The 20% of your spend is known as ‘tail spend’ or ‘long tail’. Tail-end management is the art of managing your tail spend supply chain to optimize procurement and supply chains. Why is tail-end management important to you?
What is tail spend and why is it important?
Here we are talking about the 20, which remains non-managed but vital. Tail Spend are those spends that aren’t actively managed by the Procurement function. This spend constitutes quite 80% of your company’s P2P (procure – to – Pay) transactions or 80% of your Suppliers, but less than 20% spend.
What is tail spend management in procurement?
Tail spend, a concept that is common in procurement departments but rarely optimized, is finally getting its time in the spotlight. By having a sound tail spend management strategy, a procurement department can become a key competitive advantage for an organization.
How do you manage tail-end spend?
To be effective in managing tail spend, organizations should look to address the following: Spend analytics. Perform thorough analysis to identify radical spending and transaction data classification in order to achieve greater tail-end spend visibility. Sourcing helpdesk.
Is tail-end spend management the elephant in the room?
The long time elephant in the room of every big business – a tail-end spend management is finally becoming a procurement priority. Usually, procurement organizations have been focused on managing their strategic spend and that means 80% of total spend.
Why is tail spending important?
By properly managing tail spend, some of your biggest cost and time savings can ultimately come from your smallest purchases. Utilizing digital technologies, such as intelligent sourcing, to source, track, and manage your tail spend, the result is greater cost savings, risk reduction, and efficiency.
What are tail end suppliers?
The tail-end of a procurement department's spend refers to the 20% of non core transactions that are left unmanaged, usually due to a high volume of suppliers and limited in-house resources.
How can I improve my tail spend?
There are multiple ways to improve tail spend. Examples include: streamlining processes (including process automation); rationalizing the number of suppliers; and adopting stringent policies.
What are the four stages in spend analysis?
Spend analytics is the process of collecting, cleansing, classifying, and analyzing spend data through either dedicated software or one-off spend cubes.
What is meant by tail spend?
Tail spend refers to any business purchases, such as software or professional services, that fall outside of the typical ongoing and large purchases an organization makes. The purchases are often too small to go through procurement, and don't happen often enough to be included in the cataloged systems.
What is the opposite of tail spend?
While tail spend operates under a fixed definition, nonstrategic spend is a label that can be applied to purchases that were thought to be strategic at the time they were purchased, but are now considered to have been a misallocation of resources due to poor planning, mismanagement or other factors.
What are the 4 types of risks in the supply chain?
Supply Chain Risks Continue Mounting Most of the risks that could disrupt your operations fall into four broad categories: economic, environmental, political and ethical.
What are the types of supplier risk?
In Supplier Risk Management, there are numerous risks that tend to come up - delays from suppliers, production disturbances, natural disasters, theft, shortages and cybersecurity, organizational and operational issues.
What is the purpose of spend analysis?
Spend analysis is the process of identifying, gathering, cleansing, grouping, categorizing and analyzing your organization's spend data. This is done with the goal of decreasing procurement costs and improving efficiencies by increasing visibility and transparency.
What is p2p process in procurement?
Procure-to-pay is the process of integrating purchasing and accounts payable systems to create greater efficiencies. It exists within the larger procurement management process and involves four key stages: selecting goods and services; enforcing compliance and order; receiving and reconciliation; invoicing and payment.
How do you do a spend analysis?
We've outlined these seven steps here to help you get started:Step One: Identify your Information Sources. ... Step Two: Gather Data in a Central Location. ... Step Three: Cleanse to a High Standard. ... Step Four: Group by Supplier. ... Step Five: Categorize. ... Step Six: Analyze. ... Step Seven: Repeat.
What are spend types in purchasing?
4 Types of Spend Procurement Needs to ManageDirect Spend. Direct spend, also known as direct procurement, includes the costs directly associated with acquiring raw materials and goods related to production. ... Indirect Spend. ... Maverick Spend. ... Tail Spend.
What does the tail end means in business?
Tail end spend – also called long tail, or low value spend – is the 20% of spend that typically goes unmanaged within an organisation. This 20% tends to be spread across multiple spend categories and via a large number of low value transactions with numerous suppliers, many of which are used very infrequently.
What does a tail vendor manager do?
Tail spend management includes controlling and mapping purchasing expenditure at all non-strategic suppliers. The expenses at these C suppliers are also referred to as C-Spend. The Tail Spend expenses represent approximately 20% of the total costs.
What is a tailend?
Definition of tail end 1 : the concluding period the tail end of the session. 2 : buttocks, rump. 3 : the hindmost end.
What is maverick spend?
Maverick spend is defined as buying from suppliers without following the company's pre-established procurement policy. Purchasing goods or services out of contract or from non-preferred suppliers means that your company doesn't benefit from the preferred supplier discounts that you worked hard to negotiate.
