Tail spend is the talk of the procurement town these days
It’s the talk of the procurement town these days, but you don’t have to go back too far in the profession’s history before the concept of tail spend was almost entirely missing from industry chatter.
A quick analysis of GoogleTrends—where the omnipotent search engine tracks search trends over time—shows mentions of the phrase “tail spend management” didn’t even move the needle until around April 2015. But mentions have been trending upwards since 2017. Similarly, while you can see blips of the term “tail spend” being used here and there since 2008, GoogleTrends show the conversation has been building over the past four years.
Academic interest in the concept also seems to swell from 2017 onwards, with around 70% of scholarly articles on the subject published after 2016.
What happened? Why the seemingly sudden interest in tail spend?
It’s not like procurement leaders didn’t understand the concept before 2017. By de-risking low dollar purchases, rationalizing the supplier base, and consolidating purchases with fewer suppliers, CPOs have always understood that they can capitalize on indirect spend and bring back value to their organization. We always used to call that “leverage.” But now we have a more precise term for it and a way to zero in on costs that otherwise would be harder to capture and contain.
I’m certainly not surprised that discussions on how to curb excessive outflows and bring more activity under the eye of procurement intensified over the last 12 months. The Covid-19 pandemic shone a harsh spotlight on the supply chain risks that come from unmanaged spend and supplier disruption. We had to step up. And we did. Procurement departments helped their organizations navigate a path through the pandemic by managing expenses, overseeing critical purchases, and working with suppliers to keep the supply chain flowing.
The best cost-cutting opportunities are often in unexplored areas, aka tail spend
In an uncertain climate where cost-cutting often became crucial to business survival, the best opportunities we found were often in the previously unexplored areas of indirect spend. Chief among them was the tail—comparatively low-value, non-core items like spot buys, expensed items, and custom catalog purchases (which account for roughly 80% of total transactions and 20% of spend by volume).
Even before the pandemic pushed us to the limit, forward-thinking CPOs were digitally transforming their teams—integrating with their company’s Enterprise Resource Planning (ERP) system, harnessing their data and utilizing machine learning to optimize their activities. These technological improvements helped us identify tail spend, get a better grip on the problem and employ innovative solutions.
So perhaps it’s no surprise—with all these technological advancements and the challenges we’ve faced over the last few years—that we’ve come to a better understanding of why tail spend matters.
Curiously, though, 2017—the year tail spend awareness heightened—was also the year Fairmarkit burst onto the scene as a technology disruptor and proponent of better spend management. One wonders if the two could be related.