When it comes to procurement, most organisations follow the 80/20 rule, where the highest spend categories comprise 80% of the procurement cost, with 20% dedicated to tail spend. As a result, most organisations focus on optimising the 80% spend and ignore tail spend. It may not be the best approach as the 20% spend can work out to quite a bit.
If you are a procurement professional, now is the best time to help your company save money with effective tail spend management. Before you go about it, here are a few things you should know.
Tail spend is important
Believe it or not, tail spend is important. While most strategic spends are made by procurement, tail spend is entirely different. Every department in the organisation has a role to play, and with procurement out of the picture, tail end suppliers tend to have higher margins as you will not negotiate the best rates. So, there is an opportunity to help your organisation save significant amounts by adopting tail spend management measures.
Big suppliers can be tail end suppliers
It is a misconception that only small suppliers cater to tail spend demands. While this may be true most of the time, large suppliers can also be part of this end of procurement. You can use the right technology to consolidate spends so that you can streamline procurement and ensure that you get better value from the big suppliers.
Tail spend does not involve procurement
Procurement is not involved in tail spend, making it completely decentralised. Procurement must bring out policies for tail spend, to bring it under their control and centralise spending. It should be an integral part of tail spend management.
Tail spend management ensures better compliance and risk management
It can be difficult to manage several suppliers across different spend categories. If you have a tail spend management programme, not only will you be able to ensure compliance, but you will also be able to handle the suppliers better and reduce procurement costs. These are a few things you should be aware of before you embark on a journey related to tail spend management.