What Is Tail Spend Management?
Tail spend management is a process in which the complete tail spend in an organization is managed. It means when companies started to observe that their tiny spendings are affecting their business profits in long run and they don’t even know regarding the expenses causing a problem. so, this is when the management of the low value spend or small tail spend management occurs.
Why is Tail Spend Management Important?
Well, it is important because you are required to keep a record of the data regarding each spending happening in your company. It has been seen that when companies started the tail spend management after a long time, they were stunned by seeing that the unaddressed business spendings were increased to such a huge volume. These unaddressed expenses can totally harm your business in an unseen way, in long run.
What is Tail Spend?
Now if we say that there 100 percent spendings required being managed, the procurement only observes or focuses the 80 percent of the core spendings. The rest of 20 percent is the tail spends that are usually unaddressed. Here is the detailed information regarding Tail Spend Management:
What is Tail Spend?
Today, tail spend refers to ad hoc spending and uncategorized supplier purchases that are low in volume, frequency, or value. This is the reason why most companies don’t prioritize tail spend management.
What is Tail Spend Analysis?
According to a study by Boston Consulting Group, companies that use technology to actively manage tail spend were able to cut annual expenditures by up to 10%.
Why Is It Important to Manage Tail Spend?
Un-managed spend makes planning and forecasting complicated, inaccurate, and incomplete.
How to develop a tail spend management program?
Develop a solid plan that includes a crawl, walk, run approach. Begin by identifying one business unit that has a tail spend issue and roll out a tail spend management program. Ensure key stakeholders are bought in and aligned, and technologies, such as automated sourcing platforms, are connected to your P2P or ERP system. Socialize the importance and successs of the program to stakeholders and end-users.
What are the benefits to managing tail spend?
Utilizing digital technologies, such as intelligent sourcing, to source, track, and manage your tail spend, the result is greater cost savings, risk reduction, and efficiency.
How do you manage tail spend?
When you boil it down, the most difficult aspect of tail spend management is the lack of data and visibility. This can happen for a number of reasons such as procurement and contract management running on separate systems, siloed subgroups within the same organization (when they may be using the same vendors and resources), a large number of vendors, and decentralized policies. Download our full eBook on tail spend management fundamentals for a comprehensive guide on how to begin optimizing and managing your tail spend successfully.
What is maverick spend?
Maverick spend is spend that is not under contract, not managed by procurement, and is noncompliant (e.g., there are not 3 bids if 3 bids for a buy is corporate policy). Also known as rogue spend, maverick spend is a type of tail spend that can be a major cause of bloated spending at a company. P-card purchases are often a major source of maverick spend. These type of purchases usually are part of tail spend, but require a different set of strategies to get under control.
How much does digital data reduce annual expenditures?
According to Boston Consulting Group, companies that used digital data to manage tail spend cut annual expenditures by up to 10%. Gartner shared that procurement teams that successfully managed their organization’s indirect spending in 2019 delivered a return on investment of 6.88x and a savings rate of 6%. But teams managing only direct spend delivered a procurement ROI of 5.46x and savings rate of only 4%.
How much can tail spend save?
One study conducted by The Hackett Group estimated that 7.1% savings on average can be achieved by better managing tail spend, which often comes along with a reduction in time spent per purchase and increase in bids per RFQ.
When is tail spend 2020?
July 29, 2020. Tail spend, a concept that is common in procurement departments but rarely optimized, is finally getting its time in the spotlight. By having a sound tail spend management strategy, a procurement department can become a key competitive advantage for an organization. In a down economy when cost-cutting is a high priority, ...
Why is proper management of tail-end spend important?
Until recently, it was practically impossible to find any company managing their full strategic spend properly. For example, ten years ago, most organizations were only confidently managing 40 maybe 60% of that spend. Luckily, this is not the case anymore.
What are the challenges associated with tail end spend?
Some of those include: misclassified spend, high volume - low price, one-time spend, maverick spend, fragmented spend and low volume - low price. Other challenges associated with managing tail-end spend may include factors like poor data quality and visibility, seemingly low savings potential and lack of a dedicated team to manage it.
What needs to be done in order to manage tail-end effectively?
Typically a company would start with a six month tail-end spend assessment where the goal is to define the tail spend, evaluate the opportunities and make a business case comprised of savings, investments and operating models to outsource the tail spend management. The process would look somewhat like this: analyze, source, contract, procure and pay.
What does unmanaged spend mean?
With all of the corporate sustainability issues in the spotlight, unmanaged spend means companies may be doing business with suppliers that violate their own CSR principles. For example, it can be discovered that one of your suppliers was using child labor or heavily polluting the environment. The damage could be irreparable and the reputational impact alone could lead your company to a downward spiral.
