What is tail spend?
Tail spend is a phrase that is commonly used to describe the spend that a company is making but not accounting for or managing strategically through the company’s procurement policy. This is the spend that falls outside the main purchasing categories.
Often these purchases are made by employees who may not have the time or skills to make effective purchasing decisions.
The problem of how to manage your tail spend
Most organizations are aware that this is one area where they could make improvements and realize they could make significant savings if they addressed their tail spend. But few understand how much money is involved and many are unsure how to address the issue.
Do you know how many purchases your company is making that are too small to be handled by procurement?
Acknowledging that tail spend exists and taking steps to manage it effectively can represent a previously untapped savings opportunity for many organizations.
Do you have a problem with tail spend?
The following list details some of the characteristics of companies that have a tail spend problem that needs to be addressed:
- Your organization has a high volume of suppliers.
- A high percentage of suppliers account for a small percentage of your spend.
- A significant proportion of your orders are not dealt with by procurement or expert buyers.
- Not all your orders are automated through an efficient buying process or purchasing software.
If this sounds like your company then you may be assured you are not alone. Many companies find this problem hard to deal with. Having a large number of suppliers can be a difficult issue to tackle particularly when an organization doesn’t have a good understanding of how much it is spending and on what.
So how can you tackle this problem?[/vc_column_text][vc_column_text el_class=”pstyle”]
How to manage your tail spend
Here are some of the best practices for managing your tail spend effectively.
1. Analyse your spend and make it visible
First undertake an analysis of your spend. Carry out a review of historical purchases and summarise the data by supplier, category and business department. This is a good way to identify opportunities to save costs. A good spend analysis program will identify areas where costs can be saved.
To find out more about spend analysis read our article ‘spend analysis – why is it so important?‘
For more detailed view download our white paper – Spend Visibility and Control of Complex Expenditure.
2. Sort out your suppliers
Technology can play a key role in enabling companies to manage all their suppliers, including the suppliers that account for the organizations tail spend.
A good cloud based spend management platform (such as Claritum) can provide staff with an online supplier marketplace that allows them to choose from preferred suppliers, makes repeat ordering easier and allows staff to rate and monitor suppliers.
The Claritum platform can help you manage your tail spend through achieving visibility of your spend and helping you manage your supplier base. Our system allows you to automate your order process, set up and manage supplier profiles, set contract terms and rate and monitor your suppliers based on their performance and value to your company. Our reporting capabilities allow you to analyse your spend with suppliers to a detailed level and provide you with data in real time.