Defining and managing tail spend
Tail spend is defined as the bottom 20% of spend that accounts for 80% of suppliers. It can be effectively managed through a combination of strategic sourcing, supplier consolidation and process automation.
What is tail spend management?
Tail spend management is a strategic approach to manage, control, and reduce the procurement spend that is not managed due to its low value or infrequent nature. Despite its seemingly insignificant nature, tail spend often accounts for a significant portion of a company's total spend, making its management crucial for overall cost savings and efficiency.
How does tail spend management work?
Tail spend management involves the process of identifying, analyzing, and streamlining tail spend purchases. It aims to bring the unmanaged spend under management, thereby reducing costs, improving efficiency, and gaining better visibility into the company's total expenditure.
Benefits of tail spend management
Effective tail spend management can lead to significant cost savings, improved efficiency, and better supplier relationships. It can also reduce the risk of fraud and non-compliance, providing greater control over the company's financial operations.
Increased cost savings
One of the most significant benefits of tail spend management is the potential for increased cost savings. By bringing the unmanaged spend under control, companies can negotiate better deals with suppliers, eliminate unnecessary purchases, and reduce procurement costs. This can result in substantial savings that directly impact the company's bottom line.
Improved efficiency
Tail spend management can also lead to improved efficiency in procurement processes. By streamlining and automating the process of identifying, analyzing, and managing tail spend purchases, companies can reduce manual effort and errors, save time, and improve productivity. This can also free up the procurement team to focus on more strategic tasks.
Better supplier relationships
Effective tail spend management can help companies build better relationships with their suppliers. By consolidating suppliers and negotiating better deals, companies can foster stronger, more strategic relationships with their key suppliers. This can lead to better service, better terms, and a more reliable supply chain.
Greater visibility and control
Tail spend management provides greater visibility into a company's total expenditure. By bringing the unmanaged spend under control, companies can gain a complete picture of their procurement spend, which can inform better decision-making. It also gives companies greater control over their financial operations, reducing the risk of fraud and non-compliance.
Risk reduction
Unmanaged tail spend can expose companies to various risks, including fraud, non-compliance, and supply chain disruptions. Tail spend management helps mitigate these risks by bringing the unmanaged spend under control, implementing controls and safeguards, and improving visibility and tracking.
Enhanced decision-making
With the insights and analytics provided by tail spend management, companies can make more informed decisions about their procurement spend. They can identify trends, spot opportunities for savings, and make strategic decisions to optimize their procurement processes and spend.
Automating tail spend management
Automation plays a crucial role in tail spend management. It simplifies the process, reduces manual effort, and provides valuable insights and analytics.
Identification of tail spend
The first step in automating tail spend management is the identification of tail spend. This involves analyzing the company's procurement data to identify the purchases that fall into the category of tail spend. Advanced analytics tools can automate this process, quickly and accurately identifying tail spend from large volumes of procurement data.
Analysis of tail spend
Once the tail spend has been identified, the next step is to analyze it. This involves understanding the nature of the tail spend, the suppliers involved, the frequency and volume of the purchases, and other relevant factors. Software can automate this analysis, providing deep insights into the company's tail spend.
Streamlining tail spend purchases
The next step in automating tail spend management is the streamlining of tail spend purchases. This can involve consolidating suppliers, negotiating better deals, and eliminating unnecessary purchases. Procurement automation tools can streamline this process, automating tasks like supplier negotiation and purchase order creation.
Monitoring and control of tail spend
Once the tail spend purchases have been streamlined, the final step is to monitor and control the tail spend. This involves tracking the tail spend purchases, ensuring compliance with the procurement policies, and continuously looking for opportunities for further savings. Spend management platforms can automate this monitoring and control, providing real-time visibility into the tail spend and alerting the procurement team to any issues or opportunities.
Supporting financial teporting and compliance
AP Automation provides a clear audit trail of all AP activities, simplifying financial reporting and compliance. For e-commerce businesses operating in multiple regions, this is particularly beneficial as it helps them adhere to various regional financial regulations.
Frequently asked questions about tail spend management
Tail spend management is the process of managing, controlling, and reducing the procurement spend that is not managed due to its low value or infrequent nature. It benefits companies by leading to significant cost savings, improved efficiency, better supplier relationships, and greater visibility and control over financial operations.
Despite its seemingly insignificant nature, tail spend often accounts for a significant portion of a company's total spend. Therefore, effective management of tail spend can have a substantial impact on a company's overall expenditure and cost savings.
Full spend visibility and increased savings can be achieved through tail spend management by bringing the unmanaged spend under control, implementing controls and safeguards, and using digital tools to provide valuable insights and analytics.
The steps to identify, streamline, and analyze tail spend purchases include analyzing the company's procurement data to identify tail spend, understanding the nature of the tail spend, consolidating suppliers, negotiating better deals, and eliminating unnecessary purchases.
Tail spend management controls, monitors, and tracks transactions by implementing controls and safeguards, using digital tools to track the tail spend purchases, and providing real-time visibility into the tail spend.
Unmanaged expenditure refers to the procurement spend that is not managed due to its low value or infrequent nature. This is often referred to as tail spend.
Process and automation can help reduce the impact of tail spend on procurement budgets by streamlining and automating the process of identifying, analyzing, and managing tail spend purchases, thereby reducing manual effort and errors, and achieving cost savings.
A spend management platform can be used to reduce tail spend and curb miscellaneous expenses by providing tools and features for identifying, analyzing, and managing tail spend purchases, automating the process, and providing valuable insights and analytics.