Follow these five steps to make tail spend a true value-driver:
Grab Spend By The Tail
Tail spend is a part of your spend portfolio that probably hasn’t been competitively bid but constitutes a large portion of your spend, and there is likely a wealth of hidden savings opportunities there. There’s typically good reason that tail spend hasn’t been a focus of our sourcing waves. Individual procurement events may not meet your threshold for strategic sourcing (usually $100k-$500k depending on the size of the organization). Procurement may have limited involvement, and purchasing decisions are decentralized. Or maybe it’s just not practical to aggregate spend into catalog-compatible buckets for purchasing automation.
Additional read: 5 Things Spend Data Can and Can't Solve in Strategic Sourcing
Savvy procurement professionals know that there is substantial hidden value in tail spend because savings rates are significantly higher for tail spend categories. Risks to your supply chain do not come from just your strategic suppliers. You need to have line of sight into supplier activities, commitments and expectations across the entire supply chain. Any category that has not been sourced in some time is an opportunity to identify savings. Even based on the 80/20 rule, 20% is a lot of spend.
Knowing there is value somewhere and actually capturing it are two very different things. The good news is that recent developments in technology and process automation have now made tail spend much easier to manage. Using a Source-to-Contract platform like Scanmarket provides the perfect balance between local control and broader oversight that you need to make tail spend savings happen.
Follow these five steps to make tail spend a true driver of value for your organization:
- Use all your available tools, not just sourcing. Tail spend management covers multiple processes and systems. Linking these processes through automation has made tail spend more manageable. You must first be able to see tail spend before you can manage it, so without a robust spend visibility program, your efforts to target and track spend will be scattershot at best. You also need an efficient contract management workflow to track commitments, expirations and identify opportunities early. Lastly, structured supplier management simplifies the identification and qualification of participating suppliers.
- Remember the business needs of your stakeholders. There’s a good reason that stakeholders frequently avoid procurement teams when dealing with tail spend. They believe that procurement is just going to slow them down with bureaucracy and delays. If you can demonstrate that you’re there to help rather than hinder, you’re much more likely to get them on board. Show stakeholders how using RFP templates can make their supply selection efforts faster and easier rather than an just another extra step. Depending on the scope of your tail spend efforts, you will also want to consider establishing an on-call sourcing desk to assist stakeholders in executing their tactical sourcing efforts. At the very least, give each business unit a single contact point within procurement so they know where to go with questions.
- Make it easy for users. Setting up workflows, templates and support desks is a start, but you’ll also want to help stakeholders quickly identify savings and value opportunities to understand where they should be prioritized. Provide a simple framework for users, and make sure your technology platform is easy enough to use without training. A complicated platform that is difficult to use is the quickest way to low user adoption.
- Focus on benefits beyond just sourcing savings. It’s well documented that there are significant savings available within your tail spend. However, the benefits go beyond savings and include risk management, supplier rationalization and contract compliance. Establishing and maintaining a structured set of metrics and score-carding around all the different benefits will ensure your efforts are documented, confirmed, and supported by executive sponsors.
- Enable others, support them, and share the credit. Unless your CFO is willing to give you unlimited resources, you will not have the bandwidth to work tail spend yourself. Instead, you’ll need to give others in the business the tools and intelligence they need. This will involve training, communication, support (like the sourcing desk noted above) and especially some internal sales efforts. For example, set up sourcing templates specific to the business units in your program so that stakeholders can use them with ease.
Tail spend opportunities are everywhere. In fact, tail spend represents a significant portion Scanmarket’s 10 most-auctioned categories. Just as important as providing the tools and support, make sure that credit for any results stays with the business. This could take the form of savings going back to their specific P&L or softer credit such as awards and recognition.