Organisations spend millions of pounds to purchase items that are too small for procurement to source or are used too infrequently to be part of the regular procurement system. Most companies do not focus on tail spend management, as they feel that getting important purchase categories under control is more important. However, when added, tail spend can make a significant portion of the total spend.
Since procurement personnel are not involved in tail spend, it is not part of the procurement policy. These small purchases are often made by employees who usually do not have the expertise and experience to negotiate the best deal with the suppliers. As a result, organisations end up spending millions each year on tail spend without even realising it. Tail spend management can help organisations save anywhere from 10% to 20% of the total spend.
Introducing tail spend management is not as difficult as organisations believe. Here are some tips to help you out.
Identify tail spend
It is essential to identify tail spend, as it can be anything, right from maverick spend to purchases that are mis-classified. Hence, you need to define tail spend and determine where the spend is taking place. Once you identify the different tail spends, it is easier to determine which departments are making them and why.
Centralise all purchases
Make procurement responsible for all spends within the organisation, including tail spend. This way, the purchase will be centralised and the procurement team will be able to make small and big purchases for the organisation, on a frequent and infrequent basis. This will enable procurement to negotiate rates and contracts with suppliers and ensure quality products for the best price. Streamline all the internal process to facilitate centralise purchase. Ensure that all departments adhere to it.
Procurement professionals can use these tips for tail spend management and help their organisation save money. It can work out to significant savings over the months.