Download Sourcing Innovation’s new white paper on An Introduction to Tail Spend — and why you need a technology-based solution (registration required) today (sponsored by Claritum) and find out how tail spend could be keeping an additional 3% of revenue from hitting the bottom line (and, depending on your industry, and its margins, reducing your profit potential by up to 50%).
The first thing that the paper does is define just what tail-spend is. It’s more than just the “tactical” (or “nuisance”) spend in the lower-left quadrant of the famous 2*2 Krajlic matrix, which describes the traditional strategy of “purchasing management” to manage non-critical abundant supply that can be sourced locally in a de-centralized manner for maximum efficiency. And it’s less than any transaction less than $200,000 which is how Accenture describes tail spend.
Tail spend is essentially that spend that shouldn’t be put through a rigorous sourcing project, because the ROI that would be obtained is not enough to warrant the effort. If the ROI is not at least 3x, the spend just needs to be appropriately managed. Maybe that’s a low bid auction. Maybe it’s the cheapest product or service in a vetted catalog. Maybe it’s the preferred item from a catalog (or even strategic) supplier to increase total spend and negotiate additional volume based discounts.
It’s not leaving it up to whomever to do whatever whenever with whomever they like. When tail spend is not managed, the following can happen:
- rebates and discounts can be lost
when contracted volumes are not met - process costs can increase
as tail spend invoices, often submitted through fax and e-mail, continue to increaseas tail spend will inevitably expand over time (and it will increase with no accompanying or referenced purchase order) - liability risk increases
when service vendors without appropriate insurance are contracted - reputational risk increases
when junior buyers buy from a supplier with a poor CSR record - supply risk increase
when junior buyers buy from unstable suppliers - non-compliance risk increases
when mandated MWVDBE vendors or fair-trade vendors are bypassed - (personnel) fraud risk increases
as buyers can put charges on p-Cards with little or no documentation (and submit the same receipt 3 times over 6 months)
In other words, tail spend needs to be managed, but it can’t be managed until you understand what it is and how it should be dealt with. This is where Sourcing Innovation’s new paper on An Introduction to Tail Spend — and why you need a technology-based solution (registration required) today (sponsored by Claritum) comes in. It will help you understand what tail spend is, why it is important, how you can manage it, and the value that can be extracted from good tail spend management.