Tag: tail spend

tail spend

Tail Spend Management: How is it Helping Companies to Achieve Significant Cost Savings?

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.

Improving tail spend management can result in substantial cost savings. Request a free demo and know how our experts can guide you with their tailor-made solutions.

Benefits of managing tail spend

Reduces prices

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.

Increases efficiency

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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Improves compliance

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.

Managing tail spend can be a herculean task for companies. Get in touch with our experts and know how we can assist you in managing the same. 

 







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Spend Analysis : Assessing the Current Spend and Improving Supply Chain Efficiency for a Medical Devices Company – SpendEdge

Spend Analysis Solution Transforms Finance Operations and Reduces Operating Costs

About the Client 

The client is a leading medical devices company, specializing in the development of medical devices, laboratory instruments, and diagnostic products. The company supplies devices to hospitals, laboratories, and clinics worldwide. The company has ingrained its place as a leader in the medical devices market.

The Business Challenge 

The future looks sharp for the medical devices industry. With global economic growth, innovations and an aging population that has a growing need for healthcare, revenue for medical devices is poised for growth. However, in this turbulent environment, companies that can shift their supply chain priorities and better manage spend will be able to deliver significant value. Moreover, the rising need for supply management and strategic cost management have urged players in the medical devices manufacturing space to leverage the use of robust spend analysis solutions. Spend analysis solutions help companies in the medical devices manufacturing space to identify the potential opportunities and deliver actionable insights into the spend data to generate improved ROI. The spend analysis solutions also address concerns about the maverick spends across the supply chain and help achieve superior supplier relationship efficiently.

The client, a renowned medical devices company was facing challenges in reducing the cost across the supply chain and managing their tail spend. While public spending has become endemic, the client realized the need to drive more competitive pricing. Moreover, the client’s objective was to adopt spend analysis strategies to identify and optimize their spend areas. Additionally, the client needed to streamline their supply chain management and subsequently maximize profits by leveraging SpendEdge’s spend analysis solutions.

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Top 5 Things Every Manager Must Know About Tail Spend

Typically in each organization the 80/20 rule governs that the highest spend category absorbs 80% of the cost and 20% of the cost is absorbed by tail spends. Going by the same rule, a majority of the organizations that are looking for procurement efficiency have possibly already optimized 80% of the spend, leaving only the remaining 20% to be optimized. But in reality, even 20% of such spend is still a lot. Aditionally, such tail spends include spend categories with possibility of higher savings rate. Here are the top 5 things you need to know about tail spend:SE_Demo2

Tail Spend Matters
Revisiting the 80/20 rule, most organizations direct their resources in negotiating with suppliers whom they spend the most on; thereby, giving little importance to savings from the suppliers making up the tail end. Consequently, the tail end suppliers face fewer cost pressures and command higher margins, giving rise to significant cost saving opportunities.

Big Suppliers can be a Part of the Tail Spend
The belief that tail spend consists of small suppliers is a common misconception among businesses. Although this case stands true most of the time, there can also be large suppliers down there. Businesses should realize that large suppliers may be supplying small amounts, contributing to the tail. Managers can take measures to increase savings by using sophisticated procurement technology that enables them to streamline and consolidate the spend and get better value out of such suppliers.

Tail Spend is Decentralized
Unlike strategic procurement, tail spend is consumed by all departments such as finance, marketing, legal, and IT within the organization. Procurement teams have always faced challenges in maintaining policies and control to bring order to such decentralized spending, which can be solved by a neat tail spend programme.

Better Compliance, Risk Management, and Savings
The pressure on the organization to improve compliance has been increasing year-on-year. Handling multiple suppliers and multiple spend category calls for multiple contracts and increased documentation costs. Running a tail spend programme provides not only better control over suppliers but also reduces the procurement costs. Additionally, using procure-to-pay processes minimizes the transaction costs and increases the compliance efficiency.

Supplier Rationalization
Various tail spend programs can effectively reduce the supplier base by combining all low-value orders across an organization. Reducing the number of supplier results in lowered transaction cost and processing cost. Companies are now looking to reduce the supplier base by using prime contractors by forcing all small suppliers to work through larger primes on a category or a geographic basis.

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Increasing Tail Spend Savings Using Technology

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,get in touch 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.

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Effective Tail Spend Management – Cost Saving Opportunities in the Pharmaceutical Industry

SpendEdge’s latest tail-spend assessment helps a pharmaceutical company achieve about 26% savings in few categories and about 57% reduction in the supplier base.

Addressing tail-spend

Optimizing resources and exploring cost reduction opportunities are the two biggest challenges faced by various organizations in the global market. By implementing different effective tail spend strategies, a company can save millions on overhead costs. The organizations in the pharmaceutical sectors are increasing their focus on improving the visibility of low-value spend and identifying new areas of process improvement and automation. Such efforts to optimize business operations will result in sustained savings and informed purchasing decisions. Additionally, increasing supply chain visibility in business processes such as sourcing, procurement, and category management will boost the profitability. The tail spend analysis engagement by SpendEdge helps pharmaceutical companies to optimize their supplier base and improve process efficiencies. The engagement develops an exhaustive assessment of the maintenance, repair, and operations (MRO) category and streamlines their sourcing process. The tail spend analysis team gathers data from client’s ERP system and analyzes the category spend and identifies cost saving opportunities.

The implementation of online and punch-out catalogs, p-cards, and improved compliance reporting will result in a tail-spend reduction. Automation in procurement and sourcing is the smartest way of controlling the tail-spend in any organization. The introduction of data analytics tools, e-procurement systems, and innovative cataloging systems will result in optimized supply chain and improve tail-spend management.

