and experience of the internal supply chain and procurement professionals.

Commit to a centralised approach Re-centralise the GNFR procurement functionality. Educate internal stakeholders to work in conjunction with procurement, in order to ensure there is a central overview of all GNFR procurement across the retail organisation.

This will allow the elimination of rogue spending behaviours and increase the visibility and control of expenditure.

Ensure compliance across the indirect supply chain Ensure compliance across the supply chain. Non-compliant companies should be removed from supply chains and replaced with compliant partners. Smaller non-compliant suppliers should be placed under the banner of compliant suppliers in order to reduce risk.

Introduce board level involvement Board level involvement will ensure GNFR procurement has the focus it deserves. Central ownership will lead to efficient and effective business processes and provide accountability at all levels of the business in line with the GFR supply chain. Specialist companies can enable you to quickly begin the process of optimising your GNFR supply chain and procurement process and take away much of the time and resource requirements for doing so.

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Remove the sole focus on cost Direct cost reductions should not be the sole drivers for improving GNFR supply chains. Efficiency, effectiveness and value added services are equally important. Undertake analysis of spend and product categories across the GNFR supply chain. Monitor product usage, assess where consumption can be reduced or lower cost product alternatives can be utilised. Examine areas where added value can be obtained from suppliers.

Look at areas for supplier consolidation. Leveraged spend across multiple product categories can result in greater total savings than driving down the cost of individual products. Consolidation can also deliver larger savings across a collective of products and services by improving supply chain efficiency, allowing for reduced internal workloads across procurement and accounting.

Adopt a common vision with suppliers The adversarial approach to procurement is no longer seen as the best way to get the most out of suppliers – (CIPS Australia). Instead focus on building and developing long term relationships with key suppliers. Co-operation across the supply chain can improve service levels and reduce costs in unexpected areas, through the formulation of common objectives and the sharing of knowledge and resources.

Preferred suppliers can fill the knowledge gaps your business faces on a flexible basis (so they are only utilised when you need them), including delivering specialist expertise on non-routine items that your business does not possess the ability to source efficiently in house. They can provide access to product innovations, product alternatives and market information that your business may not have access to.

Look externally for support Partnering with specialist companies can enable you to quickly begin the process of optimising your GNFR supply chain and procurement process and take away much of the time and resource requirements for doing so.

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About OfficeTeam Tail Management Our Tail Management service is part of the OfficeTeam group. OfficeTeam is a national provider of GNFR products and services. Our specialist tail management capabilities are designed to allow your business to consolidate the procurement of multiple product categories to enable you to optimise your non-core spend and indirect supply chain processes.

By working as an extension of your finance, procurement, supply chain and logistics teams we enable you to increase efficiency, reduce workloads and reduce your total cost of procurement.

We have established relationships with many of the UK’s leading brands including Waitrose, Gala Coral, YHA ,Ocado, Timberland, GSK, Aston Martin, John Lewis, Majestic Wines, Fred Perry, 99P Stores, Phase 8, Amazon.co.uk and FCUK to name a few, Our retail model enables major UK retailers to realise the following benefits: Reduced total cost of procurement Benefit from reduced costs across multiple products and services across your Indirect/GNFR supply chain. Our single source solution and tail management enables you to consolidate providing the ability to leverage spend by bulk buying across multiple product and services categories. Our account management team are experts at providing further cost saving initiatives through product alternatives and opportunities for reduced consumption in order to achieve further savings.

Improved visibility and control of expenditure Consolidated invoicing across multiple products and categories, alongside specialist controls including bespoke product catalogues and spend restrictions. Our management reporting and account management reviews provide total visibility and increased centralised control of your business expenditure.

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Specialist knowledge OfficeTeam’s in house specialists are experts in each GNRF product and services category we offer. Our specialist advice and product knowledge provides your retail GNFR procurement teams and internal stakeholders with the information and support they require to make the best decision for your business. Information is made available on an on-demand basis increasing flexibility and reducing internal headcount across your organisation.

Logistical expertise Utilise OfficeTeam’s unique logistics platform across the whole of your tail supply chain. Benefit from our ability to source, stock and distribute products quickly and efficiently on a national basis. Intelligent stock management allows for increased fill rates and reduced inventory need with real time information on scheduling and product availability through all stages of the supply chain.

Tail management Outsource the management of your long tail spend for further consolidation across all areas of the indirect procurement. We take the hassle out of your GNFR supply chain by managing all the procurement and logistics for you. This will reduce procurement, logistics and accounting workloads across all aspects of your business.

Refined best of breed solutions Benefit from our extensive experience retail sector experience including optimised processes and procedures.

Contact us: At OfficeTeam our solutions are always bespoke, tailored to your business and your specific needs. To find out how we can help your retail business contact us on: 0844 822 1700 www.tailmanagement.co.uk Copyright: Steven Paul, OfficeTeam Ltd.

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To find out how we can help your business call us on:

0844 822 1700 Or visit us on the web at:

www.tailmanagement.co.uk

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