Think of your organization’s spend like an iceberg. Above the surface, you can see the strategic purchases that are actively managed by the procurement team - like your big supplier contracts or major projects. But below the waterline lies a vast portion of tail spend that’s hidden from view.
Just like an iceberg, most of it is out of sight, and if you don’t manage that submerged portion, it can lead to significant issues down the line.
Managing tail spend is about bringing that underwater volume into view and ensuring it doesn’t sink your financial ship.
So, what is tail spend exactly? It’s those countless little purchases - think office supplies, catering for meetings, or last-minute travel arrangements—that are easy to overlook. While they may seem trivial on their own, together they can account for a whopping 80% of your supplier base yet only 20% of your overall spend.
Why Bother With Tail Spend?
Let’s explore why managing tail spend is crucial and how you can start taking control.
1. Visibility is Key
Many procurement teams miss out on the bigger picture because they only focus on their top suppliers. Expanding visibility into tail spend isn’t just about knowing where every penny goes; it’s about discovering opportunities for savings and efficiency.
By centralizing these transactions into a purchase-to-pay system, you can gain insights that help you make smarter decisions – and will help you see the entire iceberg.
2. Cost Savings Add Up
Sure, tail spend involves a lot of small purchases, but when you group them together, they can really pack a punch in terms of potential savings. By digitizing these processes, you can see savings of 5% to 10% (BCG).
Try implementing smart strategies like:
- Setting clear policies: Make it easy for employees to know how to buy what they need without going rogue.
- Creating online catalogs: Streamline the purchasing process for common items, so everyone knows where to go.
- Keeping an eye on maverick spend: Spot unauthorized purchases and put a stop to them.
3. Don't Forget About Risk
Tail spend can hide some significant risks ranging from procurement fraud to compliance issues. By using software that monitors spending patterns, you can catch unusual activity before it spirals out of control. This proactive approach not only keeps your finances in check but also helps you stay compliant.
4. Innovation Awaits
Small suppliers often bring fresh ideas to the table. They’re nimble and creative, making them perfect partners for innovation. By engaging with these suppliers hidden in your tail spend, you might discover new solutions or products that could improve your operations.
Myths Surrounding Tail Spend
Before diving into strategies, let’s tackle some common myths that can hold back effective tail spend management:
- "It’s impossible to achieve complete visibility." Many think that with so many small transactions, it’s just not feasible to track everything. But with today’s advanced technologies—like big data and AI—gaining visibility into all your spend is achievable.
- "Uncontrollable tail spend is a fact of life." Some procurement pros feel defeated and believe they can’t manage tail spend. In reality, implementing straightforward policies and communicating them effectively can help curb maverick spending.
- "Investing time in tail spend won’t yield savings." While individual purchases might seem insignificant, they add up! Consolidating these transactions can lead to impressive savings—up to 10% according to BCG.
- "The best way to manage tail spend is to eliminate all tail-end suppliers." This oversimplification ignores the benefits of supplier diversity and sustainability. Instead, focus on managing these relationships smartly rather than cutting them all out.
↓ Download Una's guide outlining ways to tame tail spend in a way that leads to decreased risk and increased cost savings.
Smart Strategies for Managing Tail Spend
Here are four ways to effectively manage tail spend:
1. Outsource Tail Spend to a GPO
Feeling overwhelmed by the sheer volume of spend in this category? Consider partnering with a group purchasing organization (GPO) like Una.
We can help analyze your spend data and consolidate your suppliers. By outsourcing categories like office supplies or travel, you can tap into volume purchasing agreements and free up your team to focus on more strategic initiatives.
→ 11 Things You Could Be Doing While Your GPO Works Behind the Scenes
2. Get Expert help
Sometimes, bringing in external consultants can do wonders for your tail spend management. They can provide insights and help you integrate effective practices into your procurement strategies.
3. Embrace Technology
Previous generations of procurement professionals would be green with envy at the thought of what can be achieved with modern procurement tech – including getting a handle on tail spend. Procurement software can automate workflows, ensuring that all purchases are funneled through a unified system.
This not only boosts visibility but also helps you track spending patterns more effectively.
4. Keep Improving and Educating
Managing this type of spend isn’t a one-and-done deal; it requires regular attention. Continuously review your processes and performance, and don’t forget to train your staff on smart purchasing practices. A little education goes a long way in creating a culture of compliance and cost awareness.
Dive Deeper
If you’re ready to dive deeper to examine your own spend, be sure to download Una’s comprehensive playbook for managing it in a way that leads to full visibility and increased cost savings:
