Deep dive: Tail spend compliance

October 20, 2018

Following a great blog from our CEO on The Headcount — Compliance Tradeoff, we thought we’d take a deeper dive into tail spend compliance. No matter the industry, it is easy to see how important it is for the procurement process of an enterprise to adhere to certain rules and procedures. That is how you ensure you are consistently getting the best prices possible and working with the most reliable vendors. Not only does this directly benefit your bottom line, but it also helps you manage risk.

Compliance also makes the procurement process transparent and fair – two crucial elements in combating corruption and fraud. While this is vital regardless of the circumstances, things take on a whole new level of significance if public funds are somehow involved.

And yet, even though the importance of compliance is clear, the situation in the field is not always so clear-cut. All forms of procurement face certain challenges when it comes to compliance, but nowhere are these obstacles as prominent as when it comes to tail spend.

Compliance and procurement in general

It may be a bit surprising, but there really isn’t one end-all and be-all definition of procurement compliance. It can mean different things to different businesses. That is because they all face different issues.

For some, the focus is on vetting the vendors. For others, internal procedures are the key. This depends on the industry, but one of the things they have in common is that strategic procurement gets the most attention when it comes to compliance.

And it is not difficult to see why that is the case. That is what the biggest part of your company’s spend goes into. For that reason, businesses tend to have compliance checklists for their biggest purchases. Additionally, there are frequently long-term partnerships with suppliers in these cases, which makes it easier for everyone to follow the procedures.

But, tail spend is a different story.

Compliance and tail spend

Much like the term compliance, the definition of tail spend can vary from company to company. But, it is safe to generally say that it is the spend your organization does not manage strategically and where individual purchases have a relatively low value. Furthermore, tail spend usually involves the biggest portion of your company’s vendors, around 80% of them.

Immediately, this explanation should make it clear why tail spend can be a compliance nightmare.

For one, it frequently does not receive the attention it deserves. For example, when it comes the time to procure that one crucial raw material your entire production depends on, it’s all hands on deck. But, the same does not apply for an unexpected one-time purchase. Or for many low-cost items. But these expenses add up, and tail spend is anything but inconsequential. On average, it takes up a fifth of the total procurement budget.

And secondly, there is a problem of volume. Tail spend covers many different areas and that means countless small transactions and different vendors. Under these circumstances, non-compliance is an all-too-common sight.

The key to tail spend compliance

When it comes to ensuring tail spend compliance, data is the key. Or to be more precise – clean, structured data you can efficiently analyze. That is how you make informed decisions to keep your tail spend in check.

And to get such data, it is best to stay ahead of the curve. So, rather than having to organize old data, you need a tail spend management solution which automatically gives you data you can immediately use. With Fairmarkit, that is precisely what you get.

In the end, tail spend compliance is something you cannot afford to ignore. It can cost you money, time, and more. And while it may seem daunting, you can manage it efficiently. You just need the right tools.

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