The ultimate guide to tail spend management
Tail spend seems to be one of those terms that frightens people, with aliases like rogue spend or maverick spend. From chasing paperwork to identifying rogue purchases, there is certainly a lot to consider!
While it might seem overwhelming at first, it’s a good idea to get your tail spend under control. In this blog, we’ll outline what tail spend actually is and our tips for managing it effectively. We’ll also explore the benefits of effective tail spend management. Keep reading to find out more!
What is tail spend?
Let’s get down to business. Tail spend covers all expenses in a company which aren’t considered regular. The good thing is that they’re generally considered low in the grand scheme of transactions. The distinguishing factor behind tail spend is that it’s too small for procurement, and not frequent enough for catalogued systems. Generally, tail spend is caused by other departments within an organisation, outside of the Procurement Team’s knowledge. This could include ad-hoc spending to support a contract, such as:
- Software
- Professional services
- Work trips
- Office supplies
- Marketing services
- Print and packaging
- Business services
- Signage and display
- Facilities
- Uniforms and apparel.
Essentially, it’s expenditure outside of contracts. Tail spend can also be something high value, in order to speed up processes.
The Pareto principle
Also known as the 80/20 principle, this attempts to cut costs by focusing on large multi-year contracts. For most Procurement Consultants, this is seen as a golden rule of procurement. This ultimately ensures further cost savings. The idea is that 80% of suppliers should cover 20% of a company’s expenditure.
Do you need to worry about tail spending and how to manage it?
Tail spend is generally described as ‘invisible’, as the purchases are too small or infrequent for the organisation’s procurement system. This can make tail spend management difficult to execute.
In most cases, these purchases aren’t life or death for a company. However, as tail spend is often left unmanaged, it can be difficult to identify cases of fraud or non-compliance.
What are the risks of tail spend?
Unfortunately, these transactions leave a paper trail for your Procurement Team, which can be time-consuming. Alongside the Finance and Warehouse Teams, they need to locate paperwork, pinpoint the stock’s arrival, and identify the purchasing individual. Purchasing outside of contracts can expose a company to more serious risks, such as non-compliance.
One of the obvious risks to tail spend is overpaying for a product or service. If strategic purchasing doesn’t take place, prices can vary wildly, even with the same product. If you’re not reviewing and tracking data, there’s little hope when it comes to identifying the largest areas of risk.
In terms of your company’s operations, risks can range from cybersecurity to supplier favouritism and fraud. With Pareto’s principle, 80% of your purchases aren’t managed effectively. Due to this, it’s difficult for buyers to know which suppliers provide products at the best price!
3 tips for tail spend management
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Identify your tail spend
Our first tip for tail spend management is to actually identify the tail spend in your organisation. This is an important first step. If you don’t identify your tail spend, you’ll struggle to manage it effectively.
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Streamline your processes
Your tail spend will be much easier to manage if you streamline your procurement processes. By centralising your procurement activities, you can simplify purchasing behaviour within your organisation, making it easier to keep track. As a result, rogue purchases are less likely to get lost.
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Work on your procurement data
Our next tip for tail spend management is to work on your procurement data. This means you should organise, classify, and analyse your purchasing activities. By doing this, you will have greater spend awareness and it will lead to informed purchases and business decisions.
What are the benefits of tail spend management?
Now you know our top three tips for tail spend management, but how will this benefit your organisation? Here are the benefits of managing your tail spend:
Managing your tail spend will allow your organisation to reduce costs and save money. This is because you’ll be closely analysing your spending behaviour, making it easier to find areas for improvement.
Tail spend management could also lead to increased productivity levels.
With effective tail spend management, Procurement Teams aren’t required to spend hours and hours chasing paperwork and identifying purchases. As a result, your team can focus their attention on activities that add more value to your organisation.
A major benefit of tail spend management is that it reduces the risk of non-compliance for your business. Closely monitoring your transactions as they occur will allow for increased transparency in your procurement processes. This will make it easier to prevent and detect fraud and, therefore, reduce the risk of further rogue spending.
How can I avoid tail spend in the future?
To prevent this procurement issue from occurring again, here are some of the things to look out for:
- Stretched purchasing systems
- Reduced purchasing control
- Lack of product standardisation
- Purchasing made outside of your suppliers/preferred channel
- Procurement not following guidelines/negotiated pricing
- Procurement that is considered too small for proper processing.
In summary
Effective tail spend management can help a procurement department put a company on the map. Now you’ve finished our blog, we’re confident that you’re well versed on what it takes to cut this procurement issue. You’re now knowledgeable about tail spend, and how exactly it can impact your business. You also know some of the risks and symptoms associated with this procurement issue. And finally, you’ve got the tools to tackle tail spend!
What if you’re still unsure when it comes to tail spend and procurement as a whole? Well don’t worry, we can help.
How can Hudson Procure help?
At Hudson Procure, our procurement experts have nearly two decades of experience. No matter what kind of support you’re looking for, we can help.
Procure Consult
With Procure Consult, we provide support with tender management and ad-hoc procurement consultancy. Our expert team will manage the end-to-end procurement process or offer assistance at any stage, as and when required.
Procure Health Check
With Procure Health Check, we’ll conduct a full review of the strategic and operational procurement processes within your organisation. We’ll identify the areas that need improvement and help you drive greater value from the procurement process.
Procure Analyse
The purpose of Procure Analyse is to conduct a high-level analysis of your spending activity. We’ll help you understand your current purchasing behaviour and highlight areas that can deliver greater value. Procure Analyse is offered as part of Procure Health Check or as a standalone service.
Procure Outsourcing
With Procure Outsourcing, we deliver a range of procurement solutions on an outsourced basis, completely bespoke to you. This can range from delivering multiple tender projects as a package to delivering the full procurement function of your organisation.
Procure Post
With Procure Post, you can share your tender on one or more of our 11 sector-specific portals. We’ll advertise your tender to our community of engaged suppliers, looking to deliver similar contracts. This way, you’ll increase your chances of finding the perfect supplier. The best part? Procure Post is completely free with no limitations on the quantity of tenders you can upload.
Get in touch for a consultation and find out how we can help your organisation drive greater value for money.
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