What is the risk of unmanaged tail end spend?
Another type of risk that is common of unmanaged tail-end spend is a best practice risk. When companies let people from across the business buy from whomever they want, there is a chance that they will just buy from a personal connection, or from a supplier with whom they have a historic relationship.
What is tail end in procurement?
The tail-end of a procurement department’s spend refers to the 20% of non core transactions that are left unmanaged, usually due to a high volume of suppliers and limited in-house resources.
What is spend analytics?
Spend analytics. Perform thorough analysis to identify radical spending and transaction data classification in order to achieve greater tail-end spend visibility. Deep-dive analysis will identify appropriate strategies to tackle the spend at a category or supplier level.
What is tail spend?
Tail spend is high-volume, low-value expenses that, on average, make up 80% of the average company’s transactions and 20% of total spend.
What is spend management platform?
A spend management platform automatically identifies all active subscriptions and predicts upcoming payments—no more surprises or manual tracking.
What is ramp spend management?
Ramp’s spend management software, in combination with our powerful corporate card, offers every feature you need to get your organization’s tail spend under control. Let us help you save time and money so you can focus on growing your business.
What is the biggest issue with traditional vendor management?
The biggest issue with traditional vendor management is that it is time-consuming and labor-intensive. Traditionally, things are spread across multiple channels, and every approval has to be done manually, so expenses and approvals inevitably get lost in the shuffle. With a spend management platform, everything is simplified by centralizing vendor data and applying seamless approval processes that enables significant cost reduction while also saving time and keeping everyone accountable.
What is tail spend?
Tail spend typically refers to the many high-volume, low-value transactions that take place in an organization that are typically unmanaged by procurement. In most companies, nobody actively manages tail spend at all.
What is the spend threshold for a company?
Most organizations establish spend thresholds to determine which purchases are actively managed by the procurement team. These vary depending on company size. For example, a small to medium-sized business might have a spend threshold of $10,000, while very large companies may have a threshold of $1 million or more.
What is the problem with segmenting spend by cost?
The problem with segmenting spend by cost is that even low-cost purchases can carry risk or societal impacts. For example, choosing a very low-cost caterer could potentially lead to a sub-standard meal being served at a corporate event (risking reputational damage) or even risk food safety breaches.
What is sub-threshold spend?
Sub-threshold purchases take place without the involvement of procurement. Maverick spend occurs when somebody in the business makes a purchase over the threshold without involving procurement, or otherwise do not follow policies or rules.
What percentage of total spend is strategic?
An organization’s top 20% of suppliers typically account for 80% of total spend and are considered strategic.
What are the potential sources of value hidden in the tail?
Alongside cost and risk, there are other potential sources of value hidden in the tail such as small, innovative suppliers who could (if engaged directly) come up with game-changing ideas for your organization, or environmentally conscious or diverse suppliers who could help contribute to your enterprise sustainability goals or CSR targets.
Is managing tail spend worth it?
If you had asked this question 15 to 20 years ago, the answer would have been no, because procurement simply couldn’t hope to track such a high volume of transactions manually. But with so many procurement technology solutions on the market place, it is now possible to achieve granular visibility of every transaction that takes place in real time. Artificial Intelligence and Machine Learning are rapidly getting better at categorizing spend, which enables advanced analytics and subsequent benefits including:
What is tail end spend?
For those of you new to procurement, tail-end spend is typically defined as 80% of the company’s transactions that only account for around 20% of the actual total company spend .
What is the biggest issue that most companies face in attempting to address their tail-end spend management?
The biggest issue that most companies face in attempting to address their tail-end spend management is a lack of spend data and real-time visibility. This is because, again, there is no single definition for tail-end spend, and every organization is going to find slightly different difficulties in their spending management strategies.
Why is spend management important?
In the context of a business, a family, a single person, or even a non-profit: spend management is a critical component to financial longevity and operational optimization. There are many aspects to spend management, and all of them are just as important as the last.
Is tail spend difficult?
There are a few major obstacles that make it difficult to manage tail spend. However, as more advances are made in technology and the tail spend management software that procurement professionals rely on, there are more ideas and tactics for tail end spend management processes than there ever have been before.
Unlocking the value of tail spend
Providing an end-to-end service that features advanced analytics, supplier consolidation and management, and e-catalogues that boost the efficiency of procurement processes for end-users, we drive efficiencies and strategic initiatives that generate measurable results in lower value spend areas.
Our Approach
Discovery [Find the Money] - Using state-of-the-art tools we capture data from systems across the enterprise, we deliver full transparency into the organisation’s tail spend and the potential opportunity to make savings.
