Tame Tail Spend to Unleash Savings
You juggle plenty of responsibilities, from negotiating contracts and onboarding new suppliers to ensuring cost savings. But there’s an uninvited guest at your table, often lurking in the shadows – tail spend.
Tail spend is the silent budget killer that sneaks into your organization, siphoning off valuable resources that could be invested more strategically. These often-overlooked, small purchases can lead to overspending and missed savings opportunities.
So, what can you do about it?
What Is Tail Spend?
Tail spend in procurement refers to all your organization’s small, lower-value purchases, from everyday office supplies and maintenance services to travel expenses and IT equipment. Since these transactions are often scattered across different departments, tracking and managing them effectively can be challenging. In fact, your team may not even be aware of many of these purchases, essentially creating a blind spot in your otherwise meticulous procurement processes.
But don’t be fooled by the size of these “small” transactions. They may seem insignificant on their own. But when combined, these purchases can quietly drain a sizable chunk of your company’s procurement budget and affect your bottom line more than you might expect.
How Tail Spend Differs from Core Spend
Core spend refers to your organization’s strategic purchases directly contributing to primary operations or products. These are typically high-value items, such as raw materials for manufacturing or major equipment acquisitions. Usually, these transactions require careful planning, negotiation, and supplier management from a few strategic suppliers.
In contrast, tail spend comprises a large number of low-value purchases with a higher frequency, often from a variety of different suppliers. Because these transactions don’t get the same level of scrutiny as core spend, they’re more susceptible to fraud and waste.
Why Tail Spend Is Often Ignored
Tail spend doesn’t share the same spotlight as core spend. Many organizations focus on negotiating major contracts and nurturing relationships with key suppliers who provide vital goods and services. As a result, tail spend tends to fall through the cracks.
This neglect can seriously impact the bottom line. The cumulative effect of unmanaged tail spend can lead to inflated costs, inefficient processes, and missed savings opportunities. Plus, making informed decisions about cost-saving measures or supplier consolidation is complex without visibility into all spend data.
Real-World Tail Spend Examples
Tail spend isn’t limited to a specific industry or type of purchase. Instead, it’s a pervasive challenge that affects organizations across various sectors.
Here are a few real-life scenarios to give you a better idea of tail spend:
Imagine the typical office setting with pens, paper, toner cartridges, and other everyday items. These purchases are typically small and infrequent but can add up over time. For example, a single employee might spend $10 on pens, pencils, and paper each month. This may seem small, but it adds up to $120 annually. Multiply that across your entire organization, and the expense becomes significant.
Think about all the IT accessories you buy—like cables, adapters, and connectors. While they may not cost much individually, tail spend can splinter without a consistent procurement process for such small items. This inconsistency might lead employees to buy identical items from various suppliers at varying prices, raising expenses and diminishing control over spending. Moreover, this dispersed buying complicates inventory tracking and management.
Maintenance demands can be irregular and unforeseen. Picture a facility with diverse systems like HVAC, plumbing, and electrical. Over time, these systems periodically need repairs or upkeep, often from different providers. Managing this assortment of service providers and irregular service requests can take time and effort in terms of cost and complexity.
Next, let’s look at strategies to manage and tame this tail spend beast effectively.
3 Tail Spend Management Strategies
Managing tail spend can be challenging, but it’s worth the effort. By implementing these strategies, you can gain control of spend, save money, and improve procurement efficiency.
Strategy 1: Consolidate & Aggregate Your Spend
Imagine tail spend purchases scattered everywhere, like a wild shopping spree. What if you could channel them into a single, organized location? This is the power of centralization.
The Procurement Hub
Envision a central hub for procurement—a command center where every penny spent, regardless of its magnitude, is meticulously tracked. This centralized approach allows you to manage your spending in one place. The result? A slicker, more efficient process with a bird’s-eye view of your organization’s entire spend.
Unity Is Strength
By bundling similar products or services and consolidating suppliers, you don’t just declutter—you unlock potential volume discounts and boost your negotiating edge. It’s like turning multiple small advantages into one big win.
Strategy 2: Embrace Technology & Automation
In our modern, tech-driven era, leveraging technology is essential, especially in procurement, where precision matters; having the right technology and automated tools is a game changer.
Shift from Manual to Automatic
Why manually juggle countless procurement processes when you can let technology do the heavy lifting? Adopting a digital procurement system or procure-to-pay (P2P) solution ensures each transaction fits within your company’s procurement guidelines, regardless of size. Let technology shoulder the burden to ensure accuracy and compliance every step of the way.
Decipher Spend with Analytics
Venturing into tail spend without analytics is like hiking in the wilderness without a map. Spend analytics tools offer a detailed, clear view of every tail expense. These tools not only shine a light on your spending patterns but also reveal opportunities for savings.
Forge Better Connections with Supplier Portals
Managing many small suppliers can feel like herding cats—unless you have a supplier portal. A centralized supplier portal streamlines sourcing and enhances communication between you and your suppliers. Track orders quickly, evaluate supplier performance, and foster stronger, more transparent relationships—all from a single dashboard.
Strategy 3: Strengthen Governance & Compliance
Tail spend might seem small, but its cumulative impact can’t be overlooked. By reinforcing governance and compliance, you ensure smoother operations and set up your organization to maximize every procurement opportunity.
Create Your Blueprint
Clarity is king in procurement. Lay down crystal-clear rules for tail spend. A well-defined roadmap makes each procurement action smoother, whether sticking to trusted supplier lists, leaning on pre-set contracts for regular buys, or knowing when to get multiple bids.
Keep a Watchful Eye
Stay one step ahead with regular checks on your tail spend. These check-ins catch any unplanned spend and keep suppliers honest about their prices. Vigilance is key to steering clear of pitfalls.
Knowledge Is Power
Equip your team with know-how. Routine training ensures everyone’s on the same page with procurement rules and ready to make sharp decisions. Highlight the big picture of tail spend and the domino effect of even the smallest slip-ups. Sticking to the rules becomes a breeze when the whole team gets it.
Put these strategies to work and you’ll pocket more savings, boost efficiency, and slash risks.
Tackle Tail Spend with Graphite
Navigating the multifaceted world of procurement and tail spend management demands more than just a tool; it requires a comprehensive solution. That’s where Graphite, a leading tail spend management software, shines.
At its core, Graphite is a central hub, offering a unified view of your suppliers and spending. No more sifting through fragmented data or juggling multiple systems to get the needed information. Every crucial detail, from supplier interactions to spending patterns, is securely stored in the Graphite network. This panoramic view not only makes it easier for you to identify potential areas for grouping spend or consolidating suppliers. It also arms you with insights to make informed, strategic decisions quickly.
Say goodbye to tedious manual processes. Efficiency takes center stage with automated procurement workflows. With Graphite, your procurement processes are streamlined and accelerated, freeing your team to focus on more strategic endeavors.
Graphite’s commitment to governance and compliance sets it apart. Third-party data validations ensure your data is always accurate and reliable. Automated alerts and risk reviews instantly flag potential pitfalls. In a world where compliance is king, Graphite Connect guarantees your procurement and tail spend management strategies are always aligned with industry best practices.
Mastering tail spend is an opportunity to create real value for your organization. With the right strategies and tools, you can transform tail spend from a budget drain into a source of savings and efficiency.
Ready to Learn More?
Looking to gain greater visibility and control over your tail spend? Graphite can help!Request a Demo