What is tail spend management?
Tail spend is any spend of an organization that is not actively managed in all the spend categories. In other words, it is the spend incurred by a company, but not accounting for or managing strategically through the procurement policy of the company. It helps in managing the organization’s spend activities effectively and thereby they can optimize their supply chain and procurement function. Some common examples of tail spend include- printing and packaging, marketing services, office products, gifts and premiums, and temporary labor. This may have an impact on the company’s financial performance due to its impacts on the cost of goods sold (COGS) and SG&A. Tail spend management framework help companies to unlock more value from their tail spend by increasing spend under management and reducing operational costs.
Why is tail spend management important?
Companies are under constant pressure to reduce cost and attain sustainable cost-saving opportunities. Tail spend management solutions are the answer to combat this business challenge. Tail spend management solutions help businesses to better understand spend coverage and gain better spend visibility. This helps identify cost-saving opportunities. Business risks can be mitigated, and the organization’s supplier base can be optimized using tail spend management. Furthermore, it also plays a major role in effective spend management by easily identifying the maverick spend and consequently preventing scams.
Key benefits of tail spend management
Although tail spend management is a complicated process, experts at SpendEdge have identified these solutions help companies to realize significant cost savings and benefits by tackling their overall tail spend. Some of the key benefits that can be realized through tail spend management include:
- Increased visibility and control of the overall expenditure
- Better compliance to contracts
- Reduced future costs and prevents spend creep
- Identify cost saving opportunities
Tail spend management best practices
Organizations that are keen on optimizing their tail spend can implement the following tail spend management best practices to take advantage of potential cost and process benefits:
Review supplier base
In order to better understand the procurement and supply chain processes, it is essential for organizations to undertake a comprehensive and thorough review of their suppliers. Measures should be taken immediately to remove any non-compliant supplier from the supply chain. The spend can then be transferred to suppliers who are compliant and guarantee efficiency.
Consolidation of suppliers
This helps to decrease the number of suppliers, consequently, the organization can enjoy process and cost benefits. It is critical to review this on a regular basis for ongoing efficiency, as there are chances for the company to lose track of this resulting in the expansion of the supply chain.
Once the company has cut down and consolidated their list of a number of suppliers, they can better align and streamline other processes all the way to the finance department. To achieve this, issues in the P2P process and supply chain needs to be addressed as it will help enhance demand management.
Synchronize IT systems
Companies must synchronize their IT systems in order to make stock inventory visible across the entire supply chain. In this manner, waste can be reduced. Also, through effective demand management, departments can be prevented from creating an additional list of suppliers or vendors outside the preferred list.
SpendEdge’s tail spend management solutions can be custom-configured to your organization’s existing processes and systems nuances. Our tail spend management solutions are designed to rapidly deliver sustainable positive cash flow — so you start seeing savings faster! Learn more here.