Mobile applications in MRO

Companies are installing mobile application for planning and execution of MRO tasks. These applications are designed to enhance the productivity of MRO tasks and boost customer satisfaction levels. Mobile applications provide access to real-time data on stocks, which allows vendors to evaluate stock availability and effectively manage inventories. Some of the apps available in the market provide real-time data on stocks, workflow approvals, location-based product lists, and on-the-go customer service.

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Linking different business process

Taking a grip over the tail-spend requires linking of all major business processes such as sourcing, supply management, and contract management workflows. Strategic planning and development of all processes will result in a robust spend visibility program and help identify growth prospects. Furthermore, adoption of advanced tools such as eRFX and eAuctions will offer efficient workflow and fast turnaround systems.

What solutions SpendEdge offer to businesses

The team of procurement experts at SpendEdge provide a supply market intelligence study that offers spend analysis assignments, recommendations, and process improvement guidelines. Some of the solutions offered are listed as follows:

  • Design a customized tail spend analytics framework and carry out a detailed analysis of the spend data for various categories and sub-categories
  • Develop comprehensive reports that cover the major aspects including supplier base optimization opportunities, demand aggregation opportunities, and opportunities for maverick spend reduction
  • Identify the risks due to the absence of long-term contracts and inappropriate sourcing practices
  • Offer suggestions such as gaining a supplier specific report from the data management team and updating the buying team with more info regarding the supplier
  • Recommend the client to consider bulk purchases and discounts
  • Perform an internal vendor satisfaction and rationalization survey, and sign long-term contracts and target rates

Read our complete case study titled – SpendEdge’s Tail-spend Assessment Helps a Leading Pharmaceutical Company Identify Opportunities to Save Millions

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SpendEdge’s Tail-spend Assessment Helps a Leading Pharmaceutical Company Identify Opportunities to Save Millions

The Procurement Pain Point

With a keen eye to rationalize their supplier base and to streamline their sourcing processes, the client – one of the leading pharmaceutical and biopharmaceutical companies that focuses on developing products for several diseases – approached SpendEdge to commission a spend analysis engagement that will help them in optimizing their supplier base and improve processes efficiencies. Additionally, this engagement would also help the client formulate effective tail spend strategies to save millions.

The primary objective of this tail spend analysis engagement was to develop aSE 6n exhaustive assessment of the client’s maintenance, repair, and operations (MRO) category, which in turn, helped the client in streamlining their sourcing processes. With an organization consisting of centralized and local procurement spread across six countries and more than 20 business units, the client was facing issues with consolidating and identifying savings opportunities since they had no access to the full data on category spend through their central ERP system.

In order to understand what is considered best-in-class and identify what are the best practices followed by peer group companies belonging to the pharmaceutical industry and other sectors following comparable procurement practices, our procurement market intelligence experts followed a blended research methodology and obtained information from various secondary and primary research sources sources.

Procurement Insights Offered and the Outcome

To meet the requirements of the leading pharmaceutical products manufacturer with an MRO category spend of more than USD 80 million, SpendEdge employed a team of procurement experts with considerable experience in conducting similar spend analysis assignments. By designing a customized tail spend analytics framework and carrying out a SE 7detailed analysis of the spend data for various categories and sub-categories, our procurement experts developed comprehensive reports that covered the major aspects including supplier base optimization opportunities, demand aggregation opportunities, and opportunities for maverick spend reduction.

By leveraging contract rates and conditions through the implementation of service or commodity catalogs, this tail spend assessment helped the client ensure that the commodity or service will be purchased from the contracted supplier only at the contracted rate irrespective of demand origination. By identifying the risks due to the lack of long-term contracts and inappropriate sourcing practices, our spend analysis solution also offered suggestions such as obtaining a supplier specific report from the data management team and updating the buying team with more information regarding the supplier. Additionally, our solution also recommended the client to consider bulk purchases and discounts, conduct an internal supplier satisfaction and rationalization survey, and sign long-term contracts and benchmark rates. In a span of just five weeks, the client was able to achieve about 26% savings in few categories and about 57% reduction in the supplier base.

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This spend analysis case study offers information on how we helped a global pharmaceutical company identify significant process improvement and savings opportunities.

 

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Tail-Spend Optimization helps Leading Pharma Company Achieve over USD 10 Million in Savings

Business Challenge: The client was facing challenges with tracking and managing spend across regions with different suppliers

The client, a leading pharma company had USD 80 million MRO category-spend spread over 800 suppliers across four different locations. This led to challenges such as data inconsistency, poor category structure, fragment process etc. They were aware of the fact that there could be significant cost savings by streamlining the whole process and were looking for external support for the same.

Situation: The client wanted to explore the possibilities for streamlining the process and achieve improved cost savings

The client was looking to implement an exhaustive spend assessment of their MRO category in order to rationalize supplier base, deliver savings and streamline sourcing processes.

Approach: Developed recommendations on the key selection parameters, developed a supplier scorecard with details of key suppliers

On the basis of our rigorous research and analytics we recommended an implementation of an innovative 80/20 approach which targeted (for supply consolidation) only such sub-categories which constitute less than 20% of total MRO spend. We also developed recommendations for formulation of short and medium term spend strategy, demand aggregation/consolidation, supplier base optimization etc. Our recommendations enabled the client in identifying major saving opportunities by leveraging tail-spend analytics and spend management services.

Impact: Client leveraged the understanding of supplier landscape and key selection parameters, to qualify the best suppliers for the RFP stage

Based on implementation of our recommendations, the client was able to achieve more than USD 10 million in savings across categories.  They were able to achieve up to ~26% savings specific to certain categories and an overall 57% reduction in supplier base resulting in significant savings. They were also able to achieve significant process improvement.

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