Understanding Indirect Spend VS GNFR
Indirect spend is the total costs a company must put forth to operate the business, and GNFR is a subcategory of indirect spend. It includes goods and services purchased from outside vendors that are not resold.
These purchases are normally authorized by a purchase order, but indirect spend is not always an actual purchase (e.g., payroll for indirect spend and SGA). This is the key difference regarding indirect spend VS GNFR. Not all indirect spend is GNFR, but all GNFR is indirect spend. Let’s take a closer look at how it relates.
Examples of GNFR
The term GNFR is used by all businesses to identify goods that are bought but not sold. For retailers, it refers to the items or services purchased to operate the retail stores. Some examples might include the following:
- Packaging materials
- Shopping bags
- Printer paper
- Cash registers
- Cleaning supplies
- Price guns
- Light fixtures
- Store shelving
- Advertising materials
Industries That Have GNFR
All industries have GNFR in some form. The difference typically lies in the GNFR categories purchased and the amount spent on those categories.
Retail, for example, typically has a lot of GNFR. There is a large amount of added expenses in a B2C environment. In order to buy the GFR goods, customers need to find the goods first. It is up to the retailer to advertise their product and then merchandise everything in an enticing manner. They need to purchase GNFR advertising as well as attractive fixtures to be able to accomplish both of these tasks. Also, the building material purchased would fall under the GNFR category. When a retailer has multiple locations, all of these GNFR costs are multiplied. Therefore, unlike manufacturing companies, retailers’ costs are usually not machinery but simply operating and other facility costs.
However, other companies in different industries may have different categories of GNFR purchases, such as companies belonging to the service industry. Since they sell a service, such as legal, financial advising, etc., the purchasing they might need to keep track of would include things such as rent, maintenance, hospitality, and travel. An accountant would need an office to work out of as well as a computer, but this accountant’s direct spend would likely include his staff accountants’ payroll.
How GNFR Is Managed
GNFR is not often managed with the same intensity as GFR. GFR is managed with sophisticated and extensive automated supply chain management systems, whereas GNFR is not.
GNFR is usually managed with spreadsheets. This method is viewed as being sufficient for tracking GNFR spend because it is a smaller portion of the spend, but this usually isn’t the case. The spreadsheets need to be gigantic to account for all of the different smaller purchases; they also need to be manually managed by large teams. Spreadsheet programs have trouble keeping up with such large files, and the human teams unfortunately create errors as well as information silos when data isn’t shared or able to be shared with everyone.
As GFR has a direct relationship to revenue, companies tend to monitor it systematically much more closely than GNFR.
Because GNFR is managed differently, there are some specific challenges that go along with keeping track of it.
Most large enterprises have entire teams dedicated to managing indirect spend, but these teams are ever shrinking as companies move to leaner operations. Since direct spend is typically deemed more important, it is the one that gets the most attention when a company tries to maximize savings through automation. But the majority of the leaks in a company’s budget come from GNFR. The transaction volume from GNFR is where the biggest opportunity for savings lies. Unfortunately, many companies are unwilling to invest in GNFR systems, because savings derived from GNFR are often difficult to directly link to top line revenue and increased profitability.
Depending on the type of industry, each one has its own unique challenges, as the spend categories can differ from one business to the next. Transportation costs are a major issue and consideration for a big-box retailer or other retail giants. However, for smaller businesses, transportation costs may not be as much of an issue as software and training.
While the challenges vary, the need for better management and automated tracking systems is the same across the board.
Awareness of the need for better cost-cutting and analyzing strategies is growing. That’s why there have been huge strides in specialized procurement and analysis software and technology in the last few years.
With the right automated tools, a company can perform in-depth analyses and collect all the data they need in real-time to better manage GNFR efficiently. There are even teams of individuals who specialize in just such services and can lead a company into a more productive system. All of these things together can help businesses improve their bottom lines and identify various budget leaks in more difficult-to-track areas. Using these tools wisely is the key to a thriving business.
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.