In procurement circles, it is widely accepted that the Pareto Principle holds true. 80% of a companies spend touches just 20% of suppliers.
Conversely, 20% of a company’s annual spend is with 80% of the supplier base.
Naturally, when companies are looking for cost savings, they focus their efforts on their larger direct spend, working hard to negotiate contracts, prices, terms with the smaller part of their suppliers.
Focused attention on this larger direct spend base can yield significant cost savings. Many companies are ‘on top of their direct spend’, having already squeezed every last cost saving they can from their direct suppliers.
But what about the 20% of your expenditure which is spread over 80% of your supplier base? How do you generate cost savings here?
Surely it is much harder to find tangible cost savings with tail spend, as the average transaction price is much lower and the number of suppliers are much higher.
Quite literally you could have hundreds or even thousands of suppliers in the long tail, and your yearly spend with each supplier could be just a few hundred pounds, or even lower.
Can you really save money in tail spend?
The answer is a resounding YES… and mostly thanks to advancements in cloud technology.
Cloud Technology Changes Everything – how you can save millions in tail spend
Cloud technologies have been gaining momentum over the past 10 years, but are now maturing to the point where they are starting to add real value in the enterprise.
In your business, you may already use a cloud based platform such as Salesforce, Google at Work or Office 365. Perhaps you even use a cloud based ERP system or other business critical cloud based system.
New technologies such as HTML 5, sophisticated web browsers such as Chrome, Firefox and Safari, fast and secure internet access, and adoption of mobile devices have opened the door to new business practices.
The cloud is also transforming how technology is rolled out and used. Everything sits in a browser and can be accessed 24x7x365 by any authorised user where-ever they are located.
Compare this to older generation technology such as client-server, where software had to be installed on every users PC or on-premise where IT departments had to provide access to a central server. The cost of deploying a non-cloud based solution can be prohibitive and reduce any potential ROI.
Cloud Technology and Tail Spend
One area which cloud technology is transforming the enterprise is tail spend. The unwieldy, uncontrolled, mis-understood 20% of a companies spend, which previously seemed too complicated to tackle and control.
With the cloud, companies can now bring control to their indirect spend, and step 1 in the ‘Journey To Best Practice in Reducing Your Tail Spend’ is to get visibility of your indirect spend.
Practically speaking this means putting your tail spend in the cloud.
By deploying a cloud based spend management platform and funneling all your tail spend through a cloud based platform, you can gain immediate real time visibility over your unpredictable, low transaction value expenditure.
With easy to deploy browser based technology, any end-user can start and complete their purchase in a cloud based B2B shopping cart (similar to Amazon). Users can choose to buy from pre-approved vendors, or work with new vendors who can add themselves to the platform based on pre-defined rules controlled by the procurement team.
By funnelling all your tail spend through a cloud based procurement platform, you immediately get visibility over your entire tail spend… allowing CPOs and other executives to review and understand their expenditure locally, nationally or even globally and in real time.
Quite literally, the CPO could be sat at home watching TV, in taxi travelling to a meeting or even on holiday by the beach, and can access real-time summary and detail data from their phone or tablet, helping them understand their tail spend.
Get Your Tail Spend In the Cloud
So step 1 in the process of saving money in your tail spend is to first understand your tail spend. It is to wrap your arms around your adhoc purchasing and put it all on a single cloud based spend management platform.
Only when you understand your tail spend (at a detail and high level) can you begin to manage it and find savings in it.
It is only since the introduction, maturity and wide adoption of cloud based technology that this approach to managing tail spend has been possible. But now that it is here, companies can look to save as much as 20% a year in their tail spend, by better managing it.
But to better manage it (and find cost savings in it), you first need to gain visibility over it and that starts by putting tail spend into the cloud.