How to manage tail spend in 2020

April 10, 2020

Once you have made a conscious decision to manage tail spend and to capitalize on the savings opportunities that accompany that choice, the logical questions to be asked are, “How exactly do I go about managing tail spend, and how do I do it most effectively?” Well for some companies, managing tail spend can encompass the management of thousands suppliers, which sounds oppressively time consuming and overwhelming. Yet, if this category of spend can be managed responsibly, it unlocks incredible savings potential. 

Past approaches to managing tail spend were predominantly manual and resource intensive, and produced negligible savings that seemed disproportionate with the effort level involved. Because of these challenges, many organizations simply opted to accept the presence of an unwieldy "tail." Fortunately, a variety of solutions now exist to shuttle your organization through the tail spend management process, and we’re here to help you identify them and make the most of them. And, while we can’t rationally discuss tail spend management in a modern context without the inclusion of technology in the conversation, we will be introducing some procedural suggestions for managing tail spend to accompany the technological methods.

Invest in software solutions

One of the first things you’ll want to do when managing tail spend is to locate a software capable of assisting you in achieving your overall objectives. As it is with every other area of procurement, software has been invented and embraced to simplify the process of tackling tail spend and maximizing the savings that can be extracted from the tail. 

These software solutions manage the procurement process in a wide array of ways, beginning with the record-keeping capabilities that permit essential elements to be tracked, like the raw number of vendors offering a product or service, and the price offerings of each of them. They can also record interactions like the communication between procurement teams and vendors, revealing the aggregate and the average number of exchanges that transpire prior to a deal being struck. Beyond this, the integration of procurement software also permits data to be cleansed, analyzed, and categorized, which empowers procurement teams to make purchasing judgments based on data that is even more factual and believable than what the individual, unprocessed numbers purport to measure. 

Furthermore, spend management software provides needed transparency in the quest to tighten the reins of budget management within tail spend. Tail spend can now be evaluated on the basis of supplier information, or recategorized to make it more easily understood. It also permits procurement teams to function at all times with live budgets, so everyone on those teams knows what the financial capabilities of their organizations are before overcommitting to a vendor, or over-approximating the resources a company can allocate to a single supplier.

Not only can software be used to uncover savings opportunities, but it also shines a spotlight on the activities of individual procurement leaders after their activities have been identified and isolated. From that point, individual performance can be compared, and it becomes readily apparent if certain team members have been a bit overzealous with their spending, either by committing to too much too quickly, or because they haven’t been carefully evaluating data or performing the proper research into the activities of potential suppliers.

Throw in automation and analytics

One of the cardinal elements of tail spend that has historically made it so consistently tiresome to contend with has been the rightful perception that it is time-consuming relative to the projected benefits of managing it. While this was true in the past, technological advancements have simplified things immensely, and automation is quickly becoming the preferred up-front method for tackling tail spend and optimizing it.

Automating tail spend processes has been shown to deliver cost savings of up to 50 percent, accompanied by a 40 percent boost to productivity. These savings are achieved primarily as a result of lowering the complexity and resources devoted to managing suppliers and contracts. Automation also contributes to substantial gains in efficiency and productivity and simplifies the management of individual suppliers. This creates opportunities to consolidate tail spend and execute a strategy through which organizations identify partners to aggregate tail spend while retaining visibility into individual agreements as needed via a dashboard tool.

The work of automation is fueled, in part, by advancements in analytical processes. For example, by aggregating the requests for different spend types and analyzing how the assorted input variables were affecting buying performance, organizations have been able to isolate some of the root causes (e.g., policies, data quality, service level expectations) and create automated agents to help monitor those processes.

Be disciplined and strategic

There is always a lingering temptation to outsource tail spend management to business process outsourcing companies (BPOs) for the sake of minimizing headcount while taking a measured approach toward managing tail spend. However, this methodology can be costly in multiple ways. First, you’re adding an external layer of labor for your procurement team to contend with, which hurls a potential communications hurdle into the path to running a smooth operation. Second, outsourcing labor in this manner frequently generates friction between internal and external staff who aren’t always on the same page. Therefore, for the sake of managing tail spend, this is an ideal instance in which you may want to deviate from the trend and keep all procurement operations in house, particularly since technology has made it so much easier to manage.

As a direct result of so many procurement processes becoming performable through automation and software intervention, procurement staff members find themselves with exceptional freedom to devote their recovered time to maximizing the human elements of business. Once software has identified where the greatest savings are achievable, this is where procurement leaders are able to prove their true worth. Armed with this data, procurement staff can negotiate with vendors to strike unique arrangements and craft contact laden with performance incentives and quality discounts.

Mix it all together

By devoting more brainpower to deciphering and correcting tail spend problems in ways technology can’t, procurement leaders become invaluable pieces of the tail-spend-management puzzle. Therefore, the comprehensive integration of technological solutions, combined with the strategic contributions of experienced procurement leaders, constitutes a winning blend of tail-spend-management techniques for your team as you plan your procurement efforts for 2020.

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