Tail spend is defined by various organizations in many ways, but most follow a rule of thumb taking the Pareto principle into mind considering all the low-value purchases and indirect procurement. Most industry experts agree that effectively managing tail spend could result in 10-15% of additional savings. In a competitive environment, that could prove to be crucial. Apart from the cost savings, it also improves the procurement process and data quality, eliminates trivial suppliers, and increases transparency.
Challenges faced in assessing tail spend
Poor data quality is one among the major challenges in evaluating the tail spend. The sheer volume of data, incorrect spend data, duplication of data, and false data linkages affect the data integrity for tail spend evaluation. For a relatively small 20% of the organization’s cost, tail spend deals with a large number of suppliers, small purchases, one-time buys, huge item count, and multiple sub categories. With difficulty in maintaining transparency, tail spend can account for a significant amount of procurement waste in the form of procurement fraud, process breakdowns, untracked spends, and legacy sourcing.
Maximizing tail spend savings with technology
Industry experts believe that organizations can save up to 50% of the cost over and above the 10-15% savings provided by traditional spend management programs. Here are some of the ways technology can help achieve those savings:
- Automation in invoice processing, invoice capture, and purchase-to-pay (P2P) can reduce the time and effort required to monitor and screen multiple small transactions
- E-procurement systems with a good search engine can assist in choosing efficient buying channel and support spot buys
- Use of eCatalogs provide an effective way of accessing the sourcing services and provide additional value through improved purchasing standard
- Most organizations are resorting to a third-party sourcing helpdesk, which acts as dedicated channel for all sourcing and procurement queries
Technology can help procurement organizations track and provide an in-depth analysis on the tail spend. By leveraging technology, procurement organizations can increase their efficiency by reducing the transaction cost, improving supplier relationship management, and increasing customer and user satisfaction with the help of technology.