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Why GNFR (indirects) needs a different approach within retail

Chris Gayner
Jun 9, 2011 10:52:00 AM

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chris-gayner

Picking up where the UK Retail Series left off last, I asked - given the enormous opportunity that can be had through better management of GNFR within the retail environment, why aren’t GNFR improvement initiatives on every retail Board member’s agenda?

In answering this, I refer to the point I made in my last post i.e. retailers attempting to overlay the rules, processes and methodologies of GFR onto GNFR - which, in most cases, ended in failure or a poor return on investment. As such, further investment into GNFR was significantly reduced as the attention of Board members was diverted into alternative priorities, leaving GNFR in the dark (often left to the individual business units to manage).

The key to this whole puzzle is really understanding the difference between GFR and GNFR -– below is a chart which highlights the defining characteristics of the two:

Direct versus indirect procurement
(Click the image to enlarge)

In a nutshell, GNFR is different to GFR in that:

  • Within the supply market there are hundreds of categories, all of which require deep knowledge to procure effectively. Also, there are tens of thousands of suppliers, all who invest heavily in selling to you (the buyer) – for large contracts it is not unusual for a supplier’s account management team to be larger than the entire Procurement function it is selling to
  • Given the relatively high turnover of GNFR, it’s not uncommon to see large numbers of low £ value transactions being carried out, frequently
  • There are thousands of stakeholders (internal and external), all with knowledge about their area but need Procurement’s support. This is turn means that Procurement must act as an internal advisor, influencing functional decision makers and budget holders about their spend
  • GNFR procurement professionals do not actually have any mandate over internal stakeholders budgets.

When looking at the above, we can start to see why applying the rules of GFR to GNFR failed in many cases, and we also get a flavour for the insurmountable challenge that procurement functions face when looking to drive the greatest benefit and ROI from their GNFR expenditure.

Overall, managing GNFR expenditure effectively requires a huge variety of skillsets.  Skillsets such as category expertise, change management, stakeholder engagement from senior executives down, facilitation, negotiation, supplier management, data analysis, technological know-how –- and so the list goes on.

To make matters even more challenging, the demands on a business, and the skill sets required to effectively management GNFR, change from one week to the next.  The odds therefore are heavily stacked against any procurement function looking to centralize and consolidate GNFR (in the same way as GFR) or in fact even being able to consistently meet an organisation’s growing needs.

What are some viable options for overcoming these critical barriers to success?

Proxima Group

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