Are you still chasing your tail spend? Does your business spend millions on ad hoc and unpredictable low cost products and services? You know the kind of things that most businesses don’t plan for, but still spend 10-20% of their revenues on. The type of transactions that are too small for procurement to bother with but too numerous to ignore.
They may be small in order value but they have a disproportionately high cost of administration and invoicing. All those essential items that are needed by by everyone from HR and logistics to finance and marketing and usually needed in a hurry. The urgent need to fix some broken equipment, the marketing team need some materials for a product launch or new safety wear is required to comply with changes to legislation. stop chasing your tail This happens on a daily basis and needs to be dealt with. Currently, most department heads will delegate to inexperienced buyers, with little or no negotiation from a wide range of unapproved suppliers. It’s a pain isn’t it? How much of a pain? For most businesses 20% of expenditure by value is spent on these hard to manage transactions. So for a $1bn revenue company that could represent over $100m of spend that’s uncontrolled. And with potential savings ranging between 5% and 20%, there are significant opportunities to be had. This tail spend also represents 80% of transactions for many organisations. That’s a lot of time that your people are spending on specifying requirements, finding suppliers, getting prices, placing and tracking orders, receiving goods and ensuring the right supplier gets paid the right amount of money. Often these tasks are delegated to junior members of the team. They might know their way around a Google search, email and spreadsheets but ensuring specification accuracy, identifying appropriate suppliers, evaluating bids, negotiating deals and checking deliveries requires experience and robust processes. If only you had the time and if only you had the tools?
What are your Options?
Whatever the solution to managing your tail spend, its got to be easy to implement, eliminate the relatively high admin and invoicing costs for these low cost items and it needs to give the more procurement team the data they need to ensure savings and efficiencies are measured and sustainable.
Option 1: Ignore the problem
Keep your head down and focus on the higher profile spend categories. After all there’s 80% of the organisations expenditure to manage so your time and energies won’t be wasted. Negotiating bigger deals with larger vendors is what procurement is all about isn’t it? The next CPO might have more time to sort the tail out. Alternatively, you can get the consultants in. Always a safe option. Invite the consultants in, let them hunt around for data and make their recommendations based on last year’s incomplete information. And you can always disagree with their proposals.
Option 2: Consolidate
A small number of larger and more strategic vendors take on the management of the large number of small vendors. Make sense in theory, but now your key suppliers are encumbered with managing a supply chain and handling numerous small transactions….and they won’t do that for free. There’s an added cost and often a longer lead time on the very categories you’re trying to manage more effectively. There are a number of specialists who handle outsourced tail spends, but before your jump, ensure they focus on process efficiencies and have streamlined source-to-settle automation and great leverage with suppliers. Otherwise you’re just substituting your operational inefficiencies with your outsourcing partners.
Option 3: Do something
A third option which may provide the best of all worlds is to implement cloud based spend management platform. One thats easy to use for all of your employees no matter what level of skills and experience they have. A platform that enables procurement to stay in control of every transaction by every person in every department locally, nationally or even globally. Where your employees to spot buy directly with pre-approved suppliers our utilise ‘expert buyers’ sitting on a spot buy desk. And only pre-vetted suppliers are invited to bid and their performance rigorously monitored. And the platform should be joined up – sourcing, supplier management, catalogue management, procurement and billing with easy integration into your ERP and financials. I might be biased (which I am) but doesn’t option 3 give you the best visibility and control of your tail spend, with lowest sourcing and procurement costs with the best supplier engagement and the most granular data.