How to Manage Tail Spend
Gain visibility and capture savings
A play-by-play for identifying, analyzing, and taming tail spend with five proven management methods, three outsourcing options, and how a GPO does the heavy lifting for you.
WHAT'S INSIDE:
- Tail spend makes up the 80% of suppliers accounting for only 20% of total spend that is mostly unmanaged and invisible
- Digitizing tail spend and centralizing transactions can cut costs 5–10%; active management can exceed 10%
- Five traditional methods: standardization, bundling, catalogs, P-Cards, and tail spend category management
- Three outsourcing options: consultants, technology, and a GPO — each addressing different needs and budgets
- A GPO acts as an extension of your procurement team analyzing data, connecting contracts, no sourcing event required
- Una membership is always free, with no purchasing minimums or contract lock-ins
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Reach Full Visibility & Increased Cost Savings
Contact Una today to request a comprehensive cost analysis and see how the power of group purchasing can gain control of tail spend.
What Is Tail Spend?
Procurement professionals are responsible for managing spend across an organization. Most of their efforts are focused on the top 20% of supplier relationships, which typically accounts for about 80% of total spend.
The remaining 80% of suppliers combined account for only about 20% of spend, involve hundreds of low-value transactions, and are largely ignored by procurement because they're deemed individually insignificant.
These high-volume, seemingly low-value transactions are what make up tail spend.
Tail spend is mostly tactical, almost always indirect, and is left uncategorized meaning transactions aren't included in cost-savings initiatives or run through any procurement approval process. Common categories include office products, print, packaging, business travel, professional services, marketing, facilities, and temporary staffing.
The Pareto Principle & Your Tail Spend
Most procurement professionals use the Pareto Principle (the 80/20 rule) as a guide for understanding what spend is worth actively managing.
STRATEGIC SPEND
20%
of suppliers account for 80% of total spend that is carefully managed with strategic relationships that receive focused procurement attention.
TAIL SPEND
20%
of suppliers account for only 20% of spend that is considered tactical, usually left uncategorized, and rarely subject to procurement oversight.
Organizations also establish spend thresholds to determine which purchases are actively managed. These vary by company size. A small to medium-sized business might have a threshold of $10,000, while very large companies may set $1 million or more.
Purchases beneath the threshold happen without procurement involvement. These are sub-threshold purchases, and they constitute the heart of your spend tail.
How to Identify Tail Spend
1.
Are there entire spend categories currently left completely unmanaged like office supplies, business travel, or facilities maintenance?
2.
Does your organization have spend thresholds established for categories managed or unmanaged outside of procurement?
3.
What portion of your company's spend falls beneath the allowed threshold and is it even trackable yet?
4.
How are buyers purchasing across the organization? Are they using third-party websites, email, or phone outside of procurement systems?
Is Tail Spend Worth Getting Under Control?
If you had asked this question 15 to 20 years ago, the answer may have been no. Procurement simply couldn't manually track such a high volume of transactions. But with procurement technology solutions now widely available and affordable, it's possible to see granular visibility of every transaction in real time. The barriers that made tail spend feel unmanageable have largely been removed.
Four benefits make getting tail spend under control worth the effort:
Improved Visibility of Total Spend
Data is king. No procurement team can claim total visibility if they can only see spend with the top 20% of suppliers. Expanding visibility to include tail spend is the first step to unlocking additional savings and identifying risk. Your goal is to move all tail spend out of invisible channels — emails, phone calls, spreadsheets, and disparate systems — and onto a centralized purchase-to-pay system.
The digitization of procurement, including advanced analytics, AI, and automation, now provides visibility into hundreds of thousands of transactions. This enables procurement to tackle tail spend with greater precision than ever before.
Cost Savings
There's more to procurement than cutting costs, but this is undeniably the primary motivator for getting tail spend under control. Research shows that digitizing tail spend and moving transactions onto a centralized system can cut costs by 5–10%. For larger organizations, these savings compound quickly.
27% of actively-managing companies saved 5–10% annually; 30% saved more than 10%.
Identify and Reduce Risk
What risky behavior is taking place in the spend tail? Even though a purchase may be below the spend threshold, it can still have a high risk profile. Without visibility, it's impossible to keep track of unusual costs, potential ethical breaches, or procurement fraud.
The same due diligence you apply to strategic suppliers should be applied — at some level — to tail spend vendors.
Supplier Innovation
Small suppliers are often more innovative than larger organizations. They can respond to requests faster, pivot quicker, and implement new ideas with less bureaucracy. An SME buried deep in your organization's spend tail may be harboring a cost-saving or product-improving idea that will never surface if the relationship stays purely transactional.
Tail spend also offers opportunities for socially-conscious procurement, like prioritizing minority-owned suppliers.
To identify savings opportunities in your tail spend, ask: Do buyers source three quotes before purchasing? Are catalogs available for common categories? Do you have a process for addressing maverick spend? Does consolidating suppliers make sense? Can staff be trained to create a cost-conscious culture?
5 Methods for Managing Tail Spend
If you're used to a "set-it-and-forget-it" approach to tail spend, the risks are well known like increased maverick spend, poor visibility, and lost savings.
Here are five established methods for getting it under control, ranging from process-level changes to full category management discipline.
1.
Standardization
Simplifying and standardizing products and services leads to optimum supply chain performance and cost savings. Standardization also helps streamline purchasing and offers structure to a complicated area of spend, reducing the number of variants buyers can choose from and making compliance easier to enforce.
2.
Bundling
Consolidating spend with fewer suppliers through standardized contract terms leads to improved organizational efficiencies, better service, and lower costs. Bundling simplifies the procurement process and increases leverage per supplier relationship, delivering the volume discounts that distributed tail spend purchasing can never achieve.
3.
Catalogs
A procurement catalog outlines which products and services are available from approved suppliers. Employees and buyers can access the catalog internally to see exactly what they can order and from whom. Catalogs yield higher levels of control and visibility of spend while promoting buyer autonomy. Procurement is less likely to need to intervene because buyers can help themselves within guardrails.
4.
Purchasing Cards (P-Cards)
A purchasing card allows buyers to make purchases on a charge card similar to a consumer credit card while giving the business control over where and how much cards can be used at any given time. P-Cards help control the purchasing channel and spend amounts while preserving buyer flexibility for low-value, high-frequency purchases.
5.
Tail Spend Category Management
Category management is a strategic approach to procurement. Treating tail spend as its own category and applying the same best-practice methodologies you use for strategic categories is one of the most effective ways to get it under control for good. Continual analysis of trends, risks, and demand changes within the tail will give you a clear picture of what's being purchased, when, and from which suppliers. You'll take a proactive sourcing approach, build better supplier relationships, and identify areas for ongoing improvement.
Outsourcing Tail Spend: Three Options to Consider
If you're still finding yourself up against barriers when it comes to managing tail spend with the traditional methods above, outsourcing tail spend management may be the right solution. There are just as many factors to consider as there are tail spend categories.
These three options can be used individually or in combination. The right path depends on your team's capacity, budget, and the categories involved.
OPTION 1
Procurement Consultants
An effective way to manage tail spend is to enlist the help of an external consultant who can advise on integrating effective tail spend management processes into your organization's overarching category strategies. Look for a generalist with a wide lens who can diagnose inefficiencies and identify new opportunities across multiple categories, not a specialist who can only solve one problem.
The goals of any good consultant should be to drive profitability and create strategic value through your procurement function. Be warned: quality procurement consultants are not cheap, and engagement costs need to be weighed against the savings potential they unlock.
OPTION 2
Implement Tail Spend Technology
Digitizing procurement processes with technology and automation has proven transformative for tail spend specifically, making it possible to achieve granular real-time visibility of every transaction. Procurement software can automate clunky processes, bring more of your spend under management, require all buyers to purchase through a unified system, monitor and flag high-risk spend patterns, and funnel spending to preferred suppliers.
Tail spend technology can be costly, but for larger organizations where the spend tail represents hundreds of thousands or millions of dollars, shaving even 1% off that spend makes a significant bottom-line impact. The right technology will also track progress toward tail spend management KPIs, giving you measurable proof of improvement over time.
OPTION 3 (RECOMMENDED)
Outsource to a Group Purchasing Organization (GPO)
GPOs leverage the collective buying power of their members to obtain volume discounts from suppliers. Once you join, you access pre-negotiated contracts and receive discounted pricing on goods and services you're already buying, saving money, time, and effort without running a full sourcing event.
GPOs are particularly effective for indirect and nonstrategic spend which is exactly where tail spend concentrates. A GPO acts as an extension of your procurement team, helping you analyze tail spend data, consolidate your supply base, identify high-risk or high-cost areas, and establish which categories would benefit most from volume-driven contracts. With tail spend management handled by the GPO, your team gains capacity to focus on strategic categories.
Working With Una
If you're ready to take action on tail spend but still feeling overwhelmed by the magnitude of it, you don't have to tackle it alone. Una's process is designed to be simple, fast, and low-friction. Here's exactly what to expect.
STEP 1
Discovery Call
After expressing initial interest, the first step is a discovery call with an expert Sourcing Advisor. This is a two-way interview where both parties determine if there's a good fit. The Sourcing Advisor asks about your goals, what problems need solving, and what success looks like for you. The call sets the timeline and identifies potential categories and savings opportunities to explore. No obligation to proceed.
STEP 2
Cost Analysis
Una's Sourcing Advisors conduct a category-by-category cost analysis using the spend data you provide, benchmarking your current pricing, and assessing contract value. Una sends your spend information directly to the supplier base to compare cost and identify savings. If Una's contracts would yield additional savings, connection can happen within days or weeks. On average, Una members save up to 22% on items they're already purchasing.
STEP 3
Finding and Connecting With Suppliers
Una's pre-negotiated contracts are already in place — the vetting and negotiation is done. Based on your discovery call and cost analysis, Sourcing Advisors walk you through the supplier catalog and recommend those best suited to your needs. Una facilitates each supplier introduction, assists with contract questions, and handles all correspondence. All you do is pick your preferred suppliers and start saving.
MORE THAN A GPO
A True Sourcing Accelerator For Your Tail Spend & Everything Beyond
When you decide to work with Una, you're choosing a partner in procurement. Your Sourcing Advisor becomes an extension of your team and is available for tasks, guidance, and questions that help you accomplish your goals. Throughout the entire process, you remain in control, guiding each conversation based on your desired outcomes.
22%
Free
24 Hour
Una membership and the benefits that come with it are always free. There are never any purchasing requirements and you're never locked into contracts. The immediate cost savings from pre-negotiated contracts are a given but working with Una also means improved visibility, consolidated spend, and streamlined purchasing across every category over time.
Ready to Tame Your Tail Spend?
Contact the Una team to see how the power of group purchasing can help tame your tail spend once and for all.