1A can do mind set in procurement
Tackling Tail Spend is not a quick and easy challenge. It takes perseverance and commitment to hunt down the data, challenge silo approaches, change embedded habits and lock in process improvements and savings. Don’t expect too many quick wins, but the prize is great enough – provided you have a Can Do approach.
2Strategic Spend under Control
Your strategic spend is nailed. For many organisations, strategic spend represents 80% of total expenditure by value and only 20% of the transaction quantity. It’s easier to address than Tail Spend – the spend is larger, with fewer transactions and a few key suppliers. Often the procurement cycles are relatively lengthy (weeks or months) with heavy involvement from procurement professionals. Don’t even think of looking at your Tail Spend until your Strategic Expenditure is in good shape.
3A Reason to Change
The business needs a reason to break the cycle. A profit warning, a new competitor, a high profile problem with supply or new CPO. What’s going to drive through this initiative, perhaps when previous attempts have failed? Convincing a departmental head to adopt new processes or buy for a different set of suppliers needs a rational justification to gain the buy-in across the organisation.
4A C-Suite Champion
Clearly having a senior executive on board is critical. There will be roadblocks along the way. There will be big decisions to be made – where to outsource or resource up and handle things internally. When to use a carrot and when to use a stick to encourage the necessary change. A Champion on the Board will help deliver the significant and sustainable transformation needed to effective implement a Tail Spend strategy.
5A Medium-Long Term Mindset
Setting the right expectations is key. Whilst everyone loves to see evidence of double digit savings, Tail Spend is as much about a cumulative effect; 5% here, 8% there, it all adds up. And don’t expect a Kaboom moment – when you’re high fiving your CPO. It takes time and perseverance, try to allow 2-3 year horizons to get your tail spend under control. But, with the right type of controls in place, those savings and efficiencies will become embedded in the business – realising significant savings year on year, with less oversight.
6A Starting Point
With Tail Spend covering a multitude of categories ranging from catering services to marketing print, it can be hard to know where to start. In most organisations, getting accurate and recent spend data can be problematic, especially if the organisation is used to its manual processes. Searching through emails, comparing spreadsheets and identifying mis-categorised AP spend requires the mindset of a detective and the patience of a saint. But it probably makes sense to tackle a larger category first and that will depend on many factors.
7Tail Spend Assessment
With the right mind set, your strategic spend in good shape, an executive covering your back and the first category or categories identified – you’ve got the wind in your sails. Its time to define and evaluate scope, build the business case comprising savings, investments and operating models. You’ll be able to assess whether to outsource or keep things in house. Centralise your buying expertise or distribute the team. Consolidate supply – or manage suppliers better.
A critical step in any Tail Spend transformation project is to define and document your sourcing and procurement processes. In the ideal world, what’s the process that you would like everyone to follow? How will your employees spot buy urgently required goods? How can you ensure the right supplier is chosen for the right sourcing event? What approvals would work for your organisation. What are the touchpoints with your ERP and financials – where are the bottlenecks? Where are the opportunities to streamline processes, integrate systems and eliminate double-handling? Document your perfect process. Be prepared to check and validate against each department and each category.
In your process map, define roles: Who can specify requirements? Who can select suppliers or make approvals? Once the roles are mapped, it needs to survive being put into practice. Speak to departmental managers and category leads. Where are the gaps? Where are the similarities across the organisation? With most Tail Spend initiatives, there will be no procurement expertise available to deal with a sourcing event – often juniors are delegated to find suppliers or get the bids, but do they have the skills to accurately specify business needs or evaluate supplier responses? Define who can do what, at what stage of the process – and then try to apply it to your model.
Key to any effective tail spend initiative is the choice of technology platform. Whether the strategy is to outsource to a BPO or manage your Tail Spend in-house, your technology choice is critical. Dig in – get a demo, understand how the platform will address your needs. The platform will have to be cloud based with no technical or commercial barriers to being deployed across your entire organisation – unless your employees find it easier to access than alternatives, it won’t get adopted. For employees, the platform needs to be intuitive and easy to use – otherwise they’ll switch back to old ways. Sourcing through the technology needs to be quicker than Google. You need to check workflow management align with your processes, that every line item can be centrally management and locally sourced. The platform must ensure transactions are accurately recorded in a structured taxonomy and in sufficient details to allow deep analysis in real time. You need approvals workflow. Suppliers need to find it easier and quicker to bid via the platform than emailing externally. Your technology platform needs the ability for junior or novice users to access a centralised buying hub or expert network on demand. And the solution you put in place must integrate seamlessly with your buy-side ERP, Procurement and Financials to give you the automation necessary to maximise efficiencies. Oh and another thing – if you operate internationally, make sure you deploy a single platform localised for each market and don’t fall for the mistake of deploying single instances of the same technology platform. Having multiple deployments, all configured and used in different ways by different country users, perpetuates the ‘silo’ mentality that will scupper your Tail Spend goals.