Each year, businesses make millions of purchases that fall under the radar of the procurement function. The spend may be too small to be managed strategically, or the purchases too infrequent. Either way, together these purchases can total a considerable portion of the companies’ total spend.
Optimise your entire supply chain
With limited resources, it makes sense for procurement teams to prioritise and manage their most important categories. These are often the largest spend categories, accounting for 80% of spend across 20% of suppliers. However, an optimised supply chain also manages the ‘tail spend’.
The ‘tail’ refers to 20% of spend across 80% of all suppliers. This can equate to a huge volume of transactions, which fall outside of the strategic management remit. Due to lack of time and resources, many companies are yet to address this ‘non critical’ spend. However, there are significant savings to be made for those who do.
Deliver increased business value
Of course one of the main reasons to tackle tail spend is to reduce costs. Capita found that managing tail spend can achieve cost reductions between 5% and 20%, as well as improvements to process efficiency of over 10%.
However, there are more factors driving the shift to tail management. Overall, procurement teams are tasked with delivering business value through innovative, agile, and flexible operations. Businesses need to do more with less, and an untapped area is low-value purchasing such as tail spend. The streamlining of processes and better efficiency is a major plus.
Managing tail spend also increases compliance and reduces risk. Improving compliance to existing contracts and procurement processes enables greater visibility, MI and cost control. Crucially there is also a desire to reduce third party maverick spend; due to the unknown risks of third party suppliers.
The importance of reducing risk
As well as operational risks to your supply chain, ‘maverick’ spend and unmanaged third party suppliers can also pose legislative and reputational risk to your business. This is an increasingly important factor across industries.
With corporate sustainability in the spotlight it’s important to know your suppliers. For example, you can assess their working conditions and their own supply chain to check that they fit with your company values. Without this knowledge your business is at risk, perhaps inadvertently buying from suppliers at odds with your own CSR principles.
When analysing supply chain failures or issues, often these are caused by tail end suppliers. While you need them to deliver your core business, they are not your highest priority – and neither are you. This lack of strategic partnership, coupled with the sheer volume of suppliers, make it difficult to manage tail spend.
The benefits outweigh the investment
Taking charge of tail spend can deliver significant cost savings. It takes cost out of your procurement process, and brings benefits across the business;
>> Deliver up to 80% vendor reduction
>> Leverage spend
>> Increase purchasing control
>> Increase visibility of expenditure
>> Improve efficiency through one order, one invoice and one delivery
>> Reduce risk / increased compliance
>> Outsource for reduced headcount and administration
>> Improve CSR performance through managed deliveries
Step-by-step initiatives make a big difference
To manage and optimise tail spend effectively there are a number of areas to consider.
Spend analytics. Start by conducting thorough spend analytics. This will give you visibility of maverick, non-core and core spend; and help you to identify which rogue spend could be redirected to an existing supplier. It can also help to categorise some ‘tail spend’ areas.
Sourcing helpdesk. Set up a dedicated sourcing help desk to address new sourcing and procurement enquiries. Depending on company size, this could be an in-house team or a third party. For example at OfficeTeam, our in-house Specials Team source thousands of specialist items for customers, additional to our regular catalogued products.
Online supplier marketplace. Utilise a third party supplier to access an online supplier marketplace, possibly via an online portal. This provides some control for non-core requests, through an approved supplier list.
Tactical buying. If possible, implement a procurement process for true one-off purchases. This ensures visibility and enables benchmarking of speed and negotiation.
Local supply market knowledge. Undoubtedly local knowledge means increased understanding, resulting in better savings. OfficeTeam have 15 regional sales support teams nationwide, and local resources are key in delivering efficient spend management.
Tail management is a key area of importance for procurement teams; it can deliver significant benefits and savings. Overall, delivering a successful tail management strategy is about having the right processes and systems in place.
OfficeTeam provide an end-to-end management Tail Management service to take charge of tail spend for you, from sourcing to invoicing and delivery. This enables your team to focus on strategic activities, while together we both deliver value for your business.