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Although each individual tail spend purchase category or supplier may seem relatively small and insignificant, when taken as a whole, the combined tail spend purchases of an organization often equal the amount spent with the company’s biggest supplier, or at least one of the top suppliers.
For this reason, it is important that tail spend purchases are properly managed to avoid unnecessary costs, wasted man-hours and non-compliance with internal purchasing rules and standards. However, diverting skilled manpower resources from the internal procurement department to manage tail spend purchases does not always make business sense because:
- It can overburden the company’s procurement department with additional workload, making it hard for them to keep up and stay productive without their core function suffering.
- A dilution of focus may occur, meaning internal procurement professionals have to divide their time and energy between managing large, strategic purchases and dealing with numerous requests for tail spend items that, while required for the efficient running of the business, do not fall within the definition of strategic or managed spend.
- The real cost of using the internal procurement team to strategically manage tail spend purchases may actually make these purchases more expensive. It doesn’t make sense to cut the purchase price of some tail spend procurement items and then have that saving wiped out by manpower and other costs incurred in the purchasing exercise.
Strategic procurement and better management of tail spend are both important in the current business context; however, they have different characteristics and requirements, and it therefore makes sense to handle them differently.
The most practical solution for most businesses is to keep the internal purchasing team focused on strategic procurement (top 80%), where in-depth industry knowledge and maintaining close supplier relationships are often keys to success, and then to outsource as much of the tail spend procurement (bottom 20%) as is possible to a specialist agency.
Because they specialize in handling tail spend purchases for many organizations, these third-party businesses usually have lower running costs than internal procurement teams that are more focused on strategic spend. They also tend to make extensive use of spend analytics, which can go a long way toward reducing, removing or consolidating certain tail spend items.
As a general rule, it is better to start the outsourcing of tail spend procurement with product purchases because the cost savings are easier to see and monitor, and then move progressively into adding services to the arrangement.
Are you looking for an easy but highly efficient way to manage tail spend in your organization? If so, the PocketBuyer™ app, backed up by a specialized tail spend procurement service from Simfoni, is the ideal solution.