You don’t need more people to tackle tail spend. What you need is a smarter framework to take control.
Tail spend accounts for up to 20% of your total procurement budget but represents a staggering 80% of your supplier base. It’s also where risk, maverick spend, and value leakage tend to hide. Many teams ignore tail spend because it’s messy, fragmented, and often perceived as not “worth the effort.”
However, unmanaged tail spend adds up quickly, putting compliance, savings, and supplier diversity at serious risk.
A Smart Framework for Managing Tail Spend
With that in mind, here’s a five-step framework to help you manage tail spend effectively without increasing your headcount.
1. Get Full Visibility
First things first: you need to see what’s going on.
Consolidate all your data into one system. This might mean investing in purchasing software or requiring that all purchases go through a centralized platform. Make sure whatever you choose integrates smoothly with your existing systems.
When you centralize your data, tracking spend patterns becomes a breeze. You’ll easily spot areas where you can cut costs and ensure everyone is playing by the procurement rules. Having a clear view of expenditures allows you to identify which categories are contributing to tail spend and where negotiations or consolidations may be beneficial.
2. Eliminate Maverick Spend
To reign in maverick spend, start by identifying non-compliant buying behaviors. Understand the root causes and tackle them with training, improved processes, or user-friendly tools that guide employees toward approved suppliers.
But remember, keep it simple! Your procurement policies shouldn’t feel like a chokehold. Employees often resort to maverick spending because the approved processes are too complicated or time-consuming. Offer them some choice while clearly defining rules and boundaries around spending. When employees feel empowered and informed, they are less likely to stray from the approved path.
3. Analyze the Data
Now that you have visibility, it’s time to dive into the data. Use analytics to segment your suppliers, identify trends, and highlight any outliers. Focus on KPIs that align with your procurement goals. This step turns raw data into actionable insights.
For example, you can track spending by category and supplier to determine where your money is going. Look for patterns that may indicate overspending or potential consolidation opportunities all along the spend tail. By analyzing the data, you can develop targeted strategies that address specific areas of concern, ultimately leading to more informed decision-making.
4. Leverage Tech
Embrace technology to do the heavy lifting for you. Automation, AI, and machine learning can help identify savings, streamline workflows, and flag potential risks.
For instance, AI-driven analytics can predict spending patterns and automate supplier negotiations. By using machine learning algorithms, you can identify maverick spend and develop strategies to mitigate it. Plus, blockchain technology can offer transparency and security with smart contracts that ensure compliance and create audit trails.
With so many tech tools at your disposal, there’s no excuse for losing track of any spend, even if it’s a tiny amount.
5. Consider Outsourcing
Finally, remember that tail spend doesn’t have to be managed in-house. Group purchasing organizations (GPOs) or consultants can help streamline categories, reduce costs, and improve compliance.
For instance, Una works to obtain volume discounts from suppliers by leveraging the collective buying power of its members. This is especially effective for managing indirect or non-strategic spend, like office supplies, travel, and logistics; all of which can exist in the unmanaged spend tail. By outsourcing this aspect of procurement, you can free up internal resources to focus on more strategic initiatives.
Conclusion
Ready to take control of your tail spend? Remember, it all starts with the data. Unfortunately, there’s no avoiding this initial task: you need to consolidate and analyze your spending to make informed decisions.
With these five steps, you’ll be well on your way to mastering your tail spend and driving significant savings for your organization.
Download Una’s comprehensive guide designed to help you develop a framework for managing tail spend in a way that leads to reduced risk and increased cost savings:
