The importance of data-driven decisions for tail spend management

September 26, 2017

Data is the new oil.

It is among the world’s most valuable commodities, and it increasingly shapes the world order. (Don’t believe us? Check out the Economist, Huffington Post, and Fortune, to name a few). Big-data is revolutionizing nearly every industry, and procurement is no different. The insights made possible by sophisticated data analysis have the potential to enhance every aspect of sourcing and supply chain management. So if you’re convinced that data is the future of procurement, like we are, there’s an easy way to incorporate it into your tail spend management strategy.

Rely on data instead of your gut to make decisions.

Using data to bring tail spend back into the decision-making process

Tail spend is one type of unmanaged spend, generally made of a high number of low value purchases. At its worst, it can represent up to 90% of an organization’s annual spend by volume. Another way of defining tail spend might be this: tail spend is spend that doesn’t benefit from a thoughtful decision making process.

This makes sense. If your procurement department is sending RFQs for 10,000+ small purchases, you’re probably happy just to fulfill all necessary orders and stay compliant. But this need not be the case. With good data, you can apply the same level of care to your tail spend as you do to your core accounts.

Data helps make new opportunities visible. At Fairmarkit, we’ve found that our customers often order the same SKU from different suppliers without leveraging this knowledge to drive down prices; similarly, they order related products from a number of different catalogues, missing an opportunity to consolidate vendors; And they often submit RFQs to the bare minimum of suppliers necessary to meet regulations, when sending just a few extra could yield a more favorable price.

One thing ties all of these observations together: with data, these missed opportunities become obvious. Previously invisible drains translate into cost savings. Unmanaged spend starts to look like low hanging fruit. On average, we’ve found that good data can help companies save as much as 12% on their tail spend.

With data-driven decisions you have the ability to be smarter about your customer profile or team, learn what has (and hasn’t) worked in the past and save money in the long term with more efficient processes. With more data collected and the capability for advanced analysis, decisions can be made with less human error, ultimately driving better outcomes.

How to get started

Using data to tame the tail requires having data. Good news is that, big or small, your company already has significant data on your procurement patterns. Taking stock of the data you’ve collected throughout the sourcing cycle should be enough to identify some easy action items.

Another thing to consider is expanding your team to make the most of your data, or investing in the development of those you already have. As Michael Cadieux of the Spend Logic Group recently stated, “If you haven’t thought about hiring a data scientist yet, you are already behind.” If you don’t have a solid foundation of data, now’s the time to start collecting it. Establish protocols for logging and storing procurement data, centralize your data storage so that on-shore and off-shore teams are all contributing to the same databases, and make sure each of your procurement categories is working with a shared dataset. A little bit of organization can go a long, long way here.

Where to go from here

At Fairmarkit, we’ve seen how data can transform tail spend management. It’s the key toward maximizing cost savings, and it’s an invaluable tool for developing a profitable procurement strategy.

So whether you’re mulling a big decision, like what software to procure for your team or the ideal neighborhood in which to purchase a home, or a small decision, like which route to take home from work, remember that data is there to help you achieve the best possible outcomes.

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