The procurement world is emerging from the paralysis of lockdown to discover the landscape before them is quite different. The urgent need to cut costs, supplier chain disruption, longer lead-times, higher supply prices and rapid changes to internal budgets.
The off-shoot of this is that a fair amount of CPO’s and Procurement heads are now scrambling to try and 'stabilise the boat’ in waters that are still very much choppy. There is also a newly ignited desire to ensure that their procurement functions are better prepared to deal with future events.
The crisis is highlighting the need to have access to more ‘real-time' manageable data in the whole of the procurement process but especially in the often wild and fluctuating area of tail spend. If decisions need to be made, and made quickly, not having the complete picture across all your spend could have unforeseen ramifications, or indeed mean that business saving opportunities are hidden from view, right when they are needed most.
Traditionally, many organisations tend to turn a blind-eye to the often inefficient and costly way that spend in the tail occurs and the reasons for this are totally understandable, tailspend is a very complicated construct, with thousands of moving parts.
So, if you're tasked with bringing tail spend under control, how do you begin to see the wood from the trees and, more importantly, is it really worth it?
The truth is in the data
Putting processes or apparatus in place to better manage spend is a futile effort without first understanding how your own particular tail spend eco-system works. Even the most out of control tail spend areas will have their own hidden patterns of working. Finding a way to have visibility of these patterns and tendencies will be the key to being able to act in the most efficient way.
A spend analysis exercise on your available data may be the quickest way of getting a better oversight of the ‘current state of play’ but running a spend analysis exercise in itself can bring up it’s own problems if not tackled in the right way.
Take a phased approach
There are varying ways organisations class or categorise what tail-spend is in relation to their business, some group by thresholds some by categories. The key to having a clearer picture of exactly what is going on in the tail is having access to granular spend data for each spend-pot in each category.
It would be quite an undertaking to immediately start tackling the categorisation of services or product spends in every spend pot (or every category depending on the current setup), purchases in the £1- £20k bracket for instance, almost always contain the largest number of transactions and therefore would be the most complicated and time-consuming to start analysing. Purchases from £20 - £40k will still likely be of high-volume in a large market organisation but more manageable than the <£20k pot, and >£40k are usually the least transactional and typically at the ceiling before purchases are subject to stricter controls and scrutiny.
The £20- £40k pot may be the simplest place to start and depending on how those transactions occur (card spend, single supplier reliance etc) there could be quick win savings waiting to be realised by bringing in a few extra controls on how they are purchased.
Capture vital data as early as possible
Sorting the transactions into spend categories is easier the more info you have on the suppliers who serviced them. If your data just shows the name of the supplier and the amount and date then you are in for a great deal of time with google, working out what type of services the supplier might provide. So, hand in hand with starting to analyse what has been spent and with whom, improvements to how you record purchases (and importantly the type of data recorded) should also move along in parallel to your efforts to analyse the spend. This can theoretically start when the supplier is onboarded, with any transactions taking place with the supplier logged in a certain category. If they provide multiple services then a record of category per transaction should be implemented.
As we alluded to in our recent article, it isn’t just procurement teams who benefit from the implementation of automation, but the buyer and supplier experience is also greatly enhanced. The ease of capturing data as early in the chain as possible is key to being able to use that data in more efficient ways further down the chain.
Formulating a plan
By completing a spend and contract analysis exercise, you can put together a plan of action, with and timescales to deliver value (savings!) back into the business whilst, bringing your tail spend under tighter control.
Being agile, changing direction, eliminating unnecessary spend and suppliers while eking out greater savings from necessary spend and suppliers is difficult to do without real-time data. Knowing exactly what has been bought, from whom, by whom enables you to make informed decisions quickly when the going gets tough.
Targetting tailspend until recently was often considered a nice to have, but in the current climate, organisations must leave no stone unturned in their quest for savings. Once in place, a robust tailspend management strategy, delivers significant cashable and non-cashable benefits - and quickly.
We recently teamed up with CIPS and Supply Manager Insider to run an in-depth survey, with around 400 procurement professionals giving their valuable insights on their goals and challenges on spending in the tail, download our white paper here.
