Today’s guest post, which is part two of a two-part series, is from Gonzague de Thieulloy, a Managing Director at Xchanging Procurement who manages tail-end spend management programs at Xchanging’s largest European customers.
In yesterday’s post, we defined tail-end spend, which is the 20% or so of spend with the organization’s non-strategic suppliers that, due to its complexity, is typically left unmanaged and which, unaddressed, presents the company with significant risks of the financial and brand variety. In today’s post, we discuss the solution for tail-end spend management which will address the complexity, reduce the risk, and present the organization with an additional savings opportunity.
The Tail-End Spend Solution
Because of the high degree of complexity and risk involved with tail-end spend, companies are increasingly looking at support from specialist external providers to manage their 20%. It’s more efficient to subcontract the management of this tail-end spend rather than to manage it internally and, due to economies of scale, it makes more financial sense.
Key Success Factors when Managing Tail-End Spend
There are several success factors to consider when managing your tail-end spend. Here are three primary ones to consider:
- C-suite buy-in — Senior buy in and support is imperative to the successful implementation of a tail spend management program;
- Visibility and collaboration — The team responsible for implementing the change management process needs to ensure the new strategy is communicated clearly to the rest of the business, as well as ensuring the team is visible and on-site at least 50% of the time to help with any queries. In order to increase the success and adoption of the new processes put in place, they need to advocate it;
- Utilizing procurement expertise and technology solutions as an integrated and managed service — The level of procurement support given to customers throughout the change management process is critical to ensure procurement and processes are fully connected.
Reaping the Benefits
When rolled out properly, a tail-end spend management solution can generate 15-17% savings, which can make a huge addition to the 5-10% savings typically generated from managing traditional spend. But the benefits go much further than just cost savings. Tail-end spend solutions typically:
- Improve supplier management – A large supply base can be paired down to a few approved suppliers, with improved terms and associated cost savings, as well as reduced risk of working with unknown companies;
- Increase spend visibility – Expanding the range of spend under management helps to create transparency around where the money is spent and what it is spent on, and results in new spend rules that strengthen the overall business;
- Enhance spend efficiencies – Although categories of tail-end spend are often low value/high frequency transactions, they also always include high value transactions; managing this spend creates opportunities for companies to effectively allocate and control budget spend from previously unmanaged areas;
- Streamline procurement processes – The key value-add of a tail-end spend management solution is it streamlines the entire tactical buying process associated with low-value spend.
It took more than ten years for leading companies to get the majority of their strategic 80% spend fully under control. We’re just in the early days with tail-end spend management, but by understanding the unique challenges of this 20%, it will take far less than ten years to have 100% of external spend under management.
More information on Tail-End Spend Management can be found on Xchanging’s Tail-End Spend Management page.