Know Why Your Procurement Team Needs Tail Spend Management Software

 

Battling the mounting pressure from procurement challenges, such as supply chain risks or commodity prices, felt like an uphill battle for procurement teams. These are the horrors that they want to avoid, as cost reduction is a paramount duty most of the time. The proc team is responsible for managing an organization's budget; most of their strategies are targeted at the top 20% of the supplier relationships, as this area mostly accounts for around 80% of the organization's spend. 

But most procurement professionals miss focusing on tail spend, which is also known as smaller value purchases. Uncontrolled tail spend can hit back with a surprisingly large amount. While tail spends items may seem insignificant when considered individually, collectively, they can have a significant impact on an organization's bottom line. 

If you're looking for a system that manages tail spend management at all levels, then this article is for you. Let's learn more about tail spend management and the reasons why it should not be overlooked. 

What Is Tail Spend Management? 

Tail spend is often termed as the money an organization spends on purchases that cover almost 80% of the total transactions, which sums up about 20% of the company's expense by volume. Though there's no single definition for tail spend, it can vary from business to business as every organization's spending unit is unique. In the broadest sense, tail spend in one category can be different from another. 

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What exactly is it made up of?

Every procurement team will share a different perspective on what tail is exactly made of. Here are a few steps which give oxygen to tail spend- 

• Spot or One-Off Purchases: These are unplanned or ad-hoc purchases made on an irregular basis, typically for immediate needs or urgent requirements.
• "Rogue" Purchases: refer to purchases made outside established contracts or approved suppliers. They may occur when individuals or departments make independent buying decisions without following proper procurement protocols.
• Purchasing Card Buys and Petty Cash Items: These are small-scale purchases made using purchasing cards or petty cash funds. They usually involve low-value items or services that do not require complex procurement procedures.
• E-catalogue Spend: This category includes purchases made through online catalogues or marketplaces, often with pre-negotiated pricing and limited supplier options.
• Other Low-Value Purchases Bypassing Procurement Processes: This covers any additional low-value purchases that do not adhere to formal procurement guidelines, such as office supplies, maintenance materials, or miscellaneous items.
  
  

Why Should a Spend Tail Not Be Overlooked? 

Here are a few reasons justifying why tail spending should not be underestimated, including the following-

Cost cutting- effective tail spend management can lead to cost savings through standardization of processes, consolidation of suppliers, and volume discounts. You need a highly-advanced and reliable spend management software that can centralize the procurement of low-value items. 

Process Efficiency- Tail spend management helps optimize procurement processes by implementing automation, improving visibility, and reducing manual intervention. Organizations can streamline purchasing, reduce paperwork, and improve overall operational efficiency by leveraging technology solutions.

Date insights- powering the procurement process with spend management software provides valuable pieces of insights so you can make informed decisions and drive continuous improvement. 

In conclusion, tail spend management should not be missed because it offers significant cost savings, process efficiency, risk mitigation, strategic focus, and valuable data insights. You need business spend management solutions to achieve overall procurement excellence and maximize productivity.