For years, companies have worked on perfecting their strategic spend while overlooking tail spend – the small, indirect purchases that quietly add up. But lately, more businesses are realizing just how crucial managing tail spend can be to their bottom line.
Tail spend includes all those small purchases that make up 80% of transactions but only 20% of the total spend. Think office supplies, maintenance services, or employee expenses. These transactions may seem minor, but when combined, they can involve a lot of suppliers and quickly get out of hand.
In this article, we’ll explain why managing tail spend is important, highlight the key challenges, and show how having a good strategies can help tackle them.
Ignoring tail spend can cost companies millions in missed savings. But saving money isn’t the only reason to pay attention.
Without proper oversight, companies risk quality issues, fraud, and wasted time on transactions that don’t add value. Streamlining tail spend frees up time for procurement teams to focus on more important tasks and big-ticket suppliers.
1) Lack of data visibility:
Tail spend purchases are usually placed either via telephone, email, apps, etc., making them very difficult to track, since acquiring and comprehending this data can be a demanding and time-consuming task for data analysts.
In addition, these small purchases do not normally follow the same rules across the different departments. So, all these fragmented processes can get out of control pretty fast. Besides, the high number of subcategories and of suppliers can complicate spend analysis despite low value of spend. And the use of many different vendors also affects the strategy of the company, since when a company has so many suppliers to deal with, it is really hard to focus on what is strategic for the organization.
2) Cost management:
Tail spend transactions are normally made outside of established procurement policies,
leading to a loss of control spend for these types of purchases.
One example that might happen is overpaying for a product or service or, even, different departments of the same company buying the same product from different providers and at higher prices.
Moreover, the fact of having to engage with multiple vendors limits a company’s capacity to negotiate advantageous terms, resulting in missed cost-saving opportunities.
3) Risk:
As tail spend transactions are not tracked through a formal system, it makes it difficult to measure their ROI. This increases the possibility of making purchases from vendors who offer poor-quality goods and services. And the risk of inferior quality products can increase significantly and harm the company’s reputation.
Besides, inconvenient procurement processes might lead to inadequate supplier vetting, jeopardizing compliance and the company’s reputation, if unethical or illegal activities are discovered.
For instance, stakeholders may be doing business with suppliers that violate their own corporate social responsibility (CSR) principles, and this may lead to an irreparable reputation for the organization.
Here are a few ways SDI helps companies get a handle on tail spend:
Analyze the data: First, define what tail spend looks like in your company and find areas to cut costs. If the task feels overwhelming, we offer tailored, end-to-end solutions to organize and manage your tail spend.
Tailored solutions: Implementing a customized tail spend solution is key. Our team of experts helps every step of the way, from change management to communication, ensuring a smooth rollout.
Ongoing management: Successful tail spend management isn’t a one-time job. SDI continuously analyzes data, adds controls, and ensures clear communication to optimize the process and keep everything running smoothly.
Though managing tail spend can be complex, it’s essential for uncovering inefficiencies, cutting costs, and reducing risk. By outsourcing tail spend management to experts like SDI, companies can focus on what matters most while boosting their overall procurement performance.