‘Tail spend’ refers to the 20% of a company’s spending with 80% of suppliers, often comprising small and irregular amounts not overseen by a central procurement function. While separately these payments may not make much of a dent, together they can really start to add up.
What are the benefits of managing tail spend?
An overhaul of tail spend can yield tangible and intangible benefits for all firms, even those with relatively small procurement budgets. Cash savings are realisable if more expenditure is brought under managed contracts or is based on competitive bidding from interested suppliers.
Greater awareness of what is being bought and by whom also allows the purchasing manager or purchasing unit to identify where savings can be made. Having a data trail, particularly an electronic data trail, improves transparency and auditability. Thus, the incentive in managing tail spend is not only a financial one but a governance one.
Making the procurement function leaner contributes to a leaner organisation overall and cuts down on administrative hours. The internal functioning of the firm is strengthened to the extent that procurement is lean, automated and integrated with other activities. A more efficient procurement system even stands to generate goodwill and attractive payment conditions for the organisation on account of more satisfied and engaged suppliers.
Read more about tail spend and how your business can go about tackling it: download our free white paper, Controlling Tail Spend: The New Front in Optimising Procurement.
