The Tail Spend Animal … Not Easy to Tame

stripes-48300_1280We are pleased to publish this post on our Hot Topic: Tail Spend Management. It comes from Jim Kiser of GEP, a leading global provider of consulting, outsourcing and technology solutions to procurement and supply chain organisations. For additional interesting thinking on procurement, you can visit the GEP Knowledge Bank

In today’s procure-to-pay environment, procurement professionals need to get control over spend that goes beyond the top-level spend categories. The long, extensive tail spend can continue to grow over time, as a result of maverick buying, non-compliance and just simple reactive purchasing.

Managing indirect tail spend is a very difficult task, and trust me, you are not alone if you find it tough. Many procurement managers when they first view their tail spend see acquisitions of items or services done outside of procurement; purchases bought at a very small level or bought too few times for procurement to care. The problem is that those small “insignificant” purchases in the aggregate eventually add up to a ton of spend and can ultimately impact a company’s bottom line.

In most cases within an organisation, indirect spend within the tail spend area gets limited focus from procurement and, therefore, is a place where spend management processes are needed. It can add up to represent a substantial amount of waste in this particular category (for example, a billion-dollar company may waste about $15 million to $20 million annually).

Managing indirect procurement and tail spend really is a huge challenge. Maverick spend (uncontrolled spending outside of procurement that is not in compliance with procurement practices and procedures) by non-procurement professionals is the biggest challenge when it comes to indirect procurement, and especially, tail spend management.

Other challenges include:

  • Low or nonexistent support by stakeholders
  • Items not classified correctly
  • Uncertainty over where, within the system, does indirect tail spend exist

Many organisations don’t even bother to investigate it at all -- the “out of sight, out of mind” mentality.

Reducing maverick spend is really one of the biggest concerns for procurement professionals and here are some simple approaches:

  • Allow procurement to be in control of the purchase of even the low-value items
  • Develop procurement training and process approaches for stakeholders outside of procurement
  • Rationalise the supply base

So, what are some of the real common-sense business solutions for managing tail-spend? Procurement professionals need to be given the authority, accountability and responsibility to develop strategies and implement impactful approaches with upper management. They need to be given the influence when it comes to controlling indirect tail-spend.

Stakeholders, who are non-procurement professionals, that are given the authority to purchase specific indirect spend items, will need to develop and adhere to tail spend practices, policies and processes. There is a real need for stronger oversight and transparency; you cannot manage or control what you cannot see.

Finally, metrics tied to a reporting mechanism of an individual departmental spend will help to address these problems and will play a significant role in solving them.

 

First Voice

  1. Philippe Van Loock:

    Dear Nancy,

    thank you for this very interesting and “so true” article!
    We would like to draw your attention though, to a fourth “easy approach”: outsource your tail …. in different industries we helped customers to bring this maverick, the c-customers or the transactional purchases (including internet web shop buys) under management!
    Bringing it all under ONE supplier and receiving e-billing/digital invoices for each and every tail spend purchase or spot buy.

    other people’s burden is our business ;). And just love it 🙂

    don’t hesitate if you would like to have some more insights!

    great article
    have a superb evening
    Philippe

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