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Procurement Strategy

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.'

Top 10 Ways to Radically Expand Category Management Value Creation [Plus +]

category management

In the never-ending quest to deliver more value, procurement organizations are trying to squeeze more savings and innovation out of spend categories. But, eventually the well starts to run dry, and when that happens, you need to either get more out of that well (fracking for spend savings, perhaps?), dig a deeper well, find another place to dig, or find another way to get the water.

My point? To improve category management, which we sometimes affectionately refer to as CatMan, you sometimes have to expand it or blow it up completely. Here are some ideas that I’ve seen work elsewhere that can hopefully give you some inspiration and raise your category management game.

Procurement Centers of Excellence (CoE) – What’s in Them and How to Set Them Up [Plus +]

Nearly all progressive organizations have some sort of Procurement Center of Excellence (CoE). A Procurement CoE is an internal entity that performs internally facing knowledge-based services on a one-to-many basis to procurement (and to broader stakeholders) in order to drive scale, repeatability, and best practice. What we’re talking about is the industrialization of the Procurement portfolio of services. In this Spend Matters Plus article, we will investigate 14 procurement competencies that are being enabled and improved in a Procurement CoE. We will evaluate the relative priorities across these based on some key research and provide insight on how a Procurement CoE can not only make procurement processes more effective, but also align with broader enterprise services delivered in a “Global Business Services (GBS)” environment.

The Procurement Trifecta for a Trump Presidency [PRO]

Oval Office

News of the Trump presidency was arguably the largest trade (and policy) shot heard round the world in decades. Earlier this week, we discussed a range of issues that can potentially affect the broader economy –– not to mention procurement and supply chain organizations and, in particular, manufacturing. Yet two additional areas warrant additional study, not as standalone policies per se (at least for one of the two areas) but in situ conditions arising from a Trump presidency: infrastructure spending and the U.S. dollar.

In addition to the previous considerations explored in Part 1, our analysis considers these additional items in the context of three concrete procurement tactics organizations can take: improving their capability to support total cost modeling/landed cost models; investing in supply chain risk visibility; and approaching commodity strategy and commodity management in new ways. This Spend Matters PRO analysis provides key analysis, talking points and actions steps for procurement and supply chain organizations to understand the impact of a Trump presidency on their firms and where they can start 2017 from a position of knowledge. It also offers recommendations for technology areas and technology vendors for consideration given these broader issues, including direct procurement technology suites, commodity management solutions, supplier network/connectivity solutions (direct spend), analytics, and supplier and supply chain risk management.

Using DMAIC 2.0 to Blow Up the N-step Procurement Process [Plus +]

An n-step chevron process is a siloed procurement-centered sourcing methodology geared towards supplier rationalization. It’s a fine start for procurement hitting cost savings goals, but it’s not a great way to align to the broader organization as procurement evolves. So, we’re proposing DMAIC as an emerging, superior approach, but it’s far beyond the DMAIC that you usually think of. The n-step sourcing process has had a good run, but let’s not try to make it do unholy things. Read on to see how other companies have used DMAIC.

Empathy, Context and Customer Management: Design-Centered Procurement (Part 2)


In Part 1 of this series, we introduced the idea of design-centered procurement and how procurement needs to put is “users” (stakeholders) at the core of what it does. The heart of good design isn’t just about aesthetics, but about solving a problem — or lots of problems at once. Those problems are very situational, but there can be many common problems as well. The trick is to tease out the problems that are situational to the environment versus dispositional regarding the person experiencing the problem.

Procurement’s Role as Master Architect: Design-Centered Procurement (Part 8) [Plus +]


As procurement organizations design tools and models to improve the process of supply management, they begin to create more idealized systems that can actually be implemented, bridging the gap between visionary “clean sheet” design and small, incremental redesign efforts relegated to narrow process silos. Yet there’s a more subtle and powerful effect in this effort. By focusing on constantly improving the design of the many inbound value chains in the enterprise, procurement begins to elevate its role beyond just strong, hands-on execution in delivering cost savings, but also towards a leadership position in intelligent design, transformation and enablement. These three attributes can seem like high-level words, but they’re important.

Using the Design Process to Transform: Design-Centered Procurement (Part 7) [Plus +]


In the world of quality management, even well-designed products can only be manufactured by equally well-designed processes that are not just controlled but also capable. Such a process capability for manufactured items is formally engineered by a “manufacturing engineering” function that works collaboratively with design engineering on one side and operations on the other. So, it stands to reason that a procurement process for purchased items (and services) should similarly be engineered with upstream internal partners who specify the design and downstream with those involved with execution. This process of the design of procurement (i.e., the process of how to best engage external suppliers to maximize value) should be collaborative too.

Understanding Objectives, Trade-offs, and Constraints: Design-Centered Procurement (Part 6) [Plus +]


In previous installments of this series, we talked about how good design applies not only to a product (or service) or the supply chain that produces it but also the design of the procurement operating model that is the architecture of the supply management services delivered in a procurement organization. In that design, we talked a little bit about reducing trade-offs between the diverse requirements and objectives of the many stakeholders, and the constraints placed on a solution that optimizes everyone’s needs. To do this, we should be fairly precise around the terms requirements, objectives, constraints and optimization. If you might notice, these are terms familiar in the parlance of bid optimization in strategic sourcing. So, let’s explore the learnings from that domain and apply them to designing an optimal procurement organization rather than an optimal sourcing event.

Designing The Procurement Operating Model: Design-Centered Procurement (Part 5) [Plus +]

platform ecosystems

In our previous installment of this series, we looked at design approaches for using software to help digitize procurement and the supply chain. But technology is only one aspect of a broader procurement operating model (or “service delivery model” if you prefer) that also includes process design, organization design, outsourcing, performance measurement, talent management and knowledge management, which is basically a combination of talent management and specialized automation. These have impacts on each other and can’t be designed in isolation. This area can seem abstract, so we’ll use a specific process area (sourcing) and some relevant examples to illustrate how a holistic design approach is important.

Idealized Design: Design-Centered Procurement (Part 4) [Plus +]


In our last installment of this series, we spelled out in great detail some the fundamental software “architectural” (aka design) changes that are happening with modern cloud-based software that is absorbing the emerging practices in B2C-focused software and services. But we didn’t spell out the benefits of such a componentized, platform-based architecture that uses true user-centered design principles that is also tailored to meeting the broader design requirements of the department, business unit, supply chain and enterprise. The problem is that as you broaden the scope, the more design conflicts arise, as design goals from different user groups conflict. But if you do it right, you’ll be able to reduce trade-offs and be able to more easily “mix and match” lower-level solution components and provision more flexible solutions

Torchlite: WIP of the Week [PRO]


This week we present Torchlite as the WIP of the Week. The company, just out of the blocks in 2015, specializes in providing the full-range of digital marketing services through a unique “service provider” platform-based model. In many ways, the company acts like an outsourcer of digital marketing services for companies that are not in a position to execute digital marketing on their own — or do so at a very high cost with unsatisfactory results. In this brief, we provide an overview of Torchlite and its unique platform model and, as usual, offer our own commentary.