Many years of working with factories have taught me that only understanding product costs can transform negotiations, particularly in Goods Not for Resale (GNFRs), where significant untapped savings potential lies. Negotiating without understanding costs is just a simple blind folded haggling exercise with no scientific base to support demands on price reduction.
By understanding the expenses associated with raw materials, labour, and overheads across various regions, buyers can make well-informed decisions and push for fair pricing. McKinsey & Company reveals that GNFRs represent 20-25% of a retailer's total costs, and by gaining insight into GNFR expenses, buyers can uncover considerable savings opportunities.
It is nonetheless very challenging. GNFRs include a diverse array of products. Asda UK, for example, spends £1.7 billion annually on GNFR, spanning over 10,000 products and 2,000 suppliers, which poses a challenge in developing cost expertise. So, what approaches can large organizations adopt to comprehend costs?
Efficient supplier management is vital for realizing cost savings. However, suppliers may not willingly disclose their cost structures, and if they do, the information could be biased. Consequently, there is a need to develop tools that facilitate understanding of product costs, specifically in GNFRs, to access hidden savings.
It will be interesting to see what companies do about it
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