Tackling Tail Spend and Spot Buys (Part 1)

Spot buys and tail spend represent a large and potentially untapped opportunity for savings for moderately mature procurement organizations that have already invested in other areas of sourcing, compliance and supplier/risk management. At Ariba LIVE last week, The Hackett Group’s Kurt Albertson presented during a panel discussion session exploring, among other areas, factors that are correlated with purchased cost reduction savings for tactical buying. The fundamental challenge with tactical spend, as Kurt points out, is that it is “not transactional, but is often managed through transactional buying channels – if at all.”

In other words, it is the type of spend that should be competitively bid through some type of sourcing process. Hackett suggests that about a quarter of all indirect procurement activity falls into the category of tactical spending, which further breaks out as follows: 20% low dollar buys, 21% one-time buys, 19% emergency/late stage buys, 17% other, 53% category dictated strategy.

In terms of understanding practices that map to procurement success in the area, Hackett found by surveying respondents in the area of tactical sourcing capabilities that 67% of companies use both “buying desks group[s] to handle specific tactical purchase transactions routed to them” and “eSourcing tools (ex. eRFx, eAuctions)”  to enable spot-buy and tail spend capability. 56% of respondents “established business rules or [a] triage process for request routing,” while 39% have “multiple language requirements to manage tactical sourcing activities.”

Among these four, interestingly, the first practice (buying desk groups) and the last (multiple language requirements) are correlated highest with purchase cost reduction savings. Lower down on the list of response were workflow tools (33%) and guided buying (22%).

In Part 2 of this analysis, we’ll explore the additional opportunities that companies have in tackling tail spending as well as a summary analysis about what best practices in the area tell us.

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