What is tail spend and how to manage in 5 steps

What is tail spend analysis and how to manage it in 5 steps

What is long tail spend

Any spend that is not strategically managed or under management is known as long tail spend.

This includes any spend without a contract framework agreement or negotiated purchase order. Managed spend tends to be around 20 per cent of all expenditures, leaving long tail spend at 80 per cent. long tail spend also includes a small, but significant amount of spend with managed suppliers, which is known as “hidden tail”. This spend includes purchases made from managed suppliers, but these purchases are outside existing contracts.

1. How to make your spending more visible

It’s often difficult to manage long tail spend due to poor data visibility. This can be caused by complex supply chains, different IT systems and data sources, as well as fragmented and disconnected processes such as sourcing, contract management and procurement.

This results in a higher percentage of noncompliant purchases, often with low-value transactions and small-volume suppliers.

You need to pull all your spend data into a central tool like i2B with a thorough spend analysis tool. A tool that can consolidate all your purchasing data into one place.

2. Identify your tail spend

Tail spend is different for every organization.

Some measure by spend threshold, and some using the 80/20 pareto principle.

Identify and define what tail spend means for each business unit / site within your organization. Procurement will then be able to take the appropriate steps to effectively measure it, and then manage it.

3. Streamline internal processes

In order to save money and gather relevant data, it is very important to have agreed processes and ensure they are enforced.

Streamlining your processes mean better payment terms with preferred suppliers across departments and can lead to more strategic procurement within your organisation.

4. Put your procurement data to work

Once you’ve streamlined your internal processes, organising, classifying, and analysing spend data within i2B will lead to greater spend awareness, informed purchases, and procurement / business decisions.

A study conducted by The Hackett Group estimated that 7%+ savings on average can be achieved by better managing tail spend, which often comes along with a reduction in time spent per purchase and a reduction in transactions / ad-hoc spend.

5. Don’t run before you can walk 

Develop a solid plan that starts slow. Begin by identifying one business unit that has a tail spend issue and roll out the i2B spend management program there.

Ensure key stakeholders are bought in and aligned, and technologies, such as automated ERP / sourcing platforms, contract management platforms are connected to the i2B system. Stress the importance and successs of the program to stakeholders and end-users.

Then, increase the scope within that business unit. Start introducing more automation to ensure you have structured data and a positive feedback loop. You can begin further leveraging the data and get stakeholder buy-in for a larger rollout. Once you have proven your business case, roll out to all business units, and fully automate tail spend management globally to give your procurement team time back in their day to focus on more strategic initiatives.

To find out how i2B can help you please complete the form below and a member of the team will get in touch.

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