Until recently, not many companies considered it an intelligent idea to extract savings from the low-volume purchases in “tail spend”. They didn’t even consider optimizing tail spend to be worth the efforts. However, the equation is changing nowadays, especially for companies who haven’t handled tail spend earlier, there is a scope of leveraging of 5-15% savings in this spend category.
But unfortunately, companies don’t manage tail spend with the same diligence as they manage their core spend. Many times, they neither watch sourcing market trends nor do they try renegotiating with suppliers for better pricing. Thus, leaving their hard-earned money on the table and missing out a substantial amount of savings.
At SpendEdge, we understand the importance of a tail spend management process in achieving substantial cost savings. Therefore, in this blog, we are compiling the key benefits that companies should look to achieve while managing the spend.
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Benefits of managing tail spend
The most visible benefit of managing tail spend is price reduction. As companies increase their strategically managed spend, they can achieve a one-time savings of approximately 10-15% when addressing this spend the first time and 2-5% per year in savings thereafter. Therefore, it is advisable for companies to strategically manage atleast 80 percent of their total spend.
Consolidated supplier base decreases the number of suppliers to be dealt with and enables procurement experts to focus on contracts that add more value to the business. Increased catalogue coverage and self-service procurement are a few other ways of enabling procurement experts to invest their time in value-added activities. This improves visibility into the procurement process that can be achieved through tail spend management and results in productivity gains for procurement functions, considerably.
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Tail spend management improves visibility to drive compliance on multiple fronts. Built-in controls ensure that the suppliers onboard undergo on- and off-boarding procedures, thus enforcing all HR and security policies. Supplier payments are managed to according to the contracted norms and for every phase of the project, enforcing all rates, performance metrics, and process approvals. Tail spend management process further helps to reduce risk, while a more transparent procurement process helps with fraud prevention and detection.
How we can manage tail spend?
Since the lack of data of visibility happening due to reasons such as siloed subgroups within the same organization, decentralized policies, and high numbers of vendors makes it difficult for organizations to manage their tail spend, we have broken down the process into three easy steps:
Identifying spend: As tail spend includes everything from maverick spend to small purchases, it’s crucial to define the spend happening within the organization.
Streamlining process: Having a centralized process that can maintain the flow of data and money, enable companies to make better payment terms with suppliers and identify strategic buyers.
Utilizing data: Organizing, classifying and analyzing spend data allows companies to gain greater spend awareness, informed purchases and decisions.