Do you have a tail spend problem?
Here is our list of 5 signs that show you could have a tail spend problem.
1: Your finance team come up with different numbers to your procurement team
Many organisations rely on poor quality information such as simple summaries of categories or supplier spend. Unless all departments are tracking all their spend in a consistent manner there are likely to be discrepancies. One reason why departments come up with different
numbers could be because these departments treat 'tail spend' (those one off or small value transactions that are often not accounted for) differently. Yet this spend can account for 20% of total spend.
One way to identify this tail spend problem is to undertake a spend mapping or spend analysis exercise. This will help you to identify what portion of spend is with your core suppliers and how many transactions are unaccounted for. Find out more about this process by downloading our white paper - spend analysis for complex categories.
2: Your ERP data doesn’t reflect the products purchased
If your ERP data doesn't match up with the products you've purchased then you probably have a tail spend problem. An ERP system is great for capturing the data of purchases made through your core suppliers but the frequently ordered, low value transactions are often left out and this can add up to a significant amount, typically 20% of spend. This problem often arises because suppliers will not be included in the system if the cost of setting up new the supplier is greater than the value of the transaction.
3: You have 1,000s of suppliers and nobody knows what they do
Having too many suppliers is a sure sign of a tail spend problem. If your company has too many suppliers it could be missing out on volume pricing deals that could be achieved. It also makes supplier management much harder and makes establishing and enforcing contracts with suppliers more difficult. If Department A doesn’t know that Deptartment B buys the same product at half the price they could end up over paying for goods.
Reducing the number of suppliers is therefore a key part of tackling your tail spend problem.
4: All your sourcing data is hidden away in emails & spreadsheets
If you find it hard to gather comprehensive accurate sourcing data quickly because the data is hidden away in spreadsheets and emails then you probably have a tail spend problem. Large repeat orders of low value transactions that typify tail spend are often not recorded or managed consistently, making this spend almost invisible. However, tackling this spend can drive significant, measurable and sustainable cost savings and efficiencies.
To find out more about tackling this difficult to manage spend read our white paper: gaining spend visibility and control of complex expenditure.
5: You are holding lots of redundant stock
Holding too much of the wrong stock is another symptom of a tail spend problem. This arises because tail spend products are typically not accounted for and fall outside the usual system of inventory management.
Having too much stock causes extra expenses for you as it can incur excess storage costs and lead to cashflow problems. Holding the wrong stock results in lost sales. In contrast, holding the right stock in the right amounts will lead to increased sales and increased customer satisfaction.
If your business is showing any of the 5 signs of a tail spend problem then contact us and we will help you tackle the problem.
Claritum’s cloud based spend management platform is the solution to tail spend. Our platform streamlines the buying and selling of complex products and services. Buyers, suppliers and experts collaborate in the cloud to improve spend visibility and control, achieve cost savings and efficiencies and to reduce risk and waste.
More articles about tail spend
Visit the articles area of the website to find more procurement related articles.
Our spend management platform streamlines the buying and selling of complex products and services to drive efficiencies and achieve visibility and control of expenditure.