Most procurement professionals understand the importance of curbing tail spend—the myriad spot-buys and indirect purchases that fall outside procurement’s influence. But with so many other pressures on your team, how do you put together and execute long-term tail spend management (TSM)?
Here are four tips for implementing a robust plan to save costs and bring more spend under procurement’s management.
1. Establish your business goals
The reason to embark on a TSM project is to help the stakeholders in your business and the organization as a whole. Better management makes it easier for colleagues to purchase the items they need while also saving the company money.
So, the first step in starting a TSM project is understanding the business’s goals. A good key performance indicator (KPI) to start with is turnaround time—the time from initial requisition to final purchase. Your TSM will be successful if you can shrink turnaround time of the actual bid to sourcing event, and make it easier for people in your organization to buy the things they need in the fastest time possible.
Quantifiable cost savings should be one of your business goals. You need to be able to show that TSM is providing incremental value to the business—helping to drive down prices across a large number of purchases.
Third, incorporate operational savings into your goals—the potential savings from reducing operational expenses. For instance, if your organization is trying to clamp down on excess costs and get more value out of its existing team, tail spend may be part of the solution by helping the company do more with less.
You can also champion your TSM efforts as part of the company’s wider diversity goals. How? Tail spend management often involves a revaluation of current suppliers. This can be an opportunity for diverse vendor inclusion.
2. Create a plan to achieve your goals
Once you have your goals, it’s time to create a plan that will help you achieve them. It’s important to build your plan using good data and accurate information.
Start by doing a little analysis of your customers’ needs. Find out what’s important to the people in your organization and how they do things. Your understanding of their needs and processes is critical. Determine the baseline service that procurement needs to provide and build from there. Then do an analysis of spend by category so that you can identify which areas can benefit the most (or the fastest) from tail spend management.
Also look at:
- Geographical regions by spend size
- Sole or single source situations
- Procure-to-pay processes
- Who in the organization is able to make purchases
All of these areas may contain opportunities.
Plan for the long term. Don’t expect revolutionary change in the first 12 months. Have a view of where you want to be in five years. Plan to roll out your new TSM strategy in three or four phases over a multi-year period. The first six months might entail purchasing areas with the least complexity and risk but the highest impact.
The key is to not think about the project as a short-term fix or a one-off venture. For tail spend management to be effective, it needs to become ingrained in the business.
3. Ensure you have the right people, processes, and platforms
You might have the best plan, but it will be impossible to execute without smart and committed people, robust processes, and innovative platforms. Ensure you have staff capable of adopting new technologies and processes—people who don’t just understand your KPIs but also the sense behind them, including the importance of TSM. Whatever process you choose must be clearly coordinated across the whole organization, with buy-in from multiple teams. Otherwise it will fail.
Just as critical are the right platforms to support your people and process long-term. The technology you choose needs to be scalable from the first six-month phase to the five-year rollout and beyond. Here, automation is key for tail spend management to add value and lower costs without requiring an increased headcount.
4. Measure, communicate, and grow the initiative
After the events of 2020—with extreme supply chain disruptions and constant business pressures—the procurement function has been thrown into the spotlight. Procurement professionals are becoming trusted partners within the organization, but to keep that position requires keen insight and a reputation for adding value.
Measure the progress of your tail spend management so that you can provide tangible evidence of the project’s contribution to the bottom line. Communicate with stakeholders up and down the company to gain support and understanding. Grow the project. Developing TSM processes within your organization is a great opportunity to expand the reach and reputation of the procurement team by tangibly improving the organization’s financial and operational health.