The retail industry is undergoing significant transformation. Traditional offline distribution channels, such as department stores and large discount retailers, are increasingly challenged by the rise of online platforms and category killers, putting overall sales and profitability under pressure.
A leading domestic retail company partnered with Looxent to address these challenges by pursuing both product and store differentiation while optimizing enterprise-wide costs. Beyond the typically significant product procurement expenses, the client identified Not-For-Resale (NFR) costs as a key focus area, recognizing these as unmonitored expenditures managed independently by various departments.
Tackling NFR Costs: A Strategic Initiative
NFR costs encompass logistics expenses for distributing goods to stores nationwide, operational costs such as outsourcing, facility investments, and utilities, as well as marketing-related costs like promotional materials and giveaways. As is common in the retail industry, the client's decentralized spending structure led to varying unit costs and insufficient validation through competitive bidding.
Centralizing Procurement Under a Dedicated Team
The first step was consolidating all NFR purchasing activities under the central procurement team, which had the necessary expertise to evaluate and renegotiate costs. This process involved reviewing previously overlooked NFR categories and subjecting them to competitive bidding. However, the execution required more than simply conducting bids. Preparations included redefining tender requirements, researching supplier markets, and onboarding new vendors. Additionally, robust risk mitigation strategies were essential to manage potential disruptions caused by supplier transitions, underscoring the importance of a systematic approach.
Optimizing Demand Alongside Procurement
The client recognized that cost validation through centralized procurement alone would have limited impact without addressing demand-side optimization. This required reviewing usage volumes, scopes, and specifications to ensure they were fully aligned with operational needs. Beyond external services and equipment specifications, the project even extended to traditional scope-out areas like utility costs.
Utility cost optimization, for instance, involved re-evaluating proposed investments by operational teams, as well as granular adjustments to lighting and product temperature control standards. These efforts identified opportunities to enhance efficiency and standardize practices across the organization.
Delivering Measurable Results
Through this process, the client achieved cost savings 2-3 times higher than previous levels. Moreover, the initiative established a comprehensive system for validating areas that had previously lacked cost-efficiency oversight. The project provided critical insights into identifying and minimizing waste at an enterprise level, reducing variability across departments.
The management team praised the project for its strategic approach, stating that "identifying waste and inconsistencies across departments, which were previously optimized individually, created significant value." Operational teams also highlighted the project as "a unique opportunity for collaboration between the procurement team and other departments, resulting in meaningful synergies."
Sustainable Value Creation Through Cost Efficiency
The client plans to reinvest the savings from this initiative into enhancing product and store competitiveness, creating a virtuous cycle of profitability and growth. In the broader retail sector, many companies face challenges in funding necessary investments due to constrained resources, often leading to an erosion of core competitive advantages. Optimizing indirect or NFR costs can offer a practical and scalable solution to these challenges, enabling sustained value creation and strategic reinvestment.
This case demonstrates the critical role of NFR cost management in driving enterprise-wide efficiency and profitability, offering a replicable model for retail and other industries.
The retail industry is undergoing significant transformation. Traditional offline distribution channels, such as department stores and large discount retailers, are increasingly challenged by the rise of online platforms and category killers, putting overall sales and profitability under pressure.
A leading domestic retail company partnered with Looxent to address these challenges by pursuing both product and store differentiation while optimizing enterprise-wide costs. Beyond the typically significant product procurement expenses, the client identified Not-For-Resale (NFR) costs as a key focus area, recognizing these as unmonitored expenditures managed independently by various departments.
Tackling NFR Costs: A Strategic Initiative
NFR costs encompass logistics expenses for distributing goods to stores nationwide, operational costs such as outsourcing, facility investments, and utilities, as well as marketing-related costs like promotional materials and giveaways. As is common in the retail industry, the client's decentralized spending structure led to varying unit costs and insufficient validation through competitive bidding.
Centralizing Procurement Under a Dedicated Team
The first step was consolidating all NFR purchasing activities under the central procurement team, which had the necessary expertise to evaluate and renegotiate costs. This process involved reviewing previously overlooked NFR categories and subjecting them to competitive bidding. However, the execution required more than simply conducting bids. Preparations included redefining tender requirements, researching supplier markets, and onboarding new vendors. Additionally, robust risk mitigation strategies were essential to manage potential disruptions caused by supplier transitions, underscoring the importance of a systematic approach.
Optimizing Demand Alongside Procurement
The client recognized that cost validation through centralized procurement alone would have limited impact without addressing demand-side optimization. This required reviewing usage volumes, scopes, and specifications to ensure they were fully aligned with operational needs. Beyond external services and equipment specifications, the project even extended to traditional scope-out areas like utility costs.
Utility cost optimization, for instance, involved re-evaluating proposed investments by operational teams, as well as granular adjustments to lighting and product temperature control standards. These efforts identified opportunities to enhance efficiency and standardize practices across the organization.
Delivering Measurable Results
Through this process, the client achieved cost savings 2-3 times higher than previous levels. Moreover, the initiative established a comprehensive system for validating areas that had previously lacked cost-efficiency oversight. The project provided critical insights into identifying and minimizing waste at an enterprise level, reducing variability across departments.
The management team praised the project for its strategic approach, stating that "identifying waste and inconsistencies across departments, which were previously optimized individually, created significant value." Operational teams also highlighted the project as "a unique opportunity for collaboration between the procurement team and other departments, resulting in meaningful synergies."
Sustainable Value Creation Through Cost Efficiency
The client plans to reinvest the savings from this initiative into enhancing product and store competitiveness, creating a virtuous cycle of profitability and growth. In the broader retail sector, many companies face challenges in funding necessary investments due to constrained resources, often leading to an erosion of core competitive advantages. Optimizing indirect or NFR costs can offer a practical and scalable solution to these challenges, enabling sustained value creation and strategic reinvestment.
This case demonstrates the critical role of NFR cost management in driving enterprise-wide efficiency and profitability, offering a replicable model for retail and other industries.