We want to challenge a long standing business concept, that tail spend is too complex, too resource intensive to manage and as a result should be relegated to a lower priority. In our eBook, The Case for Tail Spend, we share that based on reported numbers that tail spend equates to $1.8 trillion dollar opportunity in the United States. Does $1.8 trillion sound like a small opportunity?
Let’s break it down further. According to the Institute for Supply Management (ISM), across all industries, an average of 17.2% of your total revenue equates to an organization’s indirect spend. For a $10 billion organization, that would mean their indirect spend is around $1.72 billion. If we use the classic Pareto principle, that would mean 20% of the indirect spend or $344 million is tail spend.
With that huge portion of spend being equated to the tail, why is it that tail spend is generally relegated to a low priority by most organizations? Because 80% of their purchase transactions are low dollar value and fall within the tail. 80% of their supply base is considered tail spend suppliers. Tail spend transactions are either on pcard, invoice absent a purchase order or on purchase order. Case being that purchase data is generally disaggregated and “dirty” data, making it complex and resource intensive to manage.
Procurement is great at making sense of clean data, developing category strategies and engaging the business as a trusted partner to negotiate with suppliers to deliver the right business outcomes. What they typically don’t enjoy (or at least what I’ve seen!) is making sense of the disaggregated data to then deliver the right business outcomes when it requires such a heavy lift of time and resources.
Technology has advanced enabling procurement to scale and deliver the right business outcomes. Fairmarkit’s platform leverages advanced technologies, such as machine learning algorithms to compete tail spend in a cost efficient, effective way dramatically reducing procurement’s involvement.
Our customers see on average 11.4% savings return for spend sourced on our platform. Couple that with a 60% efficiency improvement allowing the team to scale, maximizing the concept of “doing more with less.” Our customers are bringing more spend under compliance resulting in greater risk mitigation measures by providing visibility and control to IT, Legal and/or Compliance teams. They do this by competing tail spend purchases with the right suppliers driving the right business outcomes.
In conclusion, tail spend should be a strategic initiative for every organization. It is a $1.8 trillion opportunity that comes down to enabling procurement teams through advanced technologies to do more with less. Advanced technologies are the pathway.