Indirect Spend (goods-not-for-resale) in retail – opportunities for profit improvement

Indirect Spend (goods-not-for-resale) in retail – opportunities for profit improvement

Indirect Spend (goods-not-for-resale) in retail – opportunities for profit improvement

All retailers spend significantly on indirect spend, or Goods-Not-For-Resale. Categories such as Buildings, Installation & Fixtures, Logistics, Marketing, Facilities, IT & telecoms and Utilities can account for more than 1/7th of a retailer’s turnover and are often purchased by operational departments with no procurement support or, worse, left totally unmanaged, falling between functional responsibilities or distributed across the organisation.

There are still significant savings to be made
from indirect spend.

The net result is that, even for retailers who have sophisticated buying functions, there are still significant savings to be made from indirect spend. In the current economic climate, where uncertainty is depressing top-line growth and sterling’s devaluation and the introduction of National Living Wage means most costs are increasing, indirect spend could be an excellent target for savings and margin improvement.

Our research with retailers highlights some food-for-thought:

  • Indirect spend is often ignored by senior management even though it accounts for, on average, 1/7 of the annual turnover of retail chain stores. Only 6% of boards had any visibility of indirect spend.
  • Although two-thirds of retailers have some procurement function or procurement resource dedicated to indirect spend, they are failing to harness any savings.
  • Savings from indirect spend fail to be realised because of lack of resources – capacity is spread to thinly across a wide range of categories.
  • Incorrect organisational structure – buyers have a transactional focus with no strategic sourcing expertise.
  • Dominance of operational functions – suppliers and contracts are agreed with little or no procurement influence.
  • Lack of specialist expertise – buyers have poor supply-market knowledge and a lack of expertise, methodology and tools.
  • In most retailers, more than 20% of indirect spend has no procurement control. Maverick spend is a significant issue.

 

However, with the right approach, significant savings are possible. The retailers that have comprehensively addressed indirect spend have made savings of 12.4%.

We work with retailers to drive savings from indirect spend, making a rapid, step-change impact to profitability and freeing up valuable procurement resource to work on direct spend.

Four points to consider:

  1. Undertake a detailed spend analysis to provide complete transparency of your indirect spend – what you are spending, with whom and who is spending it.
  2. Take a realistic view of how indirect spend is currently managed. If it not managed tightly, professionally and thoroughly, there will be an opportunity to make savings.
  3. Invest in indirect spend procurement. The return on investment may be considerable. Consider using a procurement specialist, such as Procura, adding expertise, knowledge, capacity and drive to implement savings.
  4. Ensure indirect spend remains visible within the organisation. Ongoing spend analytics will ensure your spend stays optimised and a contract database will ensure commercial terms are managed and agreements are never left to your disadvantage.

 

If you would like to discuss transforming your procurement function, please call: +44 (0)203 693 7275 or click here to email us