Most organisations don’t bother with tail spend management, preferring to focus on core spends. They believe that tail spend is inconsequential, as the majority of spend is due to core and category spends.
If you are new to procurement, here are some reasons to focus on tail spend management and help your organisation:
Tail spend management is not about one-time saving. Instead, with effective strategies in place, an organisation can make ongoing savings. Overspend is usually a cause of concern when it comes to tail spend. Most organisations end up paying 30% more for tail spends than the cost of items. This significant amount can be minimised with the right management practices across tail spend categories.
Reduction in maverick spend
Maverick spend ends up bypassing procurement and purchasing from a supplier without due diligence or contract. Such suppliers can overcharge. But with the right tail spend management practices in place, procurement can centralise this spend, ensuring that maverick spends do not take place.
Tail spend management helps procurement with compliance as the company purchases items only from approved vendors and suppliers. This method of procurement allows the organisation and the supplier to adhere to the terms of the contract.
Reduces organisational risks
About 20% of a company’s total spend is on tail spend. As it is often invisible, organisations do not realise the impact it has on their bottom line. Unsupervised and maverick spends can harm company reputation, supply risk, compliance issues, and high cost of processes. The moment procurement works to manage tail spend, they help limit these risks.
Procurement professionals should take a closer look at tail spend as there are several opportunities to manage and reduce it. Tail spend management will allow procurement to make a valuable contribution to their organisation.