Managing tail spend in retail

October 4, 2018
Moving toward better retail procurement

Running a successful business in this day and age isn’t easy for anyone, but retailers may have it the hardest. Hit with scandal after scandal, including bullying of suppliers, horse meat in beef burgers, and the use of child labor, the retail sector often makes the news for all the wrong reasons.

Retailers all over the world have to deal with more than just bad publicity, though. For one, the market is evolving daily and so are the needs and behaviors of the consumers. Additionally, the rise of technology and competition coming from Amazon has forced many retailers to take their businesses online.

Through all these hardships, retailers still need to keep their costs down to ensure profitability or at least sustainability. That’s where procurement departments and tail spend play a very important role.

The challenges of retail procurement

The importance of strategic procurement practices in the retail sector cannot be overstated. With the large role that sourcing and purchasing play in the retail sector, the (in)effectiveness of the procurement process can truly make or break a retail business.

Procurement departments today are faced with some major challenges that will determine the course of their businesses in the coming years. In retail, these challenges include the following:

  • Ensuring that every single part of the procurement process brings value to the business, including one-off tail spend purchases.
  • Staying on top of ever-evolving market trends and fluctuating consumer demand.
  • Finding ways to source and/or purchase products for multiple retail stores at once.
  • Dealing with limited procurement budgets and understaffed departments.

To overcome these challenges and stay afloat, businesses must get rid of outdated procurement processes and adopt new practices that are better suited for today’s highly competitive market.

Automating the tail spend process

Constant innovation and adoption of modern technologies are very important behind the scenes. For procurement departments, automation can make a world of difference. With automated procurement, CPOs can send automated Requests for Quote to multiple suppliers at once.

Automated procurement also gives CPOs the ability to track their tail spend, which involves one-off purchases that often get overlooked. Added up, however, they make up a large portion of the procurement spend (~20%), which is why it is essential to keep tail spend under management.

Different departments working in harmony

The much-talked-about “digital first” approach originated in the publishing industry, but it quickly spread to all other sectors, including retail. In the widest sense, this term denotes retailers’ tendency to build a strong online presence and raise awareness of their products and services on the internet. They develop apps, hire influencers, and build a strong word-of-mouth about their products online to reach a younger, tech-savvy audience that may be interested in what they have to offer.

With this sudden shift to digital, the roles of each department in an organization are not as clearly defined as they were before. For example, there may now be an overlap between the roles of the IT department and the marketing department. Nurturing collaboration and proactive communication between departments could give the CPO a chance to consolidate their budgets for joint projects and thus develop more cost-effective procurement strategies, including tail spend management.

Staying on top of technological developments

Retail businesses today depend on technology in many ways. It is up to procurement departments to track technological developments and keep an eye on any legacy systems that are outdated and incompatible with new technologies. Finding platforms that allow you to manage spend and are ERP agnostic is essential.

This not only ensures safety and stability but also helps businesses avoid a reputation-tarnishing scandal like the 2017 Pizza Hut breach that gave hackers access to credit card numbers of more than 60,000 customers.

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