Tail spend refers to the long tail of suppliers that account for a small percentage of an organization’s total spend but collectively still add up to a significant sum. These suppliers are often one-time or infrequent and spread across various business units and geographies. Without proper management, tail spend leaks value and poses governance risks. Tail spend management aims to cut costs and optimize processes related to this tail-end of suppliers. A reputed Global Sourcing Company in India like Catalyst Sourcing always focuses on effective Tail Spend Management
What is Tail Spend?
Tail Spend refers to the numerous suppliers that contribute a small percentage individually to the total spend of an organization but collectively constitute around 20% to 30% of its total spend. These long-tail suppliers and vendors typically demand a disproportionately higher amount of resources to manage.
How Exactly Do We Identify Procurement Tail-End Spend?
Tail spend can be identified by analyzing spend data across all suppliers and contracts. Any supplier with less than 1% or 2% contribution to the total spend and with low transaction volumes can be considered tail spend.
Why is Tail Spend Management important? The Benefits of Managing Tail Spend
Tail Spend Management is crucial for the following reasons:
Reducing costs and leakage
Improper management of tail spend leads to overspending and leakage of value. Optimizing tail spend with a number of suppliers can significantly bring down costs.
Improving governance
Tail-end suppliers often slip through the radar and fail to comply with procurement process/company policies. Centralized management ensures better governance.
Process optimization
Standardizing contracts, consolidating suppliers and implementing best practices can optimize processes related to tail spend.
What Benefits Can I Expect from Tail-End Spend Management?
Some key benefits include:
- Cost savings of 5% to 15%
- Reduced TCO by consolidating suppliers
- Better visibility and control over total spend
Better Tail Spend Management Efficiently
The key steps involved in effectively managing tail spend are:
- Identifying tail-end suppliers
- Consolidating long-tail suppliers
- Establishing preferred supplier lists
- Standardizing contracts
- Negotiating better pricing from suppliers
- Deploying spend management tools
- Outsourcing tail spends management to an expert team.
What are the best ways to manage Tail Spend?
- Consolidate suppliers from different categories to negotiate better rates
- Benchmark pricing and identify potential savings
- Implement e-procurement solutions/ management strategy
- Outsource non-critical suppliers
- Set spending limits for business units
The Need for Tail Spend Management
Spend coverage and savings
Tail spend management helps achieve comprehensive coverage of total spend and identify pockets of potential savings.
Process improvement and optimisation
It leads to standardization, automation and optimization of processes related to tail-end suppliers.
Effective management of Tail Spend
Centralized management helps gain better control over tail spend and plug losses.
- Steps to drive value chain using the tail spend
- Segmentation of tail spend
- Analysis of current expenditure
- Consolidation of suppliers
- Negotiation for better rates or discounts
- Implementation of controls.
How can Catalyst Sourcing help you manage tail spend?
As an international sourcing consulting company, Catalyst Sourcing helps clients manage their tail spend efficiently through:
- Comprehensive spend analysis
- Supplier rationalization and consolidation
- Negotiation support
- Tail spend management program implementation.
Leave Tail Spend to Procurement Professionals
Catalyst SoOur experience with strategic sourcing also helps us optimize costs across your whole supply chain. This includes tail spend costs. By working closely and creating a custom plan for you, we aim to deliver the best possible results that save you the most money from your tail-end suppliers over time.
