3 Things You Need to Know About Tail Spend Management

Posted by Negotiatus on October 12, 2018 at 5:02 PM

Every business knows how crucial spend management is to a business' success. That is why it is not a surprise to see businesses from all over the world placing significant effort to make sure that they are assimilating, analyzing and controlling their spend management processes in an optimal manner. However, even after treating spend management as a crucial aspect, many companies still overlook the subject of tail spend management.

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While several institutions are aware of how much they are collectively spending on microtransactions across a plethora of suppliers, which make the "tail" (or around 20 percent of a business' total spend), not many pay enough attention to effectively manage this tail spend. They don't pay enough attention, simply because going through a multitude of microtransactions seems more time consuming than it's worth to them.

If your organization falls under this category, then you need to rethink your strategy. Whatever your reasons for ignoring tail spend management may be, then the approach could be detrimental to your business.

And here are the reasons why.

 

Ignoring your tail spend could lead to poor supplier relationship management

When it comes to tail spend, most companies seem to have made peace with the idea that it is simply an uncontrollable aspect of total spend. That is why, for some firms, tail spend is just another way of referring to something that is not controlled on the same level as a company's overall spend with larger transactions.

The fact of the matter is, microtransactions in tail spend take more time to sort out than other larger purchases made by the same company. Yet, this may point out another fact. The number of suppliers that a company deals with through these transactions means that it does not have a proper supplier relationship management (SRM) process in place.

Not giving enough attention to tail spend could mean that you are throwing away the concept of SRM, and also spending more money than required on even more suppliers that you have to deal with. For instance, if you already have a stationery supplier, having another stationery supplier in your tail spend transactions renders that partnership ineffective. You could have effectively earned some rapport by buying stationery from the same supplier, but you were simply not able to do so because you were not looking at the microtransactions in the first place.

Make sure to coach your non-purchase personnel about your suppliers and encourage them to agree on single suppliers from every industry and tell you about their future needs, so you could have new supplier contracts in place and bring your SRM process back where it should be.

 

Tail spend management could lead to massive cost savings

As briefly mentioned above, apart from earning rapport from suppliers and moving towards an effective SRM program, effective tail spend management can also help you cut costs. Buying from a multitude of suppliers, most of which operate in the same segment, also means that your company is spending more than it should.

If a supplier is selling a product or service at even a few dollars more than another supplier who is also on your list of tail spend, then it means that those extra dollars are being spent inefficiently. That is why, analyzing costs, suppliers and total spend could not only help you know your suppliers but also help you save a massive amount of money just by controlling the flow of a few transactions without affecting any other results of the purchase.

The process may be time-consuming but seeing the savings that you can derive from it would truly be worth it.

 

Implementing management processes once could make future handling easier

"Tail spend fatigue" is often touted as a big reason organizations do not find enough time to look into tail spend management at all. In this phenomenon, purchase personnel are spending so much time in processing hundreds of tail spend transactions and handling their other issues that they hardly get the time to go through the other 80 percent "managed" spend of the firm.

Take a step back and look at the bigger picture, determine how spending a certain amount of time at tail spend management can translate to easier and more efficient workdays for you and your purchase personnel on an ongoing basis.

Depending on the size of your company, it should only take a few days for you to streamline everything you need to implement a new process and effectively manage your tail spend. By putting in the time once, you can harvest savings in time and money for months and even years to come.

By making sure that you have a firm grasp over all of these aspects, you will no longer have to ignore tail spend as an uncontrollable force but would be able to benefit from this segment while your competitors may still be striving to do so.

Advancements in procurement technology can help you implement effective tail spend management strategies

Advancements in procurement technology have now made it possible for businesses to tackle the issue of tail spend management in a more streamlined manner.

There are many solutions on the market that can address tail spend issues, but one of them stands out due to its ease of use. As a solution with a holistic approach to spend management, Negotiatus leverages such advancements in an optimal manner and ensures that you have everything you need to solve your tail spend problems.

If you are looking for a simple yet intuitive spend management solution to help you with this difficult aspect of your spend, then reach out to Negotiatus and bring your tail spend management up to speed today.

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Topics: spend management, tail spend