Why Is Tail Spend Management Important but Often Overlooked?
Spend management refers to the process of managing company purchasing and relationships with suppliers to keep track of every dollar spent, resulting in procurement cost reduction. Spend analysis is broken down into categories (category management), and tail spend often is not included. Tail spend in procurement refers to spend that falls outside of the typical large purchases a company would make, which makes these purchases difficult to categorize and manage.
It’s estimated that 80 percent of suppliers represent just 20 percent of an organization’s spend, and 20 percent must be accounted for. Tail spend management refers to the process of identifying and managing spend that would typically fall through the cracks and become rogue and uncategorized spend. It’s not uncommon for companies to miss the importance of tail spend management, but identifying and categorizing it properly leads to cost savings and more informed decisions.
Tail Spend Management: Identify it First
There are four parts to identifying tail spend: finding the head, middle, and tail, as well as the hidden tail. The hidden tail is often found with a company’s biggest suppliers. Not all spend is covered by contracts, such as materials or services. Without proper procurement analytics to find tail spend, the hidden tail goes down a rabbit hole.
The head of the tail includes spend that is not strategically managed. The middle of the tail is also not strategically managed, because the supplier base is too small. The tail of tail spend management includes fragmented, one-off purchases with suppliers.
Tail Spend Management: Streamlining Your Company’s Process
Spend management and optimal procurement management are dedicated to streamline your company’s process. An important aspect of tail management is also devoted to streamlining. Once you’ve identified tail spend, there are a few steps you can take to ensure tail spend is minimized in the future. In addition to software that uses tail spend automation to find and manage tail spend, you should take these five steps internally:
- Develop a method to identify the spend and associated business risk and exposure for each spend category
- Plan how each subcategory will be managed
- Develop an easy process and workflow for the end-user
- Identify the procurement goals for each spend subcategory
- Develop plans to meet each goal
Once you’ve identified tail spend and have streamlined it internally, it’s time to work on future purchases and tail spend management to ensure more spend doesn’t slip through the cracks. Tail spend software and analyzing data correctly can help ensure your company purchases are strategically handled.
Tail Spend Management: Making Data Work
After you’ve identified tail spend and have determined processes to help streamline tail spend, you need the proper s
oftware to help you accomplish spend management. Tail spend software and spend automation can help identify potential problems. As you begin to manage tail spend, measure your improvements along the way using certain metrics. The right software will help you evaluate spend visibility, cost reduction and avoidance, and transactions costs.
Tail spend management has many benefits, including:
- Strategically managed spend equals notable savings
- Increased productivity and efficiency
- Reduced risk and increased compliance
- Improved buying experience for end-users
To learn more about tail spend management or to receive a demo for tail spend management, contact Simfoni eSourcing today at 973-936-9672. We want to help you reimagine the way you look at procurement.