Most procurement professionals are aware that tail spend has the potential to hold a lot of hidden value but until it can be managed effectively, extracting that value is difficult. What may also hamper the task of bringing maverick spend to heal, is a failure to understand where the responsibility to do so lies.
You could argue that for most companies, the 'ownership' of tail spend sits with finance. They do after all interact with it the most through the use of corporate credit cards, acquisition and PO raising, and payment settlements, however, ownership and management dont necassarily mean the same thing and most would agree that the area of corporate spend with the least amount of governance and oversight is within the long tail. And that's also where a lot of big opportunities and risks can be found.
Coupled with the actual spend, for the most part, supplier relationships in this area are also mainly handled by finance (or the stakeholder making the purchases), however, finance by their very definition is in no way geared up to perform some of the necessary tasks to keep a healthy supply chain operating efficiently or indeed to ensure stakeholders are getting the best deal.
A quick recap
Tail spend is a common concept across companies and can be defined as the purchases considered too small to be added to catalogues when compared to the company’s total spend and the obtaining of them are not traditionally negotiated by procurement. Some companies could have a threshold of £2k per purchase and for some it could be £1 million – there's no rule and one size fits all, it all depends on the company size and total spend.
Mostly, those smaller purchases follow the 80/20 rule where they account for around 80% of the company's total transactions and 20% of their spend by volume – some companies use the 70/30 or 90/10 – but on the whole, tail spend is still not being strategically managed, by anyone, let alone by procurement, and whether that is 20% or 10% it's still a missed opportunity.
Taking ownership
The answer shouldn't just be a case of procurement taking full ownership of the tail and getting on with it because if they are not equipped with the right tools and process in place to actively manage it, they will effectively slow the process down which leads us to another reason why taking ownership of tail spend management should be carefully planned, and that is the adoption of stakeholder engagement. According to a recent Hacket Group Survey 74% of stakeholders feel procurement in their organisation consists of gatekeepers or administrators. So for an area of spend where speed of acquisition is sometimes of the essence, barriers to adoption by stakeholders need to be surmounted or resistance to use a new process will be high.
Finance and stakeholders would fully support procurement taking full ownership of tail spend if the benefits are clear and measurable, and this goes way beyond the savings – that is very important – but also showing how procurement can manage tail spend to ensure compliance, risk mitigation, supplier development and data, and improved metrics to enable better decision making for the future.
To see how Maistro's easy to adopt solution enables procurement teams to take responsibility of tail spend in a strategic manner without increasing the cost of ownership or slowing acquisition for stakeholders, get in touch.
