Analyzing the Four Segments of Tail Spend Management

Posted by Negotiatus on October 25, 2018 at 4:57 PM

Regardless of which industry a business operates in, it needs to establish a few processes for its spend management. This does not only ensure savings in the short term but also has a direct impact on supplier relationship management (SRM) that has long-term effects on the business's efficacy, strategic spending and overall level of success in its respective sector.

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While most companies provide the utmost attention to their major spend segments and suppliers and, as a result, get a firm grasp over their spend management, there are still a few aspects that fall through the cracks of even the most stringently placed management models. Tail spend is one of them.

Often cited as one of the most difficult problems to deal with in terms of procurement, tail spend is a perpetual pain point for many organizations. The purchases in tail spend are often executed not through procurement specialists but by everyday employees, who are often not able to research the best price to purchase a product or not able to agree upon a single supplier for the same product, among many other issues.

On top of that, these off-the-grid, low-level purchases also make tail spend very difficult to track by any business's spend management model. If you notice any of these issues within your company or are aware of the other issues that come with tail spend management, then you can implement a four-way segregation model to manage your tail spend more efficiently.

 

The 4 segments of tail spend management

When it comes to business management and strategy, Accenture's name needs no introduction. When the firm came out with its four-segment tail spend management model, it was no surprise to see that it did not only identify the most crucial points experienced with tail spend, but also reflected on how those issues could be managed effectively.

The four segments below highlight the different aspects of tail spend and how businesses like yours could tackle these issues optimally.

 

Hidden Tail. Perhaps the biggest problem with tail spend, the "Hidden Tail" model refers to transactions that start with no trail from your spend management model. For instance, purchases made through suppliers with whom you do not have any existing contracts in place fall under this category.

Since all of the documented data with those purchases remain off the grid, it causes contractual, delivery and post-usage issues, all of which can be detrimental to your business' progress. To resolve this Hidden Tail issue, direct your purchase personnel to determine such spends with suppliers that have no existing contracts in place with you.

If there are other suppliers in the same category with whom you have existing contracts or who are already recommended for purchases, then ask your non-purchase employees to only deal with these recommended suppliers.

By eliminating these issues, you can effectively address the Hidden Tail, and track tail spend through this model quite easily.

 

Head of the Tail. The "Head of the Tail" refers to spending that is not managed strategically and yet remains the highest of spends on your tail spend categorization. For many organizations, this could mean spends between $50,000 to $1 million per year.

To address this issue, work with your purchase department to analyze the highest level of spend. Once again, if they can look for existing and new suppliers who can provide the same products at cheaper rates and communicate the same to your non-purchase employees, it would go a long way in reducing your purchase costs.

 

Middle of the Tail. The "Middle of the Tail" refers to spends of $2,000 to $200,000 per supplier. Since the spend is relatively small, it is often overlooked by purchase personnel when accounting for these transactions.

However, you should actually take the opposite approach to this spend. If a single supplier's spend falls within this category, then you need your purchase personnel to look into the products that have been bought and determine optimal ways to purchase them, even if it means doing so via the same supplier through proper contracts.

Otherwise, if you already have suppliers in place that deal with the same products, then ensure to direct this spend towards them so you can manage your costs and SRM more efficiently. This would allow you to keep a more optimal track of your suppliers and enable you to take the necessary steps for a more streamlined mode of supplier management.

 

Tail of the Tail. While it sounds like a tongue twister, the "Tail of the Tail" segment is as equally important as the aforementioned three segments that have been noted above. Any suppliers that have a less than $2,000 spend from your firm falls under this category. While spends that are so minute are often processed under the radar, the number of suppliers here can often be alarming, as small transactions have higher chances of coming from different suppliers.

This creates a big issue on supplier tracking and management, and the costs that have already incurred through these spends are another issue in and of itself. However, you can still get a hold of this situation. By analyzing the kind of suppliers where most of this small spend went, your purchase personnel can put proper channels in place for the future to deal with the purchase of such products in upcoming situations.

Using these four segments of tail spend management can help you streamline your processes, control your costs and move towards a more beneficial SRM model.

 

Negotiatus can give you visibility into all of 4 segments of tail management

Negotiatus can help you take care of the most essential procurement tasks with ease. As a company that operates on the idea of making day-to-day processes easier, Negotiatus is a provider of solutions that incorporate existing purchasing models and developing trends into account to deliver an optimal experience to its customers.

If you are looking for spend management solutions that could help you pull off your daily tasks with ease, reach out to Negotiatus today.

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Topics: tail spend, spend management