The Tail Spend Category

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Why Mid-Size Companies Need On-Demand Solutions to Conquer Tail Spend

Procurement has firmly entered the tail spend era, and with necessary tools now available to tackle this persistent purchasing problem, supply organizations are finally consolidating costs, cracking down on unauthorized spend and clawing back lost time to deliver real value to their businesses. At least, that’s what the picture is starting to look like at large manufacturers and corporates. Within the typical mid-size firm, however, addressing tail spend still eludes many procurement organizations. The issue is less a challenge of capability than finding a solution that fits their unique business needs.

What Amazon Business Has Learned About Managing Tail Spend

“Amazon, like any other organization, is not immune to the challenges you all are having with tail spend.” That was Jeff Oar, head of customer success, enterprise, at Amazon Business, speaking on a recent webinar held by Spend Matters (and co-hosted by our own Pierre Mitchell). If one of the 800-pound gorillas has a tail spend problem — and we say that as politely as possible, given the fact that Spend Matters and Amazon Business joined forces on the indirect spend research study underpinning this report and the webinar — chances are, your organization is, too.

Amazon’s Move into Healthcare: Managing Tail Spend or Redefining its Last Mile?


Everyone is consumed with Amazon’s widely reported “move” into healthcare. But what does that mean? While the prevailing wisdom suggests that Amazon has an opportunity to displace the group purchasing organizations (GPOs) and major distributors that dominate care provider supply chains, even if that’s true, is that Amazon’s endgame — managing healthcare’s tail spend?

Why Procurement’s Persistent Tail Spend Problem is Now Finally Solvable

Tail spend frustrates many procurement groups. It’s messy, it’s complex and it’s time-consuming to tackle. Inking big deals and keeping stakeholders happy seem like far better priorities for the typical category manager, since that’s how he can turn executive heads and make his daily life simpler. At least, that’s how it used to be. These days tail spend is trending — and for good reason. Here are three reasons why this persistent thorn in procurement’s side is finally getting the attention it deserves.

Managing Your Tail Spend on Amazon Prime Day (Good Luck)

According to a recent study, about 47% of organizations' total spend is unmanaged. Zycus surveyed 725 procurement leaders and found that even though just over half of them considered their total spend under management, only 19% considered spend management to be a "key focus area" over the next year. But of course, cost savings remains a priority, based on the report's findings. Also, tail spend is still a nagging issue. And although platforms such as Amazon Business have made it their mission to help solve some of the issues above, man are those hard to focus on when Prime Day comes around!

Is the Tail Spend Problem Solved with Technology or with Managed Services?

Tail spend is a thorny problem — and an important one.

Tail spend is an amalgam of more granular spending: one time, low dollar, maverick, tactical by design. It doesn't even have a common definition understood by all, and it is generally a mess.

So, how to solve this problem? The design ideal is the concept of guided buying, where you start with the end customers (i.e., employees who need something) at the time of need and then guide them down to get what they need to accomplish their goals (but also within corporate policy). It’s an entryway to all procurement, not just the procure-to-pay (P2P), process, so you need to get it right and make the experience count.

But, who is the guide? Is it a tactical buying group in shared services or outsourced provider? Or is it a technology solution? Let’s discuss.

Rethinking and Reclaiming “Tail Spend”: 6 Key Variables to Consider [Plus+]

AnyData Solutions

The idea of “tail spend” doesn’t seem very complicated at first.

Run a Pareto analysis on your spend categories and suppliers to make a cutoff at, say, the 80% that represent only 20% of your spend. Your numbers will, of course, vary, but the idea is to find a way to better manage such “nuisance” low-dollar spend that doesn’t detract from your efficiency, or worse yet, from spending time managing the truly strategic spend categories more deeply.

You might think of this as the spend in the lower-left quadrant of the famous Kraljic 2x2 matrix, which describes a strategy of “purchasing management” to manage non-critical, abundant supply that can be sourced locally in a de-centralized manner for maximum efficiency. And, maybe, if you manage this nuisance spend properly, you can even extract some value from it (e.g., a “quick source” process to gain some speedy spend savings).

Sounds straightforward, right?

Well, it’s not, and I have purposefully led you astray to prove a point.

The problem is that I never really defined tail spend in the first place – and if you can’t define it or see/measure it, you can’t manage it. And herein lies the rub (and the opportunity):

Tail spend could better be described as “nuisance spend” or “tactical spend,” and is comprised of many sub-segments — not just one or two.

Let’s return to our examples above. Segmenting on a spend-per-supplier basis, like in our Pareto diagram, is by no means perfect. What about low-spend, sole-source suppliers tied to large revenue or profit? OK, well, you might then refer to the Krajlic matrix as the solution. It’s better, because it helps profile the categories into complexity vs. impact (or risk vs. reward if you view it as such), but again, these are only two variables, and do not factor in any others.

Which ones? Let’s list six of them and ask whether you’d consider the resulting spend segments as ‘tail spend,’ or at least ‘nuisance spend.'