Tail Spend Management – Coupa Offers a Transactional Cost Reduction Option

Hot Topic

We've looked this month at management of Tail Spend as our hot topic, and quite a few articles have looked at outsourcing activity around tail spend management as a potential solution to the "problem." Much of the focus on this topic comes from looking at the transactional costs of the tail. If within the tail there are many small transactions, and many suppliers who do not in total do a lot of business with the organisation, then those administrative costs can be disproportionately high.

However, there are of course internal steps that can be taken to help address the issue and drive benefits through improved management, without moving the activities outside of the organisation. So, for example, ERP systems that require a complex onboarding process for suppliers can drive substantial costs.

This collection of initial information about the supplier, often essential in order for the supplier to get paid through the ERP or eProcurement system, can mean the cost of setting up a new supplier can be greater than the value of the transaction with them! Even after onboarding, each individual transaction can be expensive if it requires a requisition / purchase order and then a payment process.

For many years, before we talked about tail spend as a defined issue, options which simplify and reduce the cost of these low value-type transactions have been around. The classic example is Purchasing Cards, which enabled low value transactions to be made with minimal cost to the buyer (although there was and is a cost to the supplier), and Cards also enable the buyer to capture information which helps to understand the nature of the tail spend.

Spend management software firm Coupa has introduced a new slant to this, via their focus on simplifying the whole business of both engaging with suppliers and executing the transaction. In particular, their supplier actionable notification capability means that a simple email can act in effect as the purchase order and generate an invoice – whilst also enabling all the relevant information to be captured by the purchasing organisation.

So there is no necessity to engage in a complex and expensive on-boarding process for tail spend type suppliers; and yet the essential data is also captured. As the firm says, “with Coupa’s new patent pending Supplier Actionable Notifications, buyers can transact with their suppliers directly via email without having to register on a business network and with no supplier fees. Supplier Actionable Notification functionality is available for purchase orders, electronic invoices, invoice status and payment tracking”.

Marketing spiel aside, this strikes us as another serious and interesting option for tail spend management. It does not address the sourcing aspects around handling this spend of course (which outsourcing may address) but it does mean that the transactional costs of dealing with the “bottom” 20% of the supplier base may potentially be reduced significantly by mechanisms such as this - without sacrificing spend information.

So, as we come to the end of June and the nights start drawing in, that’s it from us on Tail Spend Management for this month; but no doubt we will be coming back to the topic from time to time!

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