Improving procurement’s business value through effective tail-spend management

Date Posted: 12/03/2020 Category:
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Improving procurement’s business value through effective tail-spend management

Date Posted: 12/03/2020 Category:

A procurement expert has emphasised the importance of tail-spend management, arguing that overemphasis on seeking optimal cost reductions in the 80% of managed company purchases can only go so far, while leaving 20% of unmanaged buying to run amok.

Procurement veteran Anthony Mignogna acknowledges that spend analytics are always useful for identifying the organisation’s chief areas of managed spend.

However, hiring a couple of category management bods to get to handle the firm’s top spend categories and suppliers, while applying strategic sourcing approaches, are necessary but insufficient interventions.

Strategic sourcing initiatives almost invariably begin to yield diminishing returns – to achieve greater value, procurement professionals must address tail spend.

After the conventional initiatives mentioned above peter down, what initially appears as a low opportunity/low-value area for cost reductions begins to suddenly present itself as a hidden zone of major inefficiencies and untapped cost reduction potential.

Mignogna broadens the definition of tail spend to refer to any addressable spend that remains unmanaged.

The starting point for beginning to manage it is, he suggests, a rewrite of policy to define both what is impossible to manage and what can be strategically managed – this entails clearly defining who may have access to a P-card.

Next, Mignogna recommends designating and using group purchasing organisations for all non-strategic spend categories so that some cost reductions can be yielded through aggregated demand.

Wherever possible, tactical, three-bid-and-a-buy purchases should be outsourced to a managed services organisation capable of triaging requests and checking compliance.

As many laborious human processes as possible should, according to Mignogna, be automated.

E-catalogues ensure compliance and prevent downstream inefficiencies, while other human-error-prone and low-value processes (e.g., invoicing, approval routing, PO disbursement, invoice matching) can be fully digitally automated.

Finally, Mignogna advises procurement to use a payment facilitator to aggregate payments to one-time suppliers – this is currently a massive administrative burden for AP.

AP will then have just one invoice to manage.

Source: https://www.sdcexec.com/sourcing-procurement/article/21119039/surpassing-the-pareto-principle-in-procurement

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