Most organisations do not focus on tail spend because the purchases are too infrequent or small to give it importance. Also, tackling so many suppliers can be overwhelming for procurement as they are busy managing the core spend. But, if procurement analyses tail spend, they will realise that almost 20% of the total spend comes from approximately 80% of suppliers at the tail. It is a great opportunity to help your company enjoy savings ranging from 10%–30%.
Here are some ways that procurement professionals can introduce tail spend management to help their organisations enjoy significant savings.
Identify tail spend
You must realise that tail spend can be anything – maverick spend or miscategorised purchases. The solution is to retrieve tail spend data from across the organisation and analyse it. Then you can recognise tail spend and identify where it happens.
Streamline internal purchase processes
As part of tail spend management, it is necessary to streamline internal purchase processes, helping to make data more visible. Not only will you be able to keep a watch on your spending, but it will also help you reduce the number of tail spend suppliers. It is best to use an e-procurement system that makes departments complete purchase requisitions before creating purchase orders for suppliers. The e-procurement system should include a list of all products and approved suppliers so that procurement can manage tail spend and prevent maverick spend.
Keep an eye on the data
The purpose of procurement handling tail spend is to reduce costs and improve spend visibility. So, you must negotiate contracts with tail spend suppliers and ensure that the procure is handled strategically. Then, study the data against different metrics to ensure the tail spend performance has improved.
These tips will ensure that tail spend management is centralised, helping your organisation to save substantial amounts of money over time.