Cost accounting was originally introduced during the Industrial Revolution so that businesses could organize their operational/manufacturing costs to price their products in order to turn a profit. Though indirect spend is a term that was coined during this time, GNFR—a subset of indirect spend—is a more modern phrase in the procurement world.
GNFR, or goods not for resale, is often a difficult concept for individuals to comprehend. This is largely due to the fact that companies define GNFR in a number of different ways.
The Difficulty with Defining GNFR
One of the problems with defining GNFR is how companies choose to apply the term internally. Some use GNFR to refer to all the goods and services they purchase from third-party suppliers. Others define GNFR as supplies only, with other areas categorized in a more specialized way. And some choose not to use the term at all.
Unfortunately, this means there is not a standard definition that all companies use. To combat this issue, we’ve provided a clear description of GNFR and explained how it falls under the more comprehensive term of indirect spend.
What Is GNFR?
To put it simply, GNFR refers to the various goods and services that are integral to a company’s operations. These goods may not factor into the direct cost of manufacturing a product or purchasing a finished good for resell, so they are considered indirect costs.
For example, a product cannot be manufactured without the factory in which it is built, making the factory an indirect cost. The goods and services purchased from outside vendors to keep the factory operational (utilities, shelving for materials, office supplies, etc.) are GNFR.
It’s important to note that GNFR is defined in the same way regardless of what industry a company may operate in. However, the difference lies in what categories companies need in terms of running their business, along with the amount they spend on each category.
GNFR in Retail
Every retailer, regardless of what their niche may be, purchases physical, finished products (goods for resale [GFR]) that they will then sell to their own customers. Therefore, any other goods purchased are marked as GNFR.
Consider, for example, a large retail chain with 1,000 stores. That retailer must account for the supplies, equipment, parts, and fixtures needed to keep each store up and running.
A manufacturer, on the other hand, doesn’t have stores, so their GNFR will consist of other items/services that relate but do not directly contribute to building their flagship product(s).
The Importance of Managing GNFR
To say that keeping an accurate record of GNFR purchases is important would be an understatement.
In the retail sector, GNFR makes up 20% of purchase dollars and 80% of suppliers. For a large chain with multiple stores, neglecting to track a GNFR purchase or shipment could end up costing tens or even hundreds of thousands of dollars due to a missed deadline or ordering mishap.
Despite all of this, many companies fail to take any action in regard to risk identification, mitigation, or avoidance. Though some adhere to a strict budget as a means of handling their GNFR, the fact is that this method still does not resolve the issues that could lead to lost revenue.
If the costs to run the business are high, it affects profitability. If stores don’t open on time, they lose revenue. If store remodels take much longer than they should, they lose revenue. If excess inventory is large, the amount in indirect spend is too high and must be addressed.
The potential for savings in this area is significant. Companies that take the necessary steps toward addressing risks associated with their GNFR can look forward to decreased product and administration costs, as well as a more streamlined system overall.
Why Managing GNFR Can Be Difficult
As previously discussed, a company that implements a method of better managing risks can reap a number of benefits; however, the difficulty lies in actually getting to that point.
As there are so many purchases that could fall under the umbrella of GNFR, there is often a high number of GNFR transactions at a low-dollar value. It’s easy for these smaller transactions to fall through the cracks and begin adding up, leading to an unwelcome surprise at the end of the fiscal year.
Further, the sheer number of people involved with GNFR makes the task of tracking such purchases even more challenging. Companies often have a large number of outside suppliers from which they obtain the goods and services they need, so it’s crucial to organize the perfect GNFR purchase order (which we will touch on later) to ensure that the correct amount of goods are delivered to the right location at the right time. Internally, a company may also have GNFR influencers and purchasers scattered throughout the organization—not just within the purchasing department. As a result, team members may not all be on the same page when it comes to ordering and tracking the delivery of GNFR inventory.
It’s clear that GNFR is a complex area that requires a lot of attention. Having a firm grasp of GNFR is the first step in addressing the risks associated with indirect spend. Armed with this knowledge, companies can then move on to identifying, avoiding, and mitigating risks related to lost revenue, missed deadlines, and excess inventory. And one of the best ways to do this is by researching the latest tools and tactics to determine which will prove the most helpful in controlling and managing GNFR.
Lumatrak provides a full range of real-time On-Time Delivery Control tools to help better manage supplier and delivery performance from order to the final mile of your indirect goods supply chain. Provided in the cloud through its Software-as-a-Service (SaaS) offering and already connected to vast numbers of manufacturers and contractors, Lumatrak’s solution can be quickly implemented to complement and enhance any ERP, Strategic Sourcing and Procure-to-Pay systems.
To learn more about how a better GNFR-delivery management solution could save your company both time and money, contact the team at Lumatrak today.