The Business Challenge
The client, a global consumer goods company, was consistently facing challenges in managing low-value and high-volume orders. Their poor supplier onboarding processes, decentralized procurement models, and ineffective internal stakeholder relationships were increasing complexities and resulting in excess spend. This compelled the client to collaborate with SpendEdge to enhance procurement efficiency and spend visibility to capture incremental savings quickly. The key objectives they were looking to achieve through better tail spend management were:
- Improve visibility into purchases.
- Consolidate the number of suppliers.
- Analyze and address the prime reasons of tail spend.
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The experts at SpendEdge assessed various dimensions of tail spend such as category, transactional, suppliers, geography, and business units to identify potential cost saving opportunities for the client. They also identified business needs, implemented tested tail spend management methodologies, and devised effective strategies to recognize savings in their tail spend.
The tail spend management framework devised by professionals, standardized the disparate procurement process by establishing an efficient delivery model. This helped improve the tail spend management process and further aided in the identification of additional strategic sourcing opportunities for the company. The enhanced tail spend management process also enabled category managers to focus on key suppliers and reduce the number of tail-end suppliers. This helped the company to increase catalog coverage and focus on larger contracts that add more value to the business.
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In a span of six months, the productivity of the company increased by 20% for their procurement functions. Additionally, the tail spend management services allowed them to control, monitor, track transactions, and prevent excess spend occurring in the purchasing process. This enabled them to better manage their total spend apart from complying with changing policies and contracts.
What is Tail Spend and How Can We Manage it?
Tail spend, or low value spend, is usually refers to the 20% of non-core transactions that lie outside the main strategic purchasing strategies. It is usually left unmanaged due to the high volume of suppliers and inadequate resources. However, the increasing pressure on cost reduction and sustained savings through purchasing are making tail spend management a procurement priority for businesses. Companies can also improve their tail spend management process with the help of following steps:
- Analyzing tail spend data and classifying transaction data at regular intervals to improve spend visibility.
- Implementing category-commodity specific sourcing levers such as contracts, spend aggregation and many more.
- Increasing the compliance and efficiency of procure to pay process and reducing the transaction cost.