Thetail spend management is an essential part of procurement and is primarily one of the areas that most organizations overlook. It consumes only a small per cent of total company spend, but if managed in the right manner, this would constitute significant savings with improved operational efficiency. Tail spending mainly refers to purchases that lie outside an organization’s strategic procurement activities. These are mostly low-value goods or services where the frequency is not regular, but they sum up to a considerable cost in the long term.
Here, we will dive into best practices for tail spend management and how the right procurement platform can facilitate this process by giving organizations better control and visibility over their spending.
What Is Tail Spend?
Tail spending is essentially the less strategic, low-value procurements that are subjected to different levels of review as compared to larger critical spending. Such spending can typically come from a host of departments and cover office supplies, maintenance services, or one-off purchases of various items. Since tail spending is dispersed across multiple categories and suppliers, this spend usually does not have the control and direction given to core business spending.
- More Visibility to Tail Spend
Visibility into tail spend helps organizations fully manage tail spending. Organizations require an overall procurement platform wherein all spending data are aggregated; this includes the small purchases that tend to be ignored amid everything else going on in the company. With a view of tail spend, organizations can identify patterns, spot inefficiencies, and thereby improve supplier management. With tail spend categorization and analysis, firms are in a better position to choose where to cut unnecessary expenses or consolidate with fewer suppliers in the purchasing process. This automatically means having more efficient procurement processes and better control over costs.
- Reduce Suppliers
One of the common problems concerning tail spend is the presence of numerous suppliers with whom the firms deal. Most organizations handle too many vendors when it comes to low-value purchasing, which makes the procurement process complicated and lets the negotiating power of the company diminish. A good example of how tail spending can be managed through best practices is by consolidating suppliers and working towards developing a relationship with only a few reliable vendors. Helping organizations focus on fewer suppliers provides organizations with volume discounts, makes processes related to order processing smoother, and simplifies supplier management.
- Clear procurement policies
One of the ways tail spending is managed effectively is by ensuring that there are clear and consistent procurement policies. Most organizations tend to go wrong at this point, as they end up with errant departments or individuals making small purchases outside normal formal procurement procedures. This results in maverick spending with the employees’ purchasing goods and services from unapproved vendors at higher prices. This can be prevented by companies developing and implementing explicit procurement policies that detail all purchases, including tail spends. Such policies should spell out methods for the approval of purchases, the selection of suppliers, and the management of contracts even for low-value purchases. This enables the creation of clear rules that limit rogue spending and ensure all purchases are aligned with corporate objectives.
- Leverage Data Analytics
Data analytics are an essential component in the management of tail spend. A procurement platform that gives detailed analytics can open the door to an understanding of spending behaviors, supplier performance, and areas of cost savings. These analytics can help procurement teams make recommendations and judgements about where they need to concentrate their efforts to optimize the management of tail spending. For example, data analytics can flag those hot items purchased by multiple departments in an organization, allowing for the negotiation of volume discounts. Besides, analytics can identify the poor performers among suppliers, and companies can base their decisions on vendor relations on that information.
- Strategic Sourcing Tail Spend
Tail spending primarily consists of minor procurements, but simply because of its significance, organizations cannot afford to overlook tail spending. They can control tail spending comprehensively by applying broad strategic sourcing. Strategic sourcing is the identification and selection of suppliers that will create value in the long term rather than being cheap. For tail spend, suppliers must exhibit a quality that is consistent over time, reliable delivery, and pricing competitive. Through strategic sourcing practices applied to tail spending, companies enhance key supplier relationships, expenses, and the quality of goods and services purchased. In this way, all purchases, even those of little worth, become part of the procurement strategy of the organization.
- Collaborate with Cross-Departmental Activities
Tail spending often comes from other departments in the organization. As such, there must be integration of these procurement teams with the rest of the departments for consistent management of their low-value purchases. The procurement teams should work very closely with the stakeholders across the company to understand their needs, educate them on procurement policies, and find a way of making the purchasing process easier for them. Interdepartmental collaboration can also facilitate the elimination of unnecessary or redundant spending, adherence to purchasing procedures, and proper justification of every expense based on the organization’s overall vision.
- Ongoing Monitoring and Improvements
Tail spend management is not a one-time process with many checks and improvements. Organizations should constantly review their tail spend data, their suppliers, and how they procure goods and services. Procurement is facilitated by a platform that allows it to accommodate real-time data, which enables uninterrupted tracking and amendment of procurement activities. Constant monitoring of tail spend makes companies ensure that they will always come up with better results so that they may optimize their efforts on procurement while reducing costs and increasing efficiency. Regular audits and performance evaluations will identify the gaps and issues along the procurement process, and the issues will be corrected before they become problems.
Conclusion
Tail spend management is an extremely critical yet often underappreciated aspect of procurement. Organizations can gain control over tail spending and initiate significant cost savings through the implementation of best practices like increasing visibility, consolidation of suppliers, automation, and data analytics. A strong procurement platform further buttresses these processes by equipping organizations with proper tools for streamlining procurement activities and ensuring compliance.
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