Many procurement organizations overlook tail spend due to its decentralized nature, but it represents a significant portion of their total spend. Tail spend refers to the 20% of purchases that fall outside the top 80% of suppliers and account for a smaller portion of the total spend. While individually these purchases may be small, the collective impact can add up to a significant amount, making it an important area to manage for procurement professionals.
Tail spend management
This is the process of consolidating, streamlining, and optimizing the purchasing of these smaller items to reduce costs, improve efficiency, and increase visibility. By leveraging technology and implementing standardized processes, organizations can identify, consolidate, and negotiate with suppliers, resulting in significant cost savings and improved procurement outcomes.
One common misconception is that tail spend management is only relevant to indirect spend categories, but this is not the case. To manage tail spend effectively, it’s important to address both direct and indirect procurement. Managing tail spend can bring benefits to both areas, not just indirect procurement.
Another pitfall of not managing tail spend is the potential for maverick spending, where employees purchase goods and services outside of established procurement processes. This can lead to increased costs, reduced visibility, and a lack of control over the purchasing process.
To effectively manage tail spend, it’s important to have clear visibility into spending across the organization and to establish a comprehensive tail spend management strategy that leverages technology, standardizes processes, and centralizes purchasing. By doing so, organizations can reduce costs, improve efficiency, and gain greater control over their procurement processes.
In conclusion, tail spend and tail spend management are important components of any procurement organization’s strategy. By focusing on this area of spend and implementing effective tail spend management practices, organizations can realize significant cost savings, improve efficiency, and gain greater control over their procurement processes.
Many procurement strategies overlook tail spend management, but it is a critical component. At CollectiveSpend, we offer a solution to help organizations better manage their tail spend through our Tail Spend Marketplace. Our platform streamlines the tail spend process, providing organizations with increased visibility and control over their indirect procurement spend. Visit our Tail Spend Management page or download our brochure to learn more about our solution and how it can benefit your organization.