Complex Tail Spend Management

Published April 2015

Complex Tail Spend Management or indirect spend categories present unique sourcing challenges to most organisations. These categories are characterised by being unpredictable in their demand, require accurate specifications, deadline driven, often low average order value and purchased from a wide range of suppliers. Typically managers delegate sourcing of complex categories to junior employees who use online searches, email and phone calls to find suppliers and execute orders, often avoiding cumbersome, inappropriate and slow enterprise wide ERP processes.

Companies could save up to 40%

As Procurement teams often have limited time and resources and can only focus on transactions in excess of £100,000, they simply don’t have the bandwidth to deal with frequently ordered, low value transactions. Complex indirect spend categories include marketing services, print, professional services, uniforms & apparel, signage & display, gifts & premiums and a wide range of similar products and services.

For procurement professionals, these challenges result in a lack a visibility and control and therefore are hard to manage and yet, they can represent up to 15% of a companies total turnover and provide significant (15% to 40%) savings opportunities.

In today’s challenging economic climate, now is the time for companies to take control of this spend category and to take full advantage of the savings opportunities that are available to them.

So what are the options

Strategic sourcing teams have to consider whether to simply outsource the category or to manage sourcing themselves. Whilst there are variants across the spectrum on these models, the real challenge remains on combining and achieving real-time visibility of spend, compliance and the potential savings with the need for fast-changing requirements of the business.
Outsourcing to a specialist provider has some advantages as it can remove headcount and administration from the business and many outsourcing companies will commit to deliver savings. However, the lack of visibility and control, could make these arrangements hard to quantify, internal customers become more remote from suppliers and expertise of your expenditure and any savings is held by a third party. Further, outsourcing companies will seek to manage and automate the commodity spend as well as the custom requirements, resulting on higher costs on ‘easy to manage’ expenditure.

Whilst many medium to large organisations will operate an enterprise wide ERP or e-procurement platform, these technologies are often bypassed when it comes to complex or ‘tail’ spend. These technologies are not ideally suited where product sourcing cycles are in hours or days rather than weeks or months and inappropriate where average transaction values are measured in hundreds or thousands rather than hundreds of thousands or millions of pounds or dollars.

Likewise, many e-sourcing and supplier platforms simply don’t address the category-specific challenges where even minor changes in the specification, supplier selection, date or even time of order can increase (or decrease) the price significantly. A separate catalogue of pre-defined products and services require extensive management to ensure the breadth and depth of product range, however, this is not always possible with ad hoc nature of complex, tail spends.

So, what's the solution?

Clearly every business situation is different, so recommendations can only ever be a generic answers. However, time and time again, authoritative commentators such as Accenture (“Getting a Grip on Tail Spend”) and Deloitte recommend establishing a core project team to focus on complex expenditure, establishing a central ‘hub’ of expertise and deploying easy to use cloud based tools to help business users to specify and order a wide range of products and services. As more spend becomes visible, an increasing amount comes under management and therefore can be controlled.

Cloud Spend Management is the answer

As previously discussed, a procurement professional may resist adopting ‘yet another’ technology platform into their business and IT will certainly question why existing systems are not capable. However there are a number of distinct capabilities needed for an effective solution:

Cloud Native

The platform of choice must be built for and deployed in the cloud. Internet based systems eliminate the need to download or install software onto local devices and therefore can be accessed 24x7x365 from the office, from home or on the road and so are appropriate for today’s mobile working. Only a web based platform can be quickly and easily deployed to tens, hundreds or thousands of users locally, regionally or globally.

Flexible user model

Traditional enterprise approaches can dictate a rigid organisational structure and only address linear buyer-supplier relationships. However the nature of complex sourcing and modern business models needs a more flexible ‘user community’ approach, where budget holders, specifiers, buyers, supplier managers, suppliers, analysts, approvers and third party experts collaborate in a single platform under the oversight and control of centralised procurement management.

Ease of use

To achieve adoption and usage the platform must be intuitive and easy to use with training requirements minimised. By capturing more usage, organisations bring more spend under management and therefore gain greater visibility and control.

Tactical Transaction Management

Expecting users to select different systems for sourcing custom requirements or logging into multiple vendor catalogues for more standard products is unsustainable and counter productive. Your business users need to be able to ‘shop online’ in a single system for anything and everything. Therefore the platform you select should be capable of enabling employees to specify custom requirements and evaluate competitive bids from suppliers, searching and ordering stocked or configured products from multiple vendors in a single catalogue and being to order and track deliveries as easy as Amazon or eBay.

Centralised controls

Making it easy to employees to adopt and use does not have to mean ‘uncontrolled buying’. A powerful benefit of cloud spend management is the ability to centrally control local purchasing on a transaction by transaction and user by user basis. The right solution will allow central sourcing and procurement teams to onboard, approve and segment suppliers suitable for specific categories and geographies so your employees can only select suitably qualified suppliers. It will help shortlist suppliers further dependent on specific needs, so you can be sure that the right suppliers are winning the right work. The platform must ensure spend limits, controls and approvals are enforced so your spend remains under control.

Source to pay automation

Most cloud spend management platforms can operate as a stand alone solution or be easily integrated with buy-side procurement and financial systems and supply-side estimating and order processing platforms. Check to see if your cloud spend management vendor has an open web services API and can evidence how they integrate and compliment enterprise wide deployments of SAP, Oracle etc.

Analytics and Reporting

Only with granular data can procurement professionals gain the insights they need to make informed business decisions. The optimum platform provides specification level reporting on every transaction locally, regionally and globally, enabling management to deliver the savings and efficiencies possible from complex expenditure.

About Claritum

The Claritum platform can help you control 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.