28 May 2014 | Olivier Chalon
Procurement teams invest heavily in their core spend areas, but the final 20 per cent of spend, the “tail-end”, remains a largely untapped opportunity for most companies.
A large number of suppliers, smaller spend volumes and a perceived lack of economies of scale mean knowing exactly where to focus attention on the tail is a daunting task. The complexity of this tail spend is usually due to the fact it has been under the radar of the procurement team for a while, who as a consequence have let the local operations team buy whatever they want under a certain value threshold. Despite a handful of challenges, Everest Group suggests the inclusion of tail spend can generate significant savings. Therefore, it’s worth exploring ways to manage the common challenges.
To be effective in managing tail spend, organisations should look to address the following:
1. Spend analytics. Perform in-depth analysis to identify "maverick" spend – non-compliant transactions that should be directed to existing agreements – and other spend across the agreement to encourage compliance.
2. Sourcing helpdesk. A full-time sourcing helpdesk provided by a third party can perform as the one-stop-shop for all sourcing and procurement queries. Depending on pre-agreed spend parameters, each enquiry should be directed to either the customer’s in-house sourcing department or existing supplier agreements.
3. Online supplier marketplace. Having access to an online supplier marketplace helps to perform sourcing initiatives, where appropriate.
4. Tactical buying. For true one-off purchases, quick turnaround benchmarking, tendering and negotiation services that ensure all purchases are touched by procurement.
5. The importance of local supply market knowledge. This is really important as local know-how means increased understanding and efficiency and therefore savings for a business. Outsourcing providers now include a significant portion of local resources within the teams delivering tail-end spend management.
There is growing recognition within procurement that tail-end spend management is of increasing importance. This doesn’t mean that common procurement practice should be put on the back-burner to instead focus on the tail, but it does mean it can yield significant savings and deserves significant consideration. With the best practices outlined here for ways to address the challenges commonly associated with tail-end spend management, it is our hope that you can secure an engagement that eliminates the risks and instead, reaps the rewards of managing tail-end spend.
☛ Olivier Chalon is head of sales, continental Europe at Xchanging.