Getting control of your tail spend

With savings of between 10% and 15% achievable, tail spend management offers a way to unlock previously untapped potential.

Tail spend comprises 80-90% of all purchased items—primarily low-volume and often one-off or infrequent orders that go out to a wide range of suppliers. Despite the vast number of items included in tail spend, it accounts for just the bottom 10-20% of a company’s total spend.

Long tail spend graph

The conventional wisdom is that a procurement function should focus its time and attention on the top 20% of suppliers. This often leaves the ‘tail’ – typically smaller ‘indirect spend’ suppliers – as a problem that never gets addressed.

Procura have developed a bespoke Tail Spend Management service which augments existing procurement resources, allowing your current team to focus on the top 20% of suppliers, whilst Procura restructure the tail. Our “hands-on” approach is a one-pass through the entire tail, putting spend in the right place, putting in the right suppliers and configuring tail spend processes to ensure sustainability.

Our experience shows that significant benefits can be achieved through a structured programme of Tail Spend Management:

  • Savings of between 10% and 15%
  • Supplier consolidation – manage less suppliers and funnel more spend to preferred suppliers
  • Spend consolidation – less invoices, less processing, less queries
  • Catalogues and easy ways to order – higher requisitioner satisfaction
  • Improved end-user service – reducing the true amount of ‘ad hoc’ purchases
  • Purchase-to-pay efficiencies – defining the optimum P2P process for each type of low-value spend (catalogues, portals, p-cards and consolidated invoicing), linking closely to P2P initiatives

As an example, an organisation with £150m of spend, will have a tail of £30m-£40m. That could be £3m-£4m of profitability going begging.

The benefits are clear, but the issue is that procurement functions do not have the capacity, systems or the expertise to go after the tail.

Our approach takes tail spend through four steps

Step One: Tail spend analytics

The first real use of machine learning in procurement is in the tail.

Even organisations with developed spend analytics leave the tail as “uncategorised”.

Machine learning algorithms don’t stop categorising and our unique spend analytics tool ProIntell accurately categorises all spend, learning from an organisation’s preferred suppliers to provide a data-driven foundation to address the tail.

Step Two: Directing spend to Preferred Suppliers

Through an understanding of your Strategic and Preferred Suppliers, the first objective is to direct spend to the right existing suppliers.

Based on a category-by-category approach and working closely with buyers, the objective is to consolidate spend to preferred suppliers, increasing leverage with them and delivering savings on the re-sourced requirements.

Step Three: Consolidation, New Suppliers and Group Buying Frameworks

The second objective is to put in place the optimum suppliers for the remaining spend. Focus is on prime vendors and/or distributors who have more buying power in order to leverage improved pricing, provide simple catalogue ordering and consolidate and aggregate spend.

Innovation in this area is key.

For example, accessing group buying frameworks is an increasingly effective way of leveraging larger volumes for lower prices. Procura have developed a unique a range of group purchasing frameworks – known as ProSource – that enable organisations to access savings immediately.

Step Four: Purchase-to-Pay optimisation

Finally, we ensure the delivery of process benefits by ensuring that ongoing transactions are managed through the optimum Purchase-to-Pay process.

The objective is to make the requisitioning process as easy and straightforward for end-users, whether that is through integrated systems, catalogues, consolidated invoicing, purchase cards or even Amazon Business.

In summary, let your procurement function worry about the top 20% of suppliers, and leave the tail to Procura.

We build long-term partnerships with our clients that deliver ongoing cost reduction and continuous improvement in procurement that drives value to the bottom line. If you would like to know more about how that works for your business then please get in touch: