Managing tail spend with a GPO allows for transforming it into a strategic advantage, leading to more savings, improved visibility, and more.
Some business tasks are traditionally seen as prime candidates for outsourcing. IT support? Check. Customer service? Absolutely. Bookkeeping? You bet.
Yet, there’s one critical area that often flies under the radar: tail spend management.
At Una, we’re proud of our ability to help bring your tail spend under management. It's one of our greatest strengths, and a task that members often ask us for assistance with. Here’s how we do it.
What is Tail Spend?
Tail spend refers to the many small, often overlooked purchases that make up a significant portion of total procurement spend. Typically, these items account for around 20% of a company's purchases but can represent up to 80% of spend.
What Constitutes as Tail Spend?
What’s tail spend made up of? Generally, anything that isn’t under the direct supervision of the procurement team. This will differ between organizations, but might include:
- Maverick Purchases: Maverick spend is all unapproved or off-contract transactions made by employees. These purchases bypass established procurement processes and can lead to higher costs and compliance issues.
- Spot (One-Off) Purchases: One-time transactions that occur outside of regular procurement channels. They often happen when immediate needs arise (say, catering for a special event or ad-hoc software licenses), but they can lead to missed opportunities for volume discounts or better pricing.
- Sub-Threshold Purchases: Sub-threshold purchases are transactions that fall below a predetermined spending limit, allowing employees to make purchases without going through procurement processes. These small purchases will accumulate and contribute significantly to tail spend.
Why is Tail Spend Often Put in the "Too Hard" Bucket?
Tail spend tends to get overlooked in procurement, and it’s easy to see why.
First: complexity. Tail spend is made up of lots of small purchases that can be tough to track. With so many transactions, it’s overwhelming for procurement teams already focused on larger contracts. Plus, tail spend covers everything from office supplies to travel, making it a mixed bag that’s tricky to manage.
Visibility is another issue. Tail spend often hides in spreadsheets, emails, and various systems, making it hard to see where the money is going. Without a clear view, identifying savings opportunities can feel almost impossible. Many teams also lack the tools needed to analyze this data effectively, leading to missed chances for savings.
Resource constraints play a big role, too. Procurement teams often work with limited budgets and staff, which makes it tough to focus on tail spend. They naturally prioritize larger contracts that promise immediate benefits. Implementing changes to how tail spend is managed can require buy-in from various stakeholders, adding another layer of complexity.
Finally, employees often develop habits of making quick, unapproved purchases for convenience. Changing this behavior can be a challenge, especially when tail spend is seen as less impactful than larger purchases, leading to it being neglected.
The result? More of a drain on the bottom line and missed opportunities for savings and spend optimization.
Benefits of Managing Tail Spend
It takes time and resources to bring unruly tail spend under control. But is it worth it? Absolutely! Actively managing tail spend is filled with benefits that can transform your organization. Here’s how:
Improve Spend Visibility
Without central visibility, optimizing your spending becomes nearly impossible. Moving all tail spend into a centralized purchase-to-pay system is essential. While this requires initial change management, staff training, and patience, gaining visibility enables spend analytics and its many benefits.
Utilizing procurement software powered by AI will help group and categorize spend through advanced analytics and process automation.
Unlock Hidden Savings
Analyzing the spend tail reveals numerous opportunities for cost reduction, such as establishing clear purchasing policies, creating online catalogs for common categories, and addressing maverick spend. Consolidating suppliers and deliveries can increase buying power and lead to better negotiations.
Additionally, reviewing purchasing requirements helps eliminate unnecessary expenses, while training staff fosters a cost-conscious culture. Implementing reverse auctions can also drive down costs, and outsourcing tail spend categories to a group purchasing organization (GPO) unlocks volume discounts. Tail spend may seem small, but it can accumulate to millions of dollars in certain organizations.
Reduce Risk
Risk mitigation is a compelling reason to focus on tail spend management. Combining resources, including guided buying and a low-dollar sourcing desk, enhances the management of this area. Using procurement software to monitor unusual spending patterns in real-time is crucial.
For instance, keeping an eye on products or services purchased at significantly higher or lower amounts can prevent overspending and identify potential risks. Categories with a higher risk profile warrant elevated monitoring to minimize exposure to maverick spend.
Tap Into Innovation
Many small suppliers within the spend tail could be more agile and creative than larger vendors. Building genuine relationships rather than transactional ones opens the door to innovation. Engaging with suppliers in categories like IT hardware can lead to innovative solutions.
However, innovation isn’t limited to cutting-edge technology; it may involve small changes that reduce costs, decrease risk, or increase efficiency. Identifying potentially innovative suppliers in the spend tail and encouraging them to share new ideas can yield significant benefits.
Managing Tail Spend With a GPO
When you reach out to Una, you’re getting more than just a group purchasing organization; you’re choosing a partner in procurement. Una becomes an extension of your procurement team, ready to tackle your tail spend challenges head-on.
Here’s how we do it in three simple steps:
1. Discovery Call
Our process begins with a 30-minute discovery call. This isn’t a sales call (membership with Una is always free); it’s a two-way conversation with one of our Sourcing Advisors. We’ll discuss the specific tail spend challenges you face and your procurement goals, aiming to understand what success looks like for you. This helps us identify relevant opportunities and establish timelines together.
2. Cost Analysis
Next, we conduct a detailed cost analysis, focusing on one category at a time. This step is crucial for identifying potential savings along the spend tail, improving spend visibility, and seeking opportunities for consolidation and streamlining. We’ll also benchmark your current pricing against industry standards to ensure you’re getting the best deal.
3. Supplier Connections
Finally, we’ll help you connect with top suppliers to lock in those spend tail savings. With Una’s catalog of pre-negotiated contracts, you gain access to the best possible pricing without the lengthy negotiation process. This means faster access to savings and better overall procurement efficiency.
You can also watch a quick video that covers some FAQs regarding our sign up and onboarding process:
Unlocking Benefits with Una
By partnering with Una, you’re transforming tail spend into a strategic advantage. Significant discounts in indirect categories such as office supplies, travel, and technology are just the beginning. With our expertise, you’ll experience improved procurement efficiency, enhanced supplier relationships, and greater visibility into your spending.
Ready to get started? Join now so we can tackle tail spend